The strong growth of the cryptocurrency market has established a complex trading ecosystem, in which Market Makers (MMs) act as the architects of liquidity and stability. According to analysis from the team of experts at Tan Phat Digital, Market Makers are essentially professional units that continuously buy and sell pairs of digital assets, maintaining the ability to quickly convert assets without causing excessive price fluctuations. In a market that operates 24/7 and often faces liquidity fragmentation, MMs are essential to ensuring transparent price discovery.
Research into the monetization mechanism of Market Makers requires a deep understanding of the market microstructure, where profits come from a sophisticated combination of price spreads, exchange incentives, and service agreements with token issuance projects. Unlike regular investors, MMs focus on capturing value from order flow and the temporary imbalance of supply and demand. Their participation helps bridge the gap between buyers and sellers, minimizing slippage and providing a reliable reference point for the entire market.
Bid-Ask Spread Revenue System
A market maker's most basic source of income comes from the concept of Bid-Ask Spread—the gap between the highest bid and lowest ask prices available on the order book. When active, MM simultaneously offers a lower buying price (bid) and a slightly higher selling price (ask) than the market price. Profit is realized when both orders are executed within a short period of time.
Spread management is a dynamic process. MMs use the Dynamic Spread Adjustment strategy to react to real-world conditions. In low volatility environments, they narrow spreads to increase competitiveness. On the contrary, when the market fluctuates strongly, MM widens spreads to compensate for inventory risk.
Incentive Mechanism and Rebate Fees from Exchanges
Another important source of revenue is the system of rebates from exchanges. In the Maker-Taker model, the exchange charges a higher fee to the person withdrawing liquidity (Taker) and offers lower fees or refunds to the liquidity provider (Maker).
Here are the offer details at some popular platforms today:
Binance Futures: Participants at the highest level can enjoy Taker fees of about 0.02% and receive Maker fees "Negative" (Rebate) is 0.01% for each transaction.
Coinbase Advanced: Taker fees range from 0.00% to 0.60% depending on the transaction volume level, while Maker fees are optimized according to each user stratum.
Polymarket: Apply a repayment mechanism based on the liquidity curve (fee-curve). weighted), with a return of 20% to 25% of total Taker fees collected in eligible markets.
Flipster: Maintains competitive Taker fees at 0.05% and provides Maker fee incentives to VIP level users to optimize execution costs.
The rebate system creates an economic incentive for MM to maintain a continuous presence, even if the profit from the spread is narrowed. For high-frequency trading (HFT) companies, rebate revenue sometimes accounts for a large proportion of total profits. In the Vietnamese market, Tan Phat Digital noted that major exchanges such as Binance, OKX and Bybit have made significant progress in discussing legal frameworks and training cooperation, paving the way for professional MMs to operate more systematically in the near future.
Cooperation Model with Token Projects: Retainer and Loan/Option
To ensure that tokens have a stable trading environment after listing, projects often signed an agreement with Market Maker under two main models:
Retainer Model
In this model, the project acts as a customer. The project provides both tokens and counterpart capital (such as USDC/USDT) to MM.
Payment: The project pays a fixed monthly fee (retainer fee) for MM to maintain liquidity KPIs.
Profit: MM can enjoy an additional portion of profit from trading activities.
Risk: The project bears capital risk but has greater control over strategy.
See more: Liquidity is What?
Loan and Call Option Model
The project lends MM a significant amount of tokens (usually 2-5% of total supply) for 1-2 years.
Compensation: MM receives a call option at the agreed strike price. If MM does well and the price increases, they can buy cheap tokens and sell them for a profit.
Capital risk: MM uses its own capital to provide bid side liquidity.
New commitments 2026: New trends show that large projects begin to require mandatory market making commitments of 6 to 12 months, accompanied by post-listing price stability (TGE) service level agreements (SLAs).
Arbitrage Strategies and Algorithmic Trading
Modern Market Makers actively engage in arbitrage to optimize capital.
High Frequency Trading (HFT) and Technology Infrastructure
Co-location: Machine placement server directly at the exchange's data center to reduce signal latency.
FPGA: Uses a hard-programmable circuit board to calculate transactions at the hardware level, allowing the processing of millions of instructions per second with a latency of less than one microsecond ($\mu s$).
Kernel Bypassing: A software technique that helps data bypass the operating system's network stack, going straight into the application trades to eliminate latency.
Intensive Hedging and Risk Management
MM uses hedging techniques to maintain neutrality:
Delta-Neutral Hedging:Keep the total Delta of the portfolio at zero by opening counter positions in the spot or derivatives market.
Gamma Scalping: Take advantage of price fluctuations to "buy low and sell high" when rebalancing the Delta, helping to accumulate profits from small intraday fluctuations.
Toxic Flow Detection: Use models such as VPIN or AI (e.g. PULSE model) to identify counterparties with better information and widen spreads promptly to avoid exploitation exploitation.
Ethics, Legality and Industry Maturity
The role of MM is essential but can also be easily abused for wash trading practices (self-buying and selling). The FBI's "Operation Token Mirrors" campaign in October 2024 dismantled many nefarious MM networks such as Gotbit and ZM Quant, seizing more than 25 million USD.
Legally, the industry is becoming more professional:
MiCA Regulation (EU): Requires service providers (CASPs) to have a license, with a minimum capital of 50,000 to 150,000 Euro and segregation of customer assets.
SFC Regulations (Hong Kong): Allows exchanges (VATP) to use independent MM but requires implementation according to market principles (arm's length). By early 2026, the SFC expanded the regulatory framework to allow the offering of perpetual contracts to professional investors, accompanied by strict supervision requirements for affiliated MMs.
Evolution in DeFi: AMM and Uniswap v3
In DeFi, automated market makers (AMMs) such as Uniswap v3 allow providers Liquidity (LP) selects a specific price range (Centralized Liquidity). However, this also leads to JIT (Just-in-Time) Liquidity attacks, where MEV bots add massive liquidity right before a large order to capture transaction fees, diluting passive LPs' profits by up to 85%.
Comparative Analysis and Futures
Summary of the differences between the two market making models:
About the mechanism: Market Maker transmission The system on CEX uses Order Book, while LP in DeFi uses Liquidity Pools.
About revenue: MM CEX profits from Spread, Rebates and project fees; DeFi LPs profit from the Pool's transaction fees.
About risks: MM CEX faces toxic inventory and order flow risks; DeFi LPs face Impermanent Loss.
Infrastructure: MM CEX relies on HFT, FPGA and Co-location; LP DeFi relies on Smart Contracts and MEV bots.
Regarding proactiveness: MM CEX has a very high level of order regulation, while LP DeFi has a low to medium level depending on the protocol version.
Case Study Typical Market Maker Crypto
1. FBI and Operation NexFundAI (2024) This is the most shocking takedown in MM crypto history. The FBI created a fake token called NexFundAI to infiltrate the "market manipulation as a service" network. As a result, Gotbit, ZM Quant, and CLS Global were accused of washing trading millions of dollars, leading to the seizure of more than $25 million in crypto assets.
2. Wintermute: Valuable Lessons About Vanity Wallet (2022) Wintermute, a leading MM, was hacked for 160 million USD due to a vulnerability in the "Profanity" wallet address generation tool. The attack only targeted the DeFi segment, while the CEX and OTC segments remained stable, demonstrating the extremely important risk separation in the infrastructure of large MMs.
3. DWF Labs and YGG's liquidity controversy (2023) Binance investigated and discovered that DWF Labs had signs of manipulating YGG token prices through wash trading orders worth more than 300 million USD. Although DWF denied it and called it "adversary FUD", the incident raised questions about the line between legal liquidity creation and price manipulation.
4. The Collapse of Alameda Research (2022) Once the "king" of high-frequency trading, Alameda collapsed along with FTX after it was revealed that it misappropriated $10 billion of customer deposits to cover trading losses. This is a classic example of moral hazard and lack of transparency in MMs that are closely linked to exchanges.
5. JIT Liquidity on Uniswap v3: The War of the MEV BotData shows that "Just-in-Time" liquidity attacks on Uniswap v3 have diluted the fee shares of regular LPs by up to 85%. MEV bots detect large orders in the mempool, inject huge liquidity right before the order is matched, and withdraw immediately afterward to "steal" transaction fees.
6. LUNA/UST Stress Test (2022) During the UST depeg, market makers were unable to prevent the collapse as LUNA supply skyrocketed 20,000 times in just a few days. This case study demonstrates that during extreme "Black Swan" events, MM algorithms can be completely paralyzed if the project structure breaks down.
7. GSR Markets: Regulatory Shift Strategy (2023) GSR, one of the oldest MMs, has proactively narrowed its operations in the US to avoid legal barriers and shifted to being an "ecological partner" for Web3 projects. This shows the trend of professional MMs prioritizing compliance over short-term profits.
8. Jump Crypto: Infrastructure creator for SolanaUnlike MMs that only focus on trading, Jump Crypto (part of Jump Trading) plays a key role in building infrastructure for Solana through projects such as Wormhole and Pyth Network. This is a "deep-tech" MM model, combining liquidity provision and core software development.
9. Cumberland DRW: Bridging TradFi and CryptoA subsidiary of Chicago-based giant DRW, Cumberland brings traditional financial standards to crypto with the ability to process 1,000 orders per second. They focus on providing institutional liquidity, helping large banks like Goldman Sachs safely access the crypto market.
10. Flow Traders: Power from equity Flow Traders represent the "neo-aristocrat" group in the MM village, expanding profits by using the capital on their own balance sheet instead of just relying on tokens borrowed from the project. This strategy allows them to have a key say in shaping the project's listing strategy.
Market Maker Crypto FAQ
1. Is Market Maker (MM) the one controlling the market price? In fact, MM cannot control the price in the long term because the crypto market is extremely competitive. However, they can influence prices in the short term through placing large orders to maintain stability and avoid price shocks due to lack of liquidity.
2. Why do cryptocurrency projects need to hire a Market Maker? Without MM, the project's token will experience high price slippage, wide spreads and low trading volume, making investors worried and easily leading to delisting from major exchanges.
3. How is Market Maker different from Liquidity Provider (LP) in DeFi? MM are usually professional organizations that use proactive algorithms to place orders on the order book. Meanwhile, LP is anyone who passively provides capital to liquidity pools to receive transaction fees.
4. Is wash trading part of a Market Maker's job? A professional and legal MM absolutely does not carry out wash trading (self-buying and selling to create virtual volume). These acts are considered market manipulation and are being strictly pursued by law agencies such as the FBI.
5. How does Market Maker make money if asset prices go down? MM makes profits based on the difference between buying and selling prices (spread) and service fees, regardless of the direction of the price. They use techniques like Delta-neutral to ensure asset values are not affected by market fluctuations.
6. What is "Toxic Flow" and how does MM deal with it? This is order flow from traders with inside information or super-fast technology to exploit MM's old quotes. To cope, MM uses AI to identify and widen spreads or temporarily stop trading.
7. How important is HFT technology to Market Maker? Extremely important. Speed is vital for MM to update quotes in real time and execute arbitrage trades before the opportunity disappears in milliseconds.
8. What is the biggest risk a Market Maker faces?Inventory Risk is the biggest—that is when MMs hold so much of a token that its price suddenly collapses before they can sell it or hedge with derivative contracts.
9. Why do exchanges pay (Rebate) to Market Maker? Exchanges need MM to thicken their order books and attract users. By refunding a portion of the fees (rebate), the exchange encourages MMs to maintain continuous limit orders, helping the market operate more efficiently.
10. Can individual investors become Market Makers? Absolutely possible through AMM models like Uniswap v3. However, to compete at a professional level on CEX exchanges, you need huge capital and extremely sophisticated technology infrastructure.
According to Tan Phat Digital, the future of Market Maker Crypto will focus on the rise of On-chain order books, strong support of AI in detecting toxic flow and the ability to merge cross-chain liquidity. Transparent and legally compliant MMs will be a strong pillar for the development of the digital economy in the next decade.
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