Leaving behind the chaotic early days, crypto market makers are celebrating their coming of age

By: WEEX|2026/01/06 18:00:00

Source: TechFlow (Shenchao)

In the cryptocurrency sphere, market makers seem perpetually at the top of the food chain. They are seen as "systemic winners," alongside exchanges, imagined as "pumps" that reap profits from every market fluctuation without bearing directional risk.

However, a closer look into the industry reveals a harsher reality: some are wiped out overnight in extreme market conditions, others are forced to exit the market due to a single risk management lapse, and many more are forced to restructure their entire business model amidst halved profits, ineffective price wars, and a scarcity of quality assets.

The life of a crypto market maker is far from glamorous.

Over the past two years, the industry has undergone a quiet yet brutal purge. With the decline of exorbitant profits and tightening regulations, compliance capabilities, risk control systems, and technological expertise have replaced the former boldness and gray-area operations as the new survival threshold. This is no longer a game of "whoever is boldest makes money," but rather a long-term, professional, and low-tolerance survival competition.

In in-depth interviews with several leading market makers, a highly consistent assessment emerged: today's crypto market makers are no longer simply "liquidity providers," but are evolving into a hybrid model of "secondary market investor + risk manager + infrastructure."

As the tide recedes, competition returns to rationality, and risks are fully exposed, who is leaving the game? Who will remain?

From "Wild Arbitrage" to "Highly Institutionalized"

If we turn back the clock to 2017, modern "crypto market makers" were practically nonexistent.

Market making at that time was more like a frenzy of gray arbitrage. Borrowing, dumping, replenishing, returning... dumping tokens when liquidity was plentiful, and slowly accumulating tokens in the long tail. The boundaries between exchanges, project teams, and market makers were extremely blurred; price manipulation and fraudulent transactions, considered serious crimes in traditional finance, were commonplace at the time.

But time is relentlessly eliminating this model.

The consensus among many interviewees is that market makers in 2017 relied on boldness and information asymmetry; today, they rely on systems, risk control, and compliance.

The core of this change is not simply an "upgrade in gameplay," but a fundamental shift in the industry's underlying structure. In the past, whether market makers "followed the rules" might have been a moral choice; now, it's a matter of life and death.

Joesph, an investment partner at Klein Labs, revealed that all of their current operations must revolve around "auditability." Contractual compliance, financial audits, transaction details, and delivery reports have gone from "optional" to "default configuration." As a result, compliance costs now account for 30% to 50% of total operating expenses.

With the accelerated compliance process of exchanges, increased transparency in project financing paths, and the mainstreaming of regulatory narratives, the survival logic of market makers is being forced to restructure. The old, unregulated model of "black box operations + results-oriented" practices is being systematically eliminated.

A clear signal is that more and more market makers are incorporating "Regulation First" into their brand narrative, no longer avoiding the topic.

The shift in roles is equally profound. In the early days of the industry, market makers were merely the execution layer; project teams provided funds and tokens, and market makers were responsible for placing orders. Now, market makers are more like secondary partners.

"Whether we take on a project has become akin to an investment decision. The project's fundamentals, circulation structure, exchange allocation, and volatility range are all quantitatively assessed in advance," says Joesph. "Projects whose market capitalization doesn't even crack the top 1000 might not even qualify for discussion."

The reason is simple. A single poor-quality project can devour a market maker's entire year's risk budget. In this sense, market making is no longer a simple "service fee business," but a long-term game surrounding risk exposure.

Of course, arbitrage has not completely disappeared, but it has been marginalized.

In the industry's darker corners, high-risk, high-ambiguity operations still exist, but their scaling is increasingly difficult, and their survival space is extremely compressed. When exchanges, project teams, and market sentiment unanimously favor "steady liquidity," those who break the rules become a systemic risk.

In the current crypto market-making landscape, "following the rules" has, for the first time, transformed from a moral constraint into a core competitive advantage.

Excessive profits are disappearing.

Compared to the last bull market, project teams have significantly reduced their budgets for market makers. "Data shows that some projects have even reduced their token budgets by 50% this year compared to the previous round," noted Vicent, CIO of Kronos Labs.

But this is not merely a matter of "budget cuts"; the deeper driving force comes from the evolution of the mindset of the clients (project teams).

Project teams have significantly improved their understanding of market-making. They are beginning to understand the profit margins of market makers and are no longer satisfied with vague liquidity promises. Instead, they demand quantifiable KPIs, clear delivery logic, and in-depth explanations of the efficiency of each fund's use.

In short, less capital, higher demands.

Faced with this pressure, leading market makers have not blindly engaged in price wars. Vicent emphasizes that market making is an industry heavily reliant on systems, risk control, and experience. Once a price quote falls below the cost of risk coverage, market makers face not just declining profits, but a survival crisis. Therefore, when the risk-reward ratio is unbalanced, they prefer to abandon the business.

This means the market hasn't been completely overwhelmed by "low-price players," but rather a group of survivors who adhere to ethical standards has emerged.

Currently, another phenomenon is the scarcity of high-quality clients and the unprofitability of long-tail projects.

Reele of ATH-Labs stated, "The number of projects with genuine market-making value is far less than the number of market makers in the market." Many long-tail projects, due to insufficient depth or arbitrage opportunities, struggle to generate sustainable returns even if they meet market-making targets.

This leads to a classic "too many cooks spoil the broth" situation: top market makers are concentrated in high-quality projects, while smaller teams are forced into fierce competition on low-profit, high-risk, marginal projects.

In this context, market making is degenerating from a simple "profit center" into a "relationship entry point." Many market makers view market making as a stepping stone to long-term partnerships, using it as a starting point to enter project treasury management, OTC trading, structured products, and even become secondary market advisors or asset managers.

In other words, the real profits are increasingly not in the "market making fee," but in the subsequent structure. This explains why many still-active market makers are simultaneously expanding into investment, asset management, and advisory services; they are not transforming, but rather seeking "survival space" for a shrinking core business.

Industry Reshaping: The Splitting of the Table

In the previous cycle, competition among market makers mainly occurred at the same table: the same exchanges, the same product forms, and the same liquidity metrics.

This year, however, this table is being split.

The emergence of new tracks such as on-chain market making, derivatives, and stock tokenization is systematically changing the competitive landscape of market makers.

On a narrative level, on-chain market making is often labeled as "open and decentralized," but in practice, the barriers to entry are rising rather than falling. The uncertainty of real liquidity, the limitations of the execution environment, and the inherent risks of smart contracts make it a completely different capability curve, rather than a game-changer.

Compared to on-chain market making, derivatives market making exhibits the opposite characteristics. Its entry barrier is high, but once established, its competitive advantage is extremely deep.

In derivatives market making, the contract market demands extremely stringent risk control and position management, naturally favoring institutional market makers with larger capital, more experience in risk control, and more mature systems. New players are not without opportunities in this field, but the margin for error is extremely low.

As for stock tokenization, although it is considered a key narrative connecting traditional finance, it is still in its early stages in terms of market making. Its core difficulty lies in the complexity of hedging and settlement structures, leading most market makers to maintain a "research first, cautious participation" attitude.

In other words, this is a field with extremely high potential, but one where a stable market-making model has not yet been formed.

In Reele's view, these new market-making fields are not only reshaping the industry structure but also a source of pressure for their innovation. Although customer numbers have decreased, it's still crucial to adapt to the ever-evolving new market dynamics and provide projects with better market-making strategies.

"The market-making industry is transitioning from a 'unified market' to a structured ecosystem of 'multi-track parallel development.' Competition among market makers is shifting from 'homogeneous involution' to cross-track capability differentiation," Reele stated.

The Moat of Crypto Market Makers

As the era of exorbitant profits recedes, roles shift, and the market segment diversifies, a reality becomes clear: competition among market makers is no longer about who is more aggressive, but about who is less prone to making mistakes.

At this stage, what truly differentiates them is not a single advantage, but a comprehensive set of systemic capabilities that are difficult to replicate.

These systemic capabilities include a stable trading system, a rigorous risk control system, strong research capabilities, compliance, and auditability—all of which collectively build the trust system for crypto market makers.

Joesph reveals that the credit and compliance costs incurred in building this trust system are currently the biggest expenses. While the crypto market maker industry is already highly competitive, newcomers may not necessarily be more experienced than established market makers in building consensus, reputation, and managing risk.

The crypto market shake-up of October 11, 2025, serves as a case in point. Vicent stated that this incident reflects the fact that the transmission speed of leverage and liquidation is now far faster than traditional risk control response mechanisms; the industry is undergoing rapid differentiation, with teams lacking sufficient infrastructure and risk control capabilities being eliminated, and the market evolving towards a more concentrated and institutionalized direction.

“Market making is now a systematic project. Those teams that truly survive in the long run are not those that avoid a single risk, but those that assume from the beginning that a cleansing will inevitably occur and prepare for it,” Vicent said.

In summary, the true moat for market makers lies in their “lack of reliance on fatal mistakes” at multiple key junctures. This leads to a seemingly counterintuitive result: the most successful market makers are those that are most restrained, institutionalized, and systematic.

As the market enters a new phase of full competition and institutionalized risk management, crypto market makers are no longer “marginal arbitrageurs,” but rather an indispensable yet highly constrained foundational role in the crypto financial system.

Its survival logic is becoming increasingly similar to traditional finance, operating with the precision of Wall Street's high-frequency trading giants, yet it operates in a "dark forest"—a market that never closes 24/7 and has volatility ten times that of Nasdaq.

This is not merely a return to traditional finance, but a species evolution under extreme conditions.

Foreword: Today, the People's Bank of China's website published the "Notice of the People's Bank of China, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration for Market Regulation, China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission, State Administration of Foreign Exchange on Further Preventing and Dealing with Risks Related to Virtual Currency and Others (Yinfa [2026] No. 42)", the latest regulatory requirements from the eight departments including the central bank, which are basically consistent with the regulatory requirements of recent years. The main focus of the regulation is on speculative activities such as virtual currency trading, exchanges, ICOs, overseas platform services, and this time, regulatory oversight of RWA has been added, explicitly prohibiting RWA tokenization, stablecoins (especially those pegged to the RMB). The following is the full text:

To the people's governments of all provinces, autonomous regions, and municipalities directly under the Central Government, the Xinjiang Production and Construction Corps:

Recently, there have been speculative activities related to virtual currency and Real-World Assets (RWA) tokenization, disrupting the economic and financial order and jeopardizing the property security of the people. In order to further prevent and address the risks related to virtual currency and Real-World Assets tokenization, effectively safeguard national security and social stability, in accordance with the "Law of the People's Republic of China on the People's Bank of China," "Law of the People's Republic of China on Commercial Banks," "Securities Law of the People's Republic of China," "Law of the People's Republic of China on Securities Investment Funds," "Law of the People's Republic of China on Futures and Derivatives," "Cybersecurity Law of the People's Republic of China," "Regulations of the People's Republic of China on the Administration of Renminbi," "Regulations on Prevention and Disposal of Illegal Fundraising," "Regulations of the People's Republic of China on Foreign Exchange Administration," "Telecommunications Regulations of the People's Republic of China," and other provisions, after reaching consensus with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, and with the approval of the State Council, the relevant matters are notified as follows:

I. Clarify the essential attributes of virtual currency, Real-World Assets tokenization, and related business activities

(I) Virtual currency does not possess the legal status equivalent to fiat currency. Virtual currencies such as Bitcoin, Ether, Tether, etc., have the main characteristics of being issued by non-monetary authorities, using encryption technology and distributed ledger or similar technology, existing in digital form, etc. They do not have legal tender status, should not and cannot be circulated and used as currency in the market.

The business activities related to virtual currency are classified as illegal financial activities. The exchange of fiat currency and virtual currency within the territory, exchange of virtual currencies, acting as a central counterparty in buying and selling virtual currencies, providing information intermediary and pricing services for virtual currency transactions, token issuance financing, and trading of virtual currency-related financial products, etc., fall under illegal financial activities, such as suspected illegal issuance of token vouchers, unauthorized public issuance of securities, illegal operation of securities and futures business, illegal fundraising, etc., are strictly prohibited across the board and resolutely banned in accordance with the law. Overseas entities and individuals are not allowed to provide virtual currency-related services to domestic entities in any form.

A stablecoin pegged to a fiat currency indirectly fulfills some functions of the fiat currency in circulation. Without the consent of relevant authorities in accordance with the law and regulations, any domestic or foreign entity or individual is not allowed to issue a RMB-pegged stablecoin overseas.

（II）Tokenization of Real-World Assets refers to the use of encryption technology and distributed ledger or similar technologies to transform ownership rights, income rights, etc., of assets into tokens (tokens) or other interests or bond certificates with token (token) characteristics, and carry out issuance and trading activities.

Engaging in the tokenization of real-world assets domestically, as well as providing related intermediary, information technology services, etc., which are suspected of illegal issuance of token vouchers, unauthorized public offering of securities, illegal operation of securities and futures business, illegal fundraising, and other illegal financial activities, shall be prohibited; except for relevant business activities carried out with the approval of the competent authorities in accordance with the law and regulations and relying on specific financial infrastructures. Overseas entities and individuals are not allowed to illegally provide services related to the tokenization of real-world assets to domestic entities in any form.

II. Sound Work Mechanism

(III) Inter-agency Coordination. The People's Bank of China, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of virtual currency-related illegal financial activities.

The China Securities Regulatory Commission, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of illegal financial activities related to the tokenization of real-world assets.

(IV) Strengthening Local Implementation. The people's governments at the provincial level are overall responsible for the prevention and disposal of risks related to virtual currencies and the tokenization of real-world assets in their respective administrative regions. The specific leading department is the local financial regulatory department, with participation from branches and dispatched institutions of the State Council's financial regulatory department, telecommunications regulators, public security, market supervision, and other departments, in coordination with cyberspace departments, courts, and procuratorates, to improve the normalization of the work mechanism, effectively connect with the relevant work mechanisms of central departments, form a cooperative and coordinated working pattern between central and local governments, effectively prevent and properly handle risks related to virtual currencies and the tokenization of real-world assets, and maintain economic and financial order and social stability.

III. Strengthened Risk Monitoring, Prevention, and Disposal

(5) Enhanced Risk Monitoring. The People's Bank of China, China Securities Regulatory Commission, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration of Foreign Exchange, Cyberspace Administration of China, and other departments continue to improve monitoring techniques and system support, enhance cross-departmental data analysis and sharing, establish sound information sharing and cross-validation mechanisms, promptly grasp the risk situation of activities related to virtual currency and real-world asset tokenization. Local governments at all levels give full play to the role of local monitoring and early warning mechanisms. Local financial regulatory authorities, together with branches and agencies of the State Council's financial regulatory authorities, as well as departments of cyberspace and public security, ensure effective connection between online monitoring, offline investigation, and fund tracking, efficiently and accurately identify activities related to virtual currency and real-world asset tokenization, promptly share risk information, improve early warning information dissemination, verification, and rapid response mechanisms.

(6) Strengthened Oversight of Financial Institutions, Intermediaries, and Technology Service Providers. Financial institutions (including non-bank payment institutions) are prohibited from providing account opening, fund transfer, and clearing services for virtual currency-related business activities, issuing and selling financial products related to virtual currency, including virtual currency and related financial products in the scope of collateral, conducting insurance business related to virtual currency, or including virtual currency in the scope of insurance liability. Financial institutions (including non-bank payment institutions) are prohibited from providing custody, clearing, and settlement services for unauthorized real-world asset tokenization-related business and related financial products. Relevant intermediary institutions and information technology service providers are prohibited from providing intermediary, technical, or other services for unauthorized real-world asset tokenization-related businesses and related financial products.

(7) Enhanced Management of Internet Information Content and Access. Internet enterprises are prohibited from providing online business venues, commercial displays, marketing, advertising, or paid traffic diversion services for virtual currency and real-world asset tokenization-related business activities. Upon discovering clues of illegal activities, they should promptly report to relevant departments and provide technical support and assistance for related investigations and inquiries. Based on the clues transferred by the financial regulatory authorities, the cyberspace administration, telecommunications authorities, and public security departments should promptly close and deal with websites, mobile applications (including mini-programs), and public accounts engaged in virtual currency and real-world asset tokenization-related business activities in accordance with the law.

(8) Strengthened Entity Registration and Advertisement Management. Market supervision departments strengthen entity registration and management, and enterprise and individual business registrations must not contain terms such as "virtual currency," "virtual asset," "cryptocurrency," "crypto asset," "stablecoin," "real-world asset tokenization," or "RWA" in their names or business scopes. Market supervision departments, together with financial regulatory authorities, legally enhance the supervision of advertisements related to virtual currency and real-world asset tokenization, promptly investigating and handling relevant illegal advertisements.

（IX） Continued Rectification of Virtual Currency Mining Activities. The National Development and Reform Commission, together with relevant departments, strictly controls virtual currency mining activities, continuously promotes the rectification of virtual currency mining activities. The people's governments of various provinces take overall responsibility for the rectification of "mining" within their respective administrative regions. In accordance with the requirements of the National Development and Reform Commission and other departments in the "Notice on the Rectification of Virtual Currency Mining Activities" (NDRC Energy-saving Building [2021] No. 1283) and the provisions of the "Guidance Catalog for Industrial Structure Adjustment (2024 Edition)," a comprehensive review, investigation, and closure of existing virtual currency mining projects are conducted, new mining projects are strictly prohibited, and mining machine production enterprises are strictly prohibited from providing mining machine sales and other services within the country.

（X） Severe Crackdown on Related Illegal Financial Activities. Upon discovering clues to illegal financial activities related to virtual currency and the tokenization of real-world assets, local financial regulatory authorities, branches of the State Council's financial regulatory authorities, and other relevant departments promptly investigate, determine, and properly handle the issues in accordance with the law, and seriously hold the relevant entities and individuals legally responsible. Those suspected of crimes are transferred to the judicial authorities for processing according to the law.

（XI） Severe Crackdown on Related Illegal and Criminal Activities. The Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, as well as judicial and procuratorial organs, in accordance with their respective responsibilities, rigorously crack down on illegal and criminal activities related to virtual currency, the tokenization of real-world assets, such as fraud, money laundering, illegal business operations, pyramid schemes, illegal fundraising, and other illegal and criminal activities carried out under the guise of virtual currency, the tokenization of real-world assets, etc.

（XII） Strengthen Industry Self-discipline. Relevant industry associations should enhance membership management and policy advocacy, based on their own responsibilities, advocate and urge member units to resist illegal financial activities related to virtual currency and the tokenization of real-world assets. Member units that violate regulatory policies and industry self-discipline rules are to be disciplined in accordance with relevant self-regulatory management regulations. By leveraging various industry infrastructure, conduct risk monitoring related to virtual currency, the tokenization of real-world assets, and promptly transfer issue clues to relevant departments.

IV. Strict Supervision of Domestic Entities Engaging in Overseas Business Activities

（XIII） Without the approval of relevant departments in accordance with the law and regulations, domestic entities and foreign entities controlled by them may not issue virtual currency overseas.

（XIV） Domestic entities engaging directly or indirectly in overseas external debt-based tokenization of real-world assets, or conducting asset securitization activities abroad based on domestic ownership rights, income rights, etc. (hereinafter referred to as domestic equity), should be strictly regulated in accordance with the principles of "same business, same risk, same rules." The National Development and Reform Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other relevant departments regulate it according to their respective responsibilities. For other forms of overseas real-world asset tokenization activities based on domestic equity by domestic entities, the China Securities Regulatory Commission, together with relevant departments, supervise according to their division of responsibilities. Without the consent and filing of relevant departments, no unit or individual may engage in the above-mentioned business.

(15) Overseas subsidiaries and branches of domestic financial institutions providing Real World Asset Tokenization-related services overseas shall do so legally and prudently. They shall have professional personnel and systems in place to effectively mitigate business risks, strictly implement customer onboarding, suitability management, anti-money laundering requirements, and incorporate them into the domestic financial institutions' compliance and risk management system. Intermediaries and information technology service providers offering Real World Asset Tokenization services abroad based on domestic equity or conducting Real World Asset Tokenization business in the form of overseas debt for domestic entities directly or indirectly venturing abroad must strictly comply with relevant laws and regulations. They should establish and improve relevant compliance and internal control systems in accordance with relevant normative requirements, strengthen business and risk control, and report the business developments to the relevant regulatory authorities for approval or filing.

V. Strengthen Organizational Implementation

(16) Strengthen organizational leadership and overall coordination. All departments and regions should attach great importance to the prevention of risks related to virtual currencies and Real World Asset Tokenization, strengthen organizational leadership, clarify work responsibilities, form a long-term effective working mechanism with centralized coordination, local implementation, and shared responsibilities, maintain high pressure, dynamically monitor risks, effectively prevent and mitigate risks in an orderly and efficient manner, legally protect the property security of the people, and make every effort to maintain economic and financial order and social stability.

(17) Widely carry out publicity and education. All departments, regions, and industry associations should make full use of various media and other communication channels to disseminate information through legal and policy interpretation, analysis of typical cases, and education on investment risks, etc. They should promote the illegality and harm of virtual currencies and Real World Asset Tokenization-related businesses and their manifestations, fully alert to potential risks and hidden dangers, and enhance public awareness and identification capabilities for risk prevention.

VI. Legal Responsibility

(18) Engaging in illegal financial activities related to virtual currencies and Real World Asset Tokenization in violation of this notice, as well as providing services for virtual currencies and Real World Asset Tokenization-related businesses, shall be punished in accordance with relevant regulations. If it constitutes a crime, criminal liability shall be pursued according to the law. For domestic entities and individuals who knowingly or should have known that overseas entities illegally provided virtual currency or Real World Asset Tokenization-related services to domestic entities and still assisted them, relevant responsibilities shall be pursued according to the law. If it constitutes a crime, criminal liability shall be pursued according to the law.

(19) If any unit or individual invests in virtual currencies, Real World Asset Tokens, and related financial products against public order and good customs, the relevant civil legal actions shall be invalid, and any resulting losses shall be borne by them. If there are suspicions of disrupting financial order and jeopardizing financial security, the relevant departments shall deal with them according to the law.

This notice shall enter into force upon the date of its issuance. The People's Bank of China and ten other departments' "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" (Yinfa [2021] No. 237) is hereby repealed.

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