An allocator doing diligence on a token, or a general counsel reviewing a listing agreement, often starts by asking whether the market maker is reputable. A more useful question is what the market maker is paid with, and what it may do while it holds that inventory. Both answers sit in contracts the allocator rarely sees.
This piece explains how designated and principal market making work in digital assets, how exchanges and issuers each pay for it, and where the resulting conflicts have been named in public by a regulator or an international standard-setter. Where firms' conduct is described, it is described as the regulator published it. This is not investment, legal or tax advice.
What a market maker is contracted to do
A market maker keeps continuous two-sided quotes on an order book, a bid and an offer, close enough together and deep enough that others can trade without moving the price much. In the simplest case it earns the spread between the two across many trades, and manages the risk that its own inventory moves against it in between.
Two roles get bundled under the same label in digital assets:
- Designated market making, where an exchange contracts a firm, or offers fee incentives to qualifying firms, to quote a pair within set spread and size obligations.
- Issuer-paid market making, where a token issuer separately contracts a firm to provide liquidity in its token, typically around a listing, and compensates that firm directly.
Nothing prevents one firm from holding both roles on the same token at the same time, paid by the exchange for depth and by the issuer for the same activity. The order book shows one set of quotes and does not say which incentive produced them.
How exchanges pay for depth: rebates and liquidity programmes
Exchanges want deep, tight books because thin books drive away the traders whose fees fund the platform. The standard tool is a maker rebate or a reduced maker fee: better terms for the side of a trade that supplied the resting order (the "maker") than for the order that took it (the "taker").
Binance.US publishes the terms of its own Market Maker Program. It is an exchange describing its own product, used here only to illustrate the mechanics. Its support page encourages customers trading more than $10 million a month to apply, evaluates participants weekly on maker volume, spread, depth and trading pair weight, pays the top-ranked participant up to 0.005% in additional rebates and the next four 0.002%, and gives qualifying participants zero maker fees on selected pairs. The exchange reserves the right to amend or cancel the programme at its sole discretion and without prior notice. The diligence point is that such terms are set, and can be withdrawn, by the venue, so depth bought this way is only as durable as the programme paying for it.
Token loan and option arrangements with issuers
Separately from any exchange programme, an issuer typically pays its own market maker. Flowdesk, a market-making firm, set out the two common commercial structures in an October 2024 post; it is a vendor describing its own market, not a neutral account.
In Flowdesk's description of the retainer model, the issuer lends the market maker both the tokens and the quote currency, such as USDC, carries the capital risk, sets the strategy together with the market maker and pays a monthly fee. At the end of the contract the market maker returns the full loan.
In the loan and call option model, the issuer lends tokens, quoted as a share of total supply, and grants the market maker a call option on them. The market maker puts up the cash side, carries the capital risk, sets the strategy and is paid through the option and its own trading. If the market price ends above the strike, the market maker can exercise the option; otherwise the tokens are returned. Flowdesk's own post states that "the crypto market also remains largely unregulated, often allowing large market makers and exchanges to set their terms freely," and that "this can lead to situations where market makers trade against the projects' interests for their own benefit, especially in volatile market conditions."
The structural tension is visible without alleging anything about any firm: a party whose pay comes from an option on the token has an interest in where that token's price sits relative to the strike, and that interest is not necessarily the issuer's or the holders'.
Disclosure of these terms is rare. An April 2026 study by the crypto advisory firm Novora, reported by Cointelegraph, reviewed more than 150 major protocols and found that fewer than 1% disclosed any market maker agreement terms, although 91% generated trackable revenue; 18% published quarterly updates and 8% issued token holder reports. That is one firm's observation of disclosure practice, not a regulatory finding.
Where regulators have named the conflicts
Four published matters illustrate distinct conflicts this structure can produce. Each is described only as the regulator published it, and the status of each is stated.
Wash trading marketed as a market-making service
In October 2024 the SEC sued Gotbit in the District of Massachusetts, describing it as "a self-proclaimed crypto asset market maker" and alleging it provided "market-manipulation-as-a-service", with an algorithm that, the SEC alleged, "generated more than $1 million dollars of artificial trading volume each day" through self-trading, commonly called wash trading. In the parallel criminal case, the firm pleaded guilty to wire fraud and conspiracy charges and was sentenced in June 2025 to five years' probation, according to the SEC. On 28 July 2026 the SEC filed a proposed final judgment to which Gotbit consented; as of the SEC's 3 August 2026 release it takes effect only if the court approves it.
An exchange's market maker, undisclosed
The SEC's June 2023 complaint against Binance entities alleged "strategic and targeted wash trading largely perpetrated by the Binance.US platform's primary undisclosed 'market making' trading firm Sigma Chain", which the SEC said artificially inflated the platform's trading volume. These were allegations only. On 29 May 2025 the SEC and the defendants filed a joint stipulation to dismiss the case with prejudice. The structural issue the complaint describes, an affiliated market maker trading on a venue without the relationship being disclosed, is the one IOSCO addresses below.
A market maker and a stablecoin's peg
In a settled order dated 20 December 2024, the SEC found that Tai Mo Shan Limited, a wholly owned subsidiary of Jump Crypto Holdings LLC, "negligently engaged in a course of conduct in May 2021 that misled members of the investing public about the efficacy" of Terraform's UST stablecoin, and that it acted as a statutory underwriter in unregistered sales of Terraform's LUNA between January 2021 and May 2022. The firm agreed to pay $123,095,287: disgorgement of $73,452,756, prejudgment interest of $12,916,153 and a civil penalty of $36,726,378. It consented without admitting or denying the findings. The order matters here because the conduct at issue went beyond quoting, into trading that bore on how the public judged a token's stability.
An exchange's affiliated market maker with undisclosed features
The CFTC's complaint, filed on 13 December 2022 against FTX Trading, its affiliated trading firm Alameda Research and others, alleged that Alameda "operated as a primary market maker on FTX", and that features in FTX's code favoured Alameda and allowed it to execute transactions even without sufficient funds, including an "allow negative flag" and an effectively limitless line of credit. The CFTC alleged that "these features were not disclosed to the public." The narrow point is the one the complaint makes: an affiliated market maker was allegedly given terms that others quoting on the same venue did not have and could not see.
What regulators have done about it, and how far along each step is
The matters above are enforcement actions under existing law, not a crypto-specific market structure regime. The policy response is at different stages in different places.
- IOSCO, the international standard-setter for securities regulators, published final policy recommendations for crypto and digital asset markets on 16 November 2023. The first of the six areas its 18 recommendations cover is conflicts of interest arising from vertical integration, where one provider combines functions such as running a trading venue with trading or making markets on it. These are recommendations to member regulators, not binding rules.
- The UK's Financial Conduct Authority consulted on a Market Abuse Regime for Cryptoassets in Discussion Paper DP24/4, published on 16 December 2024 with feedback due by 14 March 2025. It published final rules in Policy Statement PS26/9 on 30 June 2026. The regime prohibits insider dealing, unlawful disclosure of inside information and market manipulation in relation to qualifying cryptoassets admitted, or seeking admission, to trading on a UK qualifying cryptoasset trading platform. It is adopted but not yet applying: the UK cryptoasset regime commences on 25 October 2027.
- The SEC and CFTC brought the US actions above under existing anti-fraud, anti-manipulation and registration provisions, without crypto-specific market-making rules.
None of the sources reviewed for this piece requires a token's market maker terms to be disclosed to the public, which is the gap the Novora study describes. The FCA regime targets abuse on UK venues rather than market maker compensation as such.
Questions a diligence process can put to a market maker or an issuer
- Is the firm quoting this asset paid by the exchange, by the issuer, or both, and does each party know about the other arrangement?
- If the issuer pays, is it a retainer or a loan and option structure, and if the latter, where is the strike relative to the price when the tokens were lent?
- Does the market maker's pay depend on volume, on price, or on the option's value?
- What happens to the loaned tokens, and to the quoting obligation, if the option is not exercised?
- Is the market maker affiliated with the venue the token trades on, and is that disclosed where a counterparty would see it before trading?
How displayed liquidity thinned during the October 2025 liquidation cascade is covered in our analysis of crypto market fragility. How a market maker's role differs from an authorised participant's creation and redemption rights inside a regulated product is set out in our piece on crypto ETF market plumbing.