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When the Movement Foundation (MOVE) token plunged nearly 20% earlier this year, following a market‑maker orchestrated a $38 million dump, it left retail holders underwater, and the industry reacted as if it had uncovered a bombshell scandal. Coinbase swiftly delisted the token, Binance froze the profits, and the project’s founders scrambled to distance themselves as the media churned out articles detailing the debacle.
Summary
- Market makers wield outsized, opaque power through “loan + call option” agreements that incentivize selling, distort token prices, and leave founders and retail holders disadvantaged.
- Early-stage teams often accept these lopsided terms due to limited treasury resources and deep information asymmetry, resulting in structural risks that surface only after launch.
- Crypto urgently needs transparent standards, better tooling, and founder-aligned liquidity models to prevent hidden market-making practices from undermining decentralization and fairness.
Except this wasn’t a one‑off glitch, or even particularly scandalous. It was a symptom of an ecosystem where the firms responsible for providing liquidity hold outsized power, and where opaque loan agreements have the ability to destroy token prices, enrich market makers, and leave investors in the dark.
Crypto market makers are quietly shaping the destinies of early-stage projects in ways that few outsiders understand. The irony is striking: in a world obsessed with decentralization, the most critical lever of market function is often controlled by opaque, unbalanced agreements that strip founders of leverage and reward the middlemen, even when projects fail.
Crypto market-making needs transparent standards, better tooling, and viable alternatives, but these will never emerge if market makers are able to operate unperturbed in the shadows.
It’s time to expose the market-making playbook.
The problem with ‘loan + call option’ market-making agreements
Founders don’t engage with market makers, expecting to get squeezed. They’re promised that their fledgling token will receive better liquidity, tighter spreads, and more efficient price discovery. Instead, what they are often left with are mispriced call options, distorted incentives, and structural disadvantages they can’t unwind.
That’s not to say that market makers are inherently evil. They are a business like any other, and after seeing countless failed token launches (over 1.8M this year alone), they have developed strategies to protect their bottom line, regardless of whether a new token finds market fit or tanks quickly after launch.
The strategy employed by most market makers is a deal structure known as a “loan + call option” agreement, the most common engagement model for early-stage token projects. In this agreement, the project lends its native tokens to the market maker, who in turn agrees to provide liquidity, buying and selling tokens to ensure a healthy market. The market maker also receives optionality on the tokens it borrowed, allowing it the option, but not obligation, to repay its token loan in cash in the event the token’s price spikes significantly.
On paper, the logic seems sound: both parties share upside, and the market benefits from stability. In practice, it rarely plays out that cleanly. These options are often aggressively mispriced. Strike prices are set high, sometimes five or ten times above the current market price, and vesting schedules are back-loaded. The market maker, who helped draft the agreement, knows the likelihood of those options becoming profitable is slim.
So they hedge. They sell. In some cases, they shorten the tokens. Their incentives shift from building a healthy market to locking in riskless profit, regardless of how it affects the project they’re supposed to support.
Most projects have few alternatives
The reason so many projects settle for these terms is simple: they have no other choice. While a more founder-friendly alternative exists: a retainer model where the project supplies the market maker with both tokens to trade and stablecoins as payment for their services, it requires deep treasury reserves that most teams simply don’t have.
After spending hundreds of thousands of dollars on offshore legal entities and compliance scaffolding, there’s rarely enough capital left to fund both operations and liquidity. So founders fall back on the cheaper option: loan your native tokens, receive liquidity in return, and hope it doesn’t backfire.
It often does. In some cases, founders desperate to maintain price support go one step further, using their native tokens as collateral to raise additional funds, which are then used to bid up their own market. This tactic inflates prices temporarily but almost always ends in a cascade of sell-offs once market makers vest and exercise their options. Retail buyers lose confidence. Treasury value collapses. And projects are left wondering how they ever thought this was sustainable.
Underpinning this system is a deep information imbalance. Market makers are derivatives professionals. Founders are product builders. One party specializes in structuring asymmetric risk. The other is often negotiating these deals for the first time, with a limited understanding of how these instruments behave under stress.
The result is predictable: lopsided terms, obscured downside, and long-tail liabilities that don’t become obvious until it’s too late to fix them.
Bringing market makers out of the shadows
What makes this more troubling is the complete lack of transparency and industry standards when it comes to crypto market making. There are no industry benchmarks. No standardized disclosures.
Every agreement is bespoke, negotiated in the shadows, and almost never disclosed publicly. And because so much of crypto’s culture revolves around urgency, with teams racing products to market as quickly as possible, founders seldom realize the damage until it’s baked into their tokenomics.
What crypto needs is not just better deals, but a better framework for evaluating and understanding them. Every market-making agreement should come with standardized disclosures: option strike prices, hedging policies, incentive structures, and vesting schedules should be made plain to teams and token holders alike.
Founders also need the right tools: basic benchmarking models to assess whether a proposed agreement is remotely fair. If they could simulate outcomes across a range of market conditions, fewer would sign terms they don’t understand.
Early-stage teams should be taught how market-making arrangements are priced, what risks they’re assuming, and how to negotiate. Just as a traditional company would never perform an IPO without an experienced CFO well-versed in the complexities of a public offering, crypto projects should not launch a token without a deep understanding of market-making mechanics.
Long-term, we need alternative liquidity models, whether through DAOs, pooled treasuries, or more founder-aligned trading desks, that remove the need to surrender massive upside just to get a functioning order book. These will take time to develop and won’t emerge overnight. But they will never emerge at all if the current system remains unchallenged.
For now, the best we can do is speak plainly. The structure of liquidity provisioning in crypto is broken. And if we don’t fix it, the very values this space claims to defend, such as fairness, decentralization, and user ownership, will continue to erode behind closed-door contracts no one wants to talk about.