Crypto Market Makers' Life-or-Death Game: A Silent War of Species Evolution

Original Author: Ada, TechFlow

In the court of public opinion surrounding cryptocurrency, market makers always seem to occupy the top of the food chain. They are perceived as "system-level winners" alongside exchanges, imagined by outsiders as "pumps" that reap profits from every market fluctuation without bearing directional risk.

However, when you truly step into this industry, a different, brutal reality emerges: some face overnight liquidation during extreme market conditions, others exit the scene quietly due to a single risk management failure, and many more are forced to completely restructure their entire business model, squeezed between halved profits, ineffective price wars, and a scarcity of quality assets.

The life of a crypto market maker is far less glamorous than imagined.

Over the past two years, the industry has undergone a quiet yet bloody purge. As exorbitant profits recede and regulations tighten, compliance capabilities, risk control systems, and technological depth have replaced the former reliance on guts and gray-area operations, becoming the new threshold for survival. This is no longer a game of "who dares, wins," but more akin to a long-term, professional, low-tolerance survival race.

Through in-depth interviews with several leading market makers, a highly consistent judgment has surfaced: today's crypto market makers are no longer merely "liquidity providers"; they are evolving into a hybrid form of "secondary market investors + risk managers + infrastructure providers."

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

From "Wildcat Arbitrage" to "High Institutionalization"

If we rewind to 2017, "crypto market makers" in the modern sense barely existed.

Market making back then resembled a frenzy of gray-area arbitrage. Borrowing tokens, dumping, buying back, repaying... dumping chips during periods of high liquidity and slowly accumulating during long-tail phases. The boundaries between exchanges, project teams, and market makers were extremely blurred. Operations considered felonies in traditional finance, such as price manipulation and wash trading, were the norm.

But time is mercilessly淘汰ing this model.

The consensus from multiple interviewees is that market makers in 2017 relied on guts and information asymmetry; today's market makers rely on systems, risk control, and compliance.

The core of the change is not merely an "upgrade in tactics," but a fundamental shift in the industry's underlying structure. In the past, whether a market maker "played by the rules" might have been a moral choice; now, it's a red line of survival.

Klein Labs investment partner Joesph revealed that all their current business must revolve around "auditability." Standardized contracts, financial audits, detailed transaction records, and delivery reports have shifted from "optional" to "default settings." Consequently, compliance costs now account for 30% to 50% of total operational expenses.

As exchange compliance accelerates, project fundraising paths become more transparent, and regulatory narratives go mainstream, the survival logic of market makers is being forcibly reconstructed. The old "black-box operations + results-oriented" wildcat model is being systematically phased out.

A clear signal is that more and more market makers are beginning to incorporate "Regulation First" into their brand narratives, no longer avoiding the topic.

The transformation of their role is equally profound. In the wildcat era, market makers were merely executors; project teams provided capital and tokens, and market makers handled order placement. Today, market makers resemble secondary partners.

"Whether we take on a project has become a question similar to an investment decision. The project's fundamentals, token distribution structure, exchange listings, and volatility range are all quantitatively assessed in advance," Joesph said. "Projects not in the top 1000 by market cap might not even get a meeting."

The reason is simple. One low-quality project can devour a market maker's entire annual risk budget. In this sense, market making is no longer a simple "service fee business" but a long-term博弈围绕 risk exposure.

Of course, wildcat arbitrage hasn't completely vanished, but it has been marginalized.

In the industry's shadowy corners, high-risk, high-gray-area operations still exist, but the difficulty of scaling them is increasing daily, and their生存空间 is being compressed to the limit. When exchanges, project teams, and market sentiment collectively prefer "stable liquidity," players who don't follow the rules themselves become systemic risks.

In today's crypto market making landscape, "playing by the rules" has, for the first time, transformed from a moral constraint into a core competitive advantage.

Exorbitant Profits Are Disappearing

Compared to the last bull market, project teams have significantly reduced their budget allocations for market makers. "Data shows that some projects' token budgets for market making this year have even decreased by 50% compared to the last cycle," noted Vincent, Chief Information Officer at Kronos Research.

But this isn't just a matter of "budget cuts"; a deeper driver is the evolution of the client's (project team's) mindset.

Project teams' understanding of market making has greatly improved. They now understand market makers' profit margins, are no longer satisfied with vague promises of liquidity, and instead demand quantifiable KPIs, clear delivery logic, and in-depth explanations for the efficiency of every dollar spent.

In short: less money, higher demands.

Faced with this pressure, leading market makers haven't blindly plunged into price wars. Vincent emphasized that market making is an industry heavy on systems, risk control, and experience. Once pricing falls below the cost of risk coverage, market makers face not profit decline, but a生存危机. Therefore, when the risk-reward ratio becomes unbalanced, they prefer to walk away.

This means the market hasn't been彻底击穿 by "low-price players"; instead, it has筛选ed out a group of survivors who坚守底线.

Another current phenomenon is: quality clients are scarce, and long-tail projects aren't profitable.

Reele from ATH-Labs stated: "The number of projects truly worthy of market making is far less than the number of market makers in the market." A large number of long-tail projects, due to insufficient depth or being easily arbitraged, struggle to generate sustainable profits even if they meet market making targets.

This has led to a classic "more monks than粥" situation: top market makers crowd into quality projects, while small and medium-sized teams are forced into intense competition (内卷) within marginal projects offering meager profits and extremely high risks.

Against this backdrop, market making业务 is regressing from a pure "profit center" to a "relationship entry point." Many market makers view market making as a敲门砖 to secure long-term cooperation, using it to切入 project treasury management, OTC trading, structured products, and even as a starting point to become secondary market advisors or asset managers.

In other words, real profits are increasingly not found in "market making fees" but in the后续结构. This also explains why many still-active market makers are simultaneously expanding business lines like investment, asset management, and advisory services. They aren't pivoting but are seeking "续命空间" for a core business that has already been compressed.

Industry Reshaping: The Splitting of the Table

In the last cycle, competition among market makers primarily occurred at the same table: the same exchanges, the same product forms, the same liquidity metrics.

This year, that table is splitting.

The emergence of new tracks like on-chain market making, derivatives, and tokenized stocks is systematically altering the competitive landscape for market makers.

On the narrative level, on-chain market making is often labeled "open, decentralized," but on a practical level, its barriers have increased rather than decreased. The uncertainty of real liquidity, limitations of the execution environment, and常态化 smart contract risks make it a completely different capability curve, not a case of降维打击.

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

In derivatives market making, futures markets impose极端 strict requirements on risk control and position management, making this track naturally偏向 larger-scale, more experienced, and more systemically mature institutional market makers. On this track, new players aren't without机会, but the容错率 is极低.

As for tokenized stocks, while seen as a key narrative connecting to traditional finance, it remains in its early stages from a market making perspective. The core difficulty lies in the complexity of hedging and settlement structures, leading most market makers to maintain an attitude of "research first, participate cautiously."

In other words, it's a track with极高 potential but尚未形成 a stable market making model.

In Reele's view, these new market making tracks are not only reshaping the industry structure but are also a source of innovation pressure for them. Although client sources have decreased, they must still adapt to the市场上层出不穷的新玩法 in a short time and provide project teams with better market making strategies.

"The market maker industry is transitioning from a 'unified market' to a structured ecosystem of 'multiple parallel tracks.' Competition among market makers is shifting from 'homogeneous内卷' to capability differentiation across tracks," Reele stated.

The Moat of Crypto Market Makers

As exorbitant profits recede, roles shift forward, and tracks differentiate, a reality becomes increasingly clear: competition among market makers is no longer about "who is more aggressive," but about "who is less likely to make mistakes."

At this stage, what truly creates a gap is not a single advantage, but a整套 of hard-to-replicate systemic capabilities.

This systemic capability includes stable trading systems, strict risk control frameworks, powerful research capabilities, compliance and auditability, all of which共同筑起 the trust system of crypto market makers.

Joesph透露 that the信用成本和合规成本 spent building this trust system are currently the largest expenses. Although the crypto market maker industry is already a充分竞争的市场, newcomers不一定比老牌做市商更有经验 in building consensus, reputation, and应对风险.

The great crypto market清洗 on October 11, 2025, serves as validation. Vincent noted that this event reflected how the transmission speed of leverage and liquidations has far outpaced traditional risk control reaction mechanisms; the industry is accelerating its分化, teams with insufficient infrastructure and risk control capabilities will be淘汰ed, and the market will evolve towards greater concentration and institutionalization.

"Market making today is a systems engineering discipline. Those who can stay for the long term aren't teams that躲过一次风险, but teams that从一开始就假设清洗一定会发生 and are prepared for it," Vincent said.

Overall, the true moat of a market maker lies in being "less likely to make fatal mistakes" across multiple critical nodes. This leads the industry to a seemingly counterintuitive result: the most successful market makers are the most restrained, institutionalized, and systematic ones.

As the market enters a new stage of充分竞争 and risk institutionalization, crypto market makers are no longer "marginal arbitrageurs" but indispensable yet highly constrained foundational roles within the crypto financial system.

Its survival logic is approaching that of traditional finance infinitely, operating with the precision of Wall Street's high-frequency trading giants, yet situated within a "dark forest" that operates 7x24 without休市, with volatility ten times that of the Nasdaq.

This is not merely a回归 to traditional finance, but a species evolution in an extreme environment.