Market makers play a key role in ensuring liquidity and price stability for tokens. Without proper coordination, tokens risk low liquidity, volatile pricing, and loss of investor trust. This article outlines a five-phase checklist to help token issuers effectively prepare, partner, and maintain relationships with market makers to achieve smoother trading and compliance.
Key Takeaways:
Preparation: Finalize tokenomics, meet regulatory requirements, and set up treasury systems.
Choosing a Market Maker: Evaluate track records, technical capabilities, and compliance standards.
Contracts: Define clear trading rules, liquidity targets, and payment terms while ensuring legal protection.
Exchange Listings: Submit complete applications, configure market maker accounts, and secure token distribution systems.
Post-Launch: Monitor performance metrics (spreads, trading volume) and schedule regular reviews for long-term success.
By following this structured approach, token issuers can mitigate risks, enhance liquidity, and build trust with investors while navigating regulatory complexities.
The Truth Behind Crypto Market Makers | Matt Jobbé-Duval
Phase 1: Getting Ready for Market Maker Partnership
Laying the groundwork is key before partnering with market makers. This preparation, which typically takes 8–12 weeks, helps reduce risks and ensures a smoother collaboration.
Create Clear Tokenomics Documentation
Having well-documented tokenomics is essential to give market makers a clear understanding of your token’s economic framework. This transparency allows them to provide effective liquidity services. Key documents to prepare include an investment teaser, a detailed term sheet, an offering memorandum, and subscription documents.
The tokenomics documentation should cover critical details such as token supply schedules, vesting terms for stakeholders (team, advisors, and early investors), distribution mechanisms, and unlock schedules. These elements directly influence how market makers design their trading strategies and manage liquidity.
"We provide advice on valuations, cliffs, and vesting schedules - everything you need to successfully fundraise." - tokenomics.net
In some cases, you may need professional appraisers, auditors, or legal experts to evaluate the value of your assets, confirm ownership, and assess risks. This adds credibility when presenting your project to market makers.
For tokenized securities, the documentation must clearly link the token to its underlying asset, outlining any rights and obligations tied to the instrument. Market makers rely on this clarity to understand what they’re supporting and any compliance requirements involved.
Once your tokenomics are finalized, ensure that all regulatory aspects are thoroughly addressed.
Meet Regulatory Requirements
Market makers expect strict adherence to regulatory standards, so your compliance framework must be rock-solid. Start by developing clear policies on insider trading and disclosure.
Begin with a detailed evaluation of whether your token might be classified as a security under the laws of relevant jurisdictions. This classification determines trading restrictions and reporting obligations that market makers must navigate.
Implement robust AML (Anti-Money Laundering) and KYC (Know Your Customer) procedures to screen participants and avoid working with high-risk or fraudulent entities. Market makers will carefully examine your compliance measures, as their reputation is on the line.
Your regulatory framework should also address jurisdiction-specific requirements, including securities laws, tax treaties, local compliance rules, and banking accessibility for both fiat and stablecoin transactions. Since regulations vary widely across regions, this step is crucial for ensuring smooth operations.
Keep detailed records of all compliance measures, as these will protect both you and the market maker in case of regulatory audits or disputes. Maintaining up-to-date documentation is particularly important as regulations evolve.
With compliance in place, the next step is to establish robust treasury management systems.
Set Up Treasury Management Systems
A solid treasury management system is essential to ensure secure fund flows and operational readiness within the preparation timeline of 8–12 weeks.
Start by using segregated accounts to clearly separate operational funds from client funds. Implement internal controls and monitoring systems to detect unusual trading patterns or fund movements. These measures reassure market makers that your treasury operations won’t lead to compliance or operational issues.
Insurance is another critical consideration. Many crypto projects overlook exclusions in standard insurance policies, which can lead to gaps in coverage. Secure tailored insurance policies, such as D&O (Directors and Officers), cyber, and digital asset coverage, that align with your token’s structure.
Developing a tax and banking strategy is equally important. Align this strategy with jurisdictional regulations and institutional standards to avoid costly mistakes. For instance, poor planning can result in transfer pricing audit penalties of up to 20% of the transaction value, plus interest.
If your project operates under a multi-entity structure, pay close attention to intercompany agreements. These agreements - such as service contracts, IP licensing, and treasury management protocols - must be drafted at arm’s length to withstand scrutiny from tax authorities and regulators. Market makers will evaluate your corporate structure as part of their risk assessment, so ensure everything is in order.
Phase 2: Choosing the Right Market Maker
Now that you've done the groundwork, the next step is choosing a market maker that aligns with your token's specific needs. This decision is crucial - it directly affects your token's liquidity, price stability, and overall market performance. To make an informed choice, you'll need to evaluate potential market makers based on their track record, technical capabilities, and compliance standards.
Check Track Record and Experience
A market maker's past performance is a strong indicator of their reliability and expertise. Start by reviewing their experience with tokens that share similarities with yours in terms of market cap, sector, or trading behavior. For example, a market maker skilled in handling DeFi tokens might not be the best fit for a gaming token.
Ask for specific data and case studies that showcase their ability to maintain liquidity and stabilize prices during both calm and volatile market conditions. Avoid relying on generic testimonials - dig deeper to understand their real-world performance. Additionally, market makers with established relationships on major exchanges can make the listing process smoother and improve ongoing operations. Be sure to ask about their connections with both centralized and decentralized exchanges, as well as any direct communication channels they may have with these platforms.
It's also wise to speak with their past clients, especially those in similar industries. Ask about their experiences regarding market stress response, communication quality, and whether liquidity commitments were consistently met. Be cautious of any market maker unwilling to provide references or those with unverifiable track records or negative feedback.
Once you've assessed their experience, it's time to evaluate their technical capabilities and risk management practices.
Review Technical Setup and Risk Controls
The technical infrastructure of a market maker is what separates professionals from amateurs. One key factor is the use of segregated accounts for client funds - this ensures protection against mismanagement or legal issues. Confirm that they maintain a clear separation between operational and client funds.
Evaluate their trading systems and monitoring tools. A robust system should automatically detect unusual trading patterns to prevent accidental or deliberate market manipulation. Ask about their automated trading systems, uptime reliability, and security protocols to ensure they can handle the demands of your token.
Additionally, their APIs should integrate seamlessly with your target exchanges and support the necessary trading pairs. Questions about latency, real-time reporting, and the ability to manage expected trading volumes will help you determine whether their technical setup meets your requirements.
Risk management is another critical area. Look for real-time monitoring systems, automated alerts, and clear escalation procedures for addressing compliance issues. It's also important to ask about their disaster recovery plans and whether they carry insurance to protect against operational or regulatory risks. These measures are essential for safeguarding your token's market performance.
Once you're satisfied with their technical and risk controls, move on to verifying their compliance and legal standing.
Verify Compliance and Legal Documentation
Regulatory compliance is the backbone of any trustworthy market maker relationship. This step builds on the regulatory framework you established during your preparation phase. Ensure that their processes align with your AML (Anti-Money Laundering) and KYC (Know Your Customer) standards.
Request documentation of their regulatory licenses or registrations. If you're operating in the U.S., this might include registrations with the SEC or CFTC, depending on how your token is classified. Their legal team should demonstrate a solid understanding of securities laws and digital asset regulations.
Check whether they conduct regular internal compliance training and undergo third-party audits. These practices show a commitment to upholding high compliance standards. Ask about the structure of their compliance team, the frequency of their audits, and the training programs they have in place. A market maker that neglects compliance could expose your project to unnecessary risks.
Finally, review their contract terms carefully. Ensure the agreement clearly outlines services, fees, and dispute resolution mechanisms. Pay close attention to clauses on fund segregation, reporting requirements, and termination procedures. It's a good idea to involve your legal counsel to ensure the contract aligns with U.S. laws and protects your interests.
Platforms like Tokenomics.net can be helpful in evaluating market makers. They offer consulting services that test different market makers' strategies against your token's economic model and fundraising goals, providing valuable insights during this process.
Keep in mind that transfer pricing audits can lead to penalties of up to 20% of the transaction value, plus interest. While the due diligence process - usually taking 8–12 weeks - may feel lengthy, it's a necessary step to avoid costly mistakes and regulatory challenges down the road.
Phase 3: Setting Contract Terms and Agreements
Once you've chosen the right market maker, the next step is to solidify the partnership with a well-structured contract. A clear agreement helps minimize misunderstandings, reduces regulatory risks, and sets the stage for a productive collaboration. This phase builds on your earlier evaluations by establishing precise expectations and responsibilities.
Define Trading Rules and Liquidity Targets
Start by establishing Service Level Agreements (SLAs) that outline specific trading and liquidity benchmarks. For instance, you might require a maximum 1% spread and a minimum order book depth of $50,000 within 2% of the mid-price during U.S. market hours (9:30 AM to 4:00 PM ET). These measurable targets eliminate ambiguity and set a clear standard for performance.
Daily trading volume targets should be realistic and based on comparable token data. Be cautious about setting overly aggressive goals, as they could encourage artificial trading activity, which may attract regulatory attention. You might also want to include provisions for adjusting requirements based on market conditions - like tighter spreads during normal trading periods and more flexibility during high volatility. Be explicit about the consequences of failing to meet these benchmarks, such as initiating performance reviews after three consecutive shortfalls or terminating the agreement if necessary.
Once you've established trading parameters, turn your focus to the financial arrangements that will drive performance.
Agree on Payment Terms
The payment structure you choose will not only shape your project's financial outlook but also influence the market maker's motivation to perform.
Fixed monthly retainer: This could range from $10,000 to $50,000, offering predictable costs and working well for tokens with consistent trading volumes.
Performance-based fee: A setup like $5,000 as a base fee, plus bonuses for maintaining spreads below 0.75% for 90% of trading hours, aligns the market maker's goals with your liquidity needs.
Profit-sharing model: This hybrid approach combines a retainer with performance bonuses. While it can reduce upfront expenses, it requires transparent accounting and clearly defined profit-sharing calculations.
Make sure to specify payment timing and methods. Decide whether payments will be made in U.S. dollars, stablecoins, or your project's native token. Outline invoicing procedures and include provisions to address currency fluctuations, particularly if volatile assets are involved. These details will help ensure a smooth financial relationship.
Add Reporting and Exit Terms
Regular, transparent reporting is crucial for assessing the market maker's performance and making data-driven decisions. Your contract should require detailed performance reports at regular intervals - weekly for new partnerships and monthly for established ones. Key metrics to monitor include average spreads, order book depth, trading volume, and whether liquidity targets are being met. Specify the data sources, calculation methods, and reporting formats to ensure consistency. You might also consider using real-time dashboards or third-party audits to enhance transparency. Define clear delivery methods, such as email or a dedicated portal, and set consistent deadlines to support timely decision-making.
Exit and termination clauses are equally important. Your agreement should allow for termination under specific conditions, such as a breach of contract, regulatory violations, or repeated failure to meet performance targets. Include a provision for termination without cause, typically requiring a 30-day notice period to ensure an orderly transition. Clearly outline the steps for unwinding positions, returning funds or inventory, and settling any outstanding payments. To minimize disputes, include mechanisms for resolving conflicts - such as mandatory mediation before arbitration - and specify the governing law and jurisdiction.
It's worth noting that incomplete or poorly drafted contracts could expose your project to transfer pricing audits, which can lead to penalties of up to 20% of the transaction value, plus interest.
For additional support, platforms like Tokenomics.net can help stress-test your proposed terms against your token's economic model, ensuring the agreement aligns with your fundraising and growth plans.
Phase 4: Setting Up Exchange Listings and Technical Systems
With the agreements from Phase 3 in place, it’s time to move into action. This phase is all about executing the plan - connecting your token, market maker, and exchanges with precision and care.
Complete Exchange Listing Applications
To get listed on an exchange, you’ll need to submit a thorough application package. This typically includes your whitepaper, legal opinions on token classification, and compliance documentation detailing your AML/KYC policies. On top of that, your tokenomics documentation must clearly explain your token’s utility, distribution plans, and economic mechanisms.
Collaborate closely with your market maker to choose the best trading pairs. Start with widely-used pairs like USDT, USDC, or ETH to ensure sufficient liquidity. Exotic pairs may seem appealing but can dilute trading activity and liquidity. Your market maker’s experience with similar tokens can guide you toward the pairs that are most likely to attract active traders.
Most exchanges also require additional materials like smart contract audits from reputable firms, security assessments, and a detailed overview of your development team and project roadmap. Missing or incomplete documentation is one of the biggest reasons for delays, so double-check everything with the exchange’s listing team before submitting. A detailed checklist can help you stay organized.
Once your listing applications are in motion, the next step is setting up secure market maker accounts.
Configure Market Maker Accounts and API Access
Setting up accounts for your market maker involves more than just creating a standard trading account. These accounts require special configurations, such as higher rate limits and access to advanced order types. Work with your market maker and the exchange to ensure everything is set up properly.
Security is critical here. Enable two-factor authentication and use enterprise-grade tools like hardware security modules to protect API credentials. Carefully document all API endpoints, rate limits, and error handling protocols to reduce the risk of issues during live trading.
Before going live, test everything in a sandbox environment. This includes connectivity, order placement, and cancellation processes. Exchanges often have unique API specifications and settlement procedures, so testing ensures your market maker’s system integrates seamlessly with the exchange’s matching engine.
Once API access is configured, shift your focus to setting up secure token distribution systems.
Create Token Distribution and Treasury Wallets
Multi-signature wallets are essential for managing token distribution and treasury funds securely. Set up separate wallets for different purposes, such as general treasury management, market maker allocations, and team/advisor token distributions. Multi-signature wallets ensure no single party can move funds alone, protecting both your project and its stakeholders.
To streamline operations, use smart contracts for automated distributions. For example, implement vesting schedules for team tokens or programmatic liquidity provisioning for your market maker. These smart contracts must be thoroughly audited to prevent vulnerabilities that could disrupt your token economy.
Here’s a quick breakdown of wallet setups:
Wallet Type | Purpose | Security Requirements |
|---|---|---|
Treasury Management | General project funds and reserves | 3-of-5 multi-sig, hardware security |
Market Maker Allocation | Tokens for liquidity provision | 2-of-3 multi-sig, automated reporting |
Team/Advisor Distribution | Vested token allocations | Smart contract automation, audit trail |
Use hardware security devices to safeguard wallet access, and regularly review access control permissions. If you need to add or remove signatories, follow strict procedures and keep detailed logs of all wallet activities. While your market maker will need access to their allocated tokens, ensure that access is governed by the same rigorous security measures applied to your treasury.
Finally, ensure your smart contracts are compatible with exchange APIs to support automated liquidity provisioning. Coordinate with both your exchange and market maker to test token transfers and confirm that all systems work smoothly together.
For those looking for extra support, platforms like Tokenomics.net offer consulting services. They can help stress-test your token distribution models and ensure wallet configurations align with your broader economic goals. Their simulations can identify potential issues before launch, saving you time and headaches.
Keep meticulous, auditable records of all wallet setups, token allocations, and transfer processes. These records are not just good practice - they’re critical if you ever need to address regulatory questions or demonstrate compliance with securities laws.
Phase 5: Tracking Performance After Launch
After your token goes live, it's essential to keep a close eye on its performance. This not only helps maintain liquidity but also builds investor trust.
Monitor Key Performance Metrics
To ensure your token's market health, focus on four key metrics: spread stability, order book depth, price volatility, and trading volume. Each provides valuable insights into different aspects of market activity and liquidity.
Metric | Purpose | Ideal Target |
|---|---|---|
Spread | Reflects liquidity and trading costs | As tight as possible (e.g., <1%) |
Order Book Depth | Shows market resilience and liquidity | Sufficient to handle large trades |
Price Volatility | Measures price stability | Low and stable over time |
Trading Volume | Indicates market activity and interest | Consistent and growing |
Set up real-time monitoring systems to track these metrics. For example, if spreads widen unexpectedly or trading volume drops sharply, automated alerts can notify you immediately. Integrating reporting tools with your treasury management system ensures you receive comprehensive insights to act quickly when needed.
These metrics should feed directly into your periodic reviews and strategy updates, helping you stay aligned with your liquidity goals.
Schedule Regular Reviews and Audits
Real-time tracking is just the beginning. Regular reviews and audits are critical for ensuring your market-making efforts stay on track. Plan for quarterly performance reviews as a standard practice, and incorporate annual audits by third-party experts whenever possible. These reviews are key to confirming that your liquidity targets and performance benchmarks are being met.
During these reviews, evaluate whether your market maker is consistently delivering on their promises, such as maintaining tight spreads and a strong order book - even during volatile periods. It's also important to conduct compliance audits to ensure you're meeting current regulatory standards. Collaborate with legal and compliance professionals to stay ahead of changes in the regulatory landscape.
Keep detailed records of all communications, reports, and audits. These documents can be invaluable for resolving disputes or demonstrating compliance if regulatory inquiries arise.
Update Strategies Based on Market Changes
Market conditions can shift quickly, so your strategies need to stay flexible. Use data from ongoing monitoring and periodic audits to refine your approach. This might mean adjusting spread targets, revising liquidity requirements, or temporarily modifying trading pairs to address sudden volatility, regulatory changes, or shifts in your project's priorities.
For example, if a new regulation impacts your market, you may need to adapt your strategy to maintain compliance while still achieving your goals. Transparent communication with stakeholders is crucial during these updates. Clearly explain the reasons for any changes, their potential impact, and how they align with your project's objectives.
For additional support, consider tools like Tokenomics.net, which offers simulations to stress-test your token economy under various market conditions. Their consulting services, led by Tony Drummond - an expert who has collaborated with over 40 Web3 projects - can help you identify potential challenges before they affect your market-making efforts.
Conclusion: Key Points for Token Issuers
Ensuring the stability of your token in the long run depends heavily on effective coordination with market makers. The five phases outlined earlier provide a structured approach to safeguard your project and its investors.
Preparation is the cornerstone of success. Finalizing your tokenomics, adhering to regulatory requirements, and activating treasury systems are critical first steps. These efforts not only prevent delays but also establish trust with potential partners. As industry professionals often highlight, having detailed tokenomics, compliance with regulations, and a well-managed treasury system are essential for building a strong foundation for market maker coordination.
When choosing market makers, prioritize those with proven expertise, strong technical infrastructure, and a commitment to transparency. This decision is crucial - selecting the wrong partner can harm your token’s reputation and stability for an extended period.
Well-drafted contracts are another essential element. They should outline clear liquidity goals, reporting requirements, and exit strategies that protect both sides. Additionally, aligning these agreements with local legal frameworks helps avoid unnecessary complications down the road.
Post-launch, the work doesn’t stop. Ongoing monitoring, regular reviews, and strategic updates are vital to maintaining token performance. Conducting performance reviews, compliance checks, and refining strategies ensures your market-making partnership continues to deliver value as your project evolves.
For those seeking expert guidance, Tokenomics.net offers tailored simulation and consulting services. With experience across more than 40 Web3 projects, their hands-on approach can help you prepare detailed documentation and economic models that appeal to both market makers and investors.
As regulatory oversight in the cryptocurrency space intensifies, compliance and transparency have become non-negotiable. Projects that prioritize these aspects from the outset not only foster investor confidence but also position themselves for sustainable growth. By following these steps methodically, token issuers can create partnerships that align with their long-term goals while ensuring the liquidity and stability required in today’s markets.
FAQs
What should I consider when selecting a market maker for my token?
Choosing the right market maker for your token can make all the difference when it comes to liquidity, price stability, and creating a smooth trading experience. Here’s what you should keep in mind:
Relevant experience: Seek out a market maker with a solid track record in your specific sector, whether that’s DeFi, gaming, or utility tokens. Their expertise in your niche can be a game-changer.
Clear communication: Transparency is key. Make sure they offer straightforward reporting on their strategies, fees, and overall performance.
Shared vision: The market maker should be on the same page as you when it comes to your token’s goals, whether that’s ensuring liquidity or focusing on sustainable, long-term growth.
Taking the time to evaluate these factors can set the foundation for a partnership that helps your token thrive in the market.
What steps should I take to prepare my tokenomics and compliance frameworks before working with a market maker?
Before working with a market maker, it's important to have your tokenomics and compliance frameworks in order. This means crafting a well-thought-out token model, developing a clear fundraising plan, and preparing investor materials that meet regulatory standards.
Using dynamic simulations can be a game-changer for testing your token economy. These simulations can highlight potential issues and help you refine your approach, ensuring your project is built to last. Laying this groundwork is key to effective collaboration with a market maker and achieving long-term stability.
What key metrics should I track after launching to evaluate my market maker partnership?
To evaluate how well your market maker partnership is working, keep an eye on key performance metrics that highlight your token’s market health and liquidity. Here are some important ones to consider:
Bid-ask spread: A tighter spread means better liquidity and smoother market operations.
Trading volume: Steady and solid trading volume indicates active market engagement.
Price stability: Keeping volatility in check helps ensure your token’s price remains steady and predictable.
Order book depth: A well-populated order book with diverse buy and sell orders at different price points showcases strong market backing.
By regularly analyzing these metrics, you can pinpoint areas that need attention and confirm whether your market maker is delivering as expected. Staying in close contact with your market maker and fostering open communication can further improve your token’s market performance.
