Market makers are essential for Web3 tokens. They provide liquidity, stabilize prices, and ensure smooth trading by consistently placing buy and sell orders. Without them, markets face high volatility, wide bid-ask spreads, and low investor confidence.

Key Takeaways:

• What They Do: Market makers ensure liquidity by maintaining active order books, reducing price swings, and supporting token economies.

• Why They Matter: They lower trading costs, prevent illiquid market "death spirals", and attract investors by creating stable markets.

• How They Adapt in Web3: Automated Market Makers (AMMs) and AI-driven algorithms now dominate decentralized markets, enabling 24/7 liquidity across blockchains.

• Risks and Ethics: Transparency and avoiding manipulation (e.g., wash trading) are critical for maintaining trust and compliance.

• Choosing the Right Partner: Look for experience, ethical practices, and tailored solutions to meet your project’s needs.

Quick Comparison Table:

Next Steps: Identify your token’s needs, research ethical market makers, and set clear performance terms to build a stable, liquid market.

Automated Market Making Solutions for Web3 Token Projects

Main Functions and Strategies of Market Makers

Market makers play a key role in ensuring smooth and efficient trading in decentralized markets, especially for Web3 tokens. Their methods, while rooted in traditional finance, have adapted to meet the unique needs of decentralized trading environments. Let’s explore how they maintain liquidity, stabilize prices, and support token economies.

Providing Liquidity and Order Book Depth

To keep markets liquid, market makers place buy and sell orders at various price levels, creating a robust order book. This ensures traders can execute their transactions promptly, even during periods of high activity. By balancing token and stablecoin inventories, they can handle both buying and selling pressures effectively.

This approach is critical for decentralized exchanges, which made up 15–20% of total spot trading volume in early 2025. A notable example is DeepBook, an on-chain central limit order book operating on Sui. In Q4 2024, DeepBook processed about $1.27 billion in trading volume - a staggering 443.6% jump from the previous quarter. Its daily volumes typically ranged between $10–$15 million, with occasional peaks exceeding $80 million. Over time, DeepBook surpassed $6 billion in cumulative trading volume.

By ensuring liquidity and strategically pricing orders, market makers help maintain a healthy balance in the market.

Managing Price Stability and Spreads

Market makers also play a vital role in stabilizing token prices. They work to reduce volatility and adjust bid-ask spreads based on market conditions. For instance, during periods of market turbulence, spreads are widened to manage risk, while in calmer markets, they are tightened to encourage trading.

To manage their inventory risk, market makers fine-tune their pricing strategies. For example, if they hold too much of a particular token, they may offer more competitive selling prices to reduce their position, and vice versa. Additionally, they actively monitor order books and trading patterns to counter potential market manipulation. By placing orders within narrow price ranges, they create a buffer against sudden price swings, leading to a more stable trading environment.

The scale of their operations underscores their importance. For example, Wintermute records daily trading volumes of around $2.24 billion, Amber Group handles over $5 billion daily, and Gravity Team has executed over $400 billion in cumulative volume, capturing roughly 1% of the global spot crypto market.

These efforts underscore the importance of market makers in creating predictable and reliable trading conditions.

Market Making as a Service (MMaaS)

Beyond their traditional roles, market makers now offer Market Making as a Service (MMaaS) to projects lacking in-house expertise. MMaaS provides Web3 projects with access to professional market-making solutions. Providers handle the complexities of liquidity management, including connecting to multiple exchanges, deploying advanced trading algorithms, and integrating with exchange APIs. This ensures that even smaller projects can maintain favorable market conditions without building the capability themselves.

How Market Makers Affect Token Performance Metrics

Market makers play a crucial role in shaping the success of Web3 tokens by influencing liquidity, trading volume, and price stability. These factors are essential for investors, traders, and project teams aiming to maintain a healthy token ecosystem.

Liquidity and Trading Volume Effects

One of the most immediate ways market makers impact a token is through liquidity and trading volume. By consistently placing competitive buy and sell orders, they create active order books that encourage participation and drive market activity.

"A market maker participates in the market at all times, buying securities from sellers and selling securities to buyers." - Citadel Securities

For example, Empirica has been instrumental in generating 40–60% of the turnover for over 50 tokens, while also contributing to 20–30% of daily trading volume.

Additionally, advanced algorithms used by market makers can increase market depth by over 500% and significantly reduce price volatility. This deeper market environment enables larger trades to occur without causing dramatic price shifts, making the market more attractive to participants.

This increased liquidity not only improves trading efficiency but also sets the stage for enhanced price stability, which we'll explore further below.

Reducing Price Volatility and Slippage

Improved liquidity doesn't just make trading smoother - it also helps stabilize token prices. Market makers actively counter price swings by buying during sell-offs and selling during surges, effectively cushioning the market against extreme volatility.

Take one case study by Empirica: a token that initially faced price volatility as high as 165% saw its volatility drop to a maximum of 9% after adopting market-making services. This change was accompanied by a noticeable increase in trading volume.

Market makers achieve such stability by maintaining tight bid-ask spreads and continuously updating quotes based on real-time market data. Their ability to ensure a steady flow of orders minimizes slippage, allowing even large trades to occur without significant price disruptions.

Performance Metrics: With vs. Without Market Makers

The impact of market makers becomes evident when comparing the performance metrics of markets with and without their support. Here's a side-by-side look:

In a liquid order book, a large number of buy and sell orders across various price levels reduces the chance of significant price changes from a single trade. On the other hand, an illiquid order book - with fewer orders - can lead to sharp price swings and higher transaction costs.

It's worth noting that while market makers don't directly set token prices, they create conditions that encourage organic investor interest. A well-supported market with ample liquidity and stability is far more appealing to traders and investors, which can, in turn, support higher token valuations.

The same principles hold true in decentralized finance. A liquid pool with sufficient reserves of both tokens allows users to execute large swaps with minimal slippage, whereas an illiquid pool struggles to handle even smaller trades without significant price impacts.

Beyond these metrics, tokens supported by professional market-making services often gain greater trust from exchanges and investors, improved price discovery, and the ability to handle large transactions without disrupting the market. These benefits create a positive cycle: stable and liquid markets attract more traders, which further boosts organic volume and liquidity.

Ethics and Risks in Market Making

Market makers play a crucial role in maintaining liquidity, but their operations come with ethical challenges and regulatory risks. For Web3 projects, addressing these issues is essential to safeguard their communities and uphold trust within their token ecosystems.

Transparency and Regulatory Compliance

Successful market making hinges on clear communication about trading strategies, potential conflicts of interest, and the scope of activities involved. Regulators closely examine agreements and market behaviors, making it vital for market makers to implement policies that ensure fair practices.

Recent enforcement actions underscore the risks of failing to comply with regulations. For example, in July 2024, the UK’s Financial Conduct Authority (FCA) prosecuted nine "finfluencers" for promoting unauthorized trading schemes, with penalties including fines and up to two years in prison. Similarly, in 2022, the U.S. Securities and Exchange Commission (SEC) fined Kim Kardashian for promoting EMAX tokens without disclosing her $250,000 payment for the endorsement.

These examples highlight the importance of transparency in preventing unethical practices and maintaining regulatory compliance.

Spotting and Avoiding Bad Practices

Unethical behaviors, like wash trading - where fake trades are used to inflate trading volumes - pose a serious threat to market integrity. Research indicates that unregulated exchanges may report up to 95% fake trading volume.

"A lot of [token] projects are fooling their own trader community or investors by faking these wash trades or these volumes."

• Mathias Beke, co-founder and head of trading at Kairon Labs

In 2024, analysts estimated that wash trading across Ethereum, BNB Smart Chain, and Base networks amounted to roughly $2.57 billion. Warning signs include frequent trades at nearly identical prices, sudden unexplained volume surges, and inconsistencies in trading activity across major platforms. Tokens that have been recently launched are particularly vulnerable to manipulation.

High-profile cases, such as those involving Bitfinex, Tether, and DWF Labs, emphasize the risks associated with unethical practices. Meanwhile, Europe’s MiCA regulations explicitly ban market manipulation tactics, including wash trading and misleading transactions that distort supply, demand, or pricing information.

To mitigate these risks, Web3 projects must carefully vet market makers and adopt stringent oversight measures.

Best Practices for Web3 Projects

Conducting thorough due diligence is critical for avoiding partnerships with unethical market makers. Projects should evaluate a partner’s track record, reputation, and compliance protocols before signing agreements. Contracts must clearly define responsibilities, payment terms, and performance metrics, while also including safeguards against conflicts of interest. Regular reporting and audit clauses should be mandatory.

"In top-tier exchanges, if the project doesn't maintain the requirements and can't fulfill the minimum trading volume for a specific period, or doesn't meet the terms and conditions of that exchange and shows unethical practices such as pumping and dumping the token, or manipulating the price, the token will be delisted."

• Asal Alizade, head of operations at Web3 consulting firm Blocklogica

Ongoing monitoring of trading volumes and patterns is essential to detect manipulation early. Comparing activity across exchanges, analyzing historical trends, and staying updated on emerging tactics from credible sources can help projects stay ahead. Partnering with exchanges that emphasize transparency can also reduce risks. Additionally, consulting legal experts ensures that market-making strategies align with applicable laws and regulations.

Unethical practices not only damage a project’s reputation but also invite regulatory scrutiny and erode trust in the broader Web3 ecosystem. By committing to transparency, conducting rigorous due diligence, and maintaining constant oversight, projects can create stable and trustworthy markets that inspire confidence among investors and participants alike.

Choosing the Right Market Maker for Your Web3 Project

Picking the right market maker can make or break your Web3 project. In 2021, more than 75% of tokens saw their value drop by over 90% from their all-time highs due to poor liquidity and extreme volatility. This section focuses on the key factors to consider, the due diligence process, and performance metrics to help you select the right partner for your project.

Key Selection Criteria

Experience and Track Record
Your market maker should have a solid history of navigating volatile markets. For instance, Gravity Team has supported over 1,400 asset pairs and facilitated a staggering $300 billion in cumulative trading volume. With recent exchange failures in mind, it’s crucial to find a partner who can handle adverse market conditions and has significant experience across various exchanges and asset pairs.

Technological Infrastructure
Pay close attention to metrics like latency, execution speed, slippage, order fill rates, and bid-ask spreads. Top-tier providers offer advanced algorithms, high-performance systems, and scalable solutions that can grow alongside your project.

Service Customization
A good market maker will tailor their services to your specific token type, trading environment, and growth objectives. They should take the time to understand your roadmap, challenges, and goals before proposing a plan.

Global Presence and Regulatory Expertise
As Web3 projects often aim for international reach, your market maker should have a global footprint and the ability to navigate complex regional regulations effectively.

Due Diligence Checklist

Once you’ve shortlisted potential partners, follow a structured due diligence process to ensure you’re making the right choice:

• Define your project’s specific needs, such as your token type, target exchanges, liquidity goals, and budget.

• Request measurable results, like tight spreads and deep order books during volatile market conditions. Don’t rely solely on reputation.

• Analyze how the market maker has performed during challenging events, such as market crashes, exchange outages, or sudden regulatory changes.

• Verify ethical practices by reviewing audit reports, transparency in reporting, and client references.

• Assess their expertise in your sector - whether it’s gaming, DeFi, DePIN, or utility tokens - since different token types require tailored market-making strategies.

Comparing Market Maker Attributes

When evaluating potential partners, consider these performance benchmarks to ensure alignment with your token ecosystem goals:

• For small-cap projects, aim for a general spread under 0.75%, while mid-cap projects should target around 0.55%.

• Bid and ask liquidity should exceed $1,000 within a 2% price range for small-cap tokens and $2,500 for mid-cap tokens.

• Slippage should stay around 0.5% for small-cap projects and 0.3% for mid-cap projects during most trades.

• Compare the effective spread - by excluding the first $100 on both bid and ask sides - with traditional spread measures to identify any potential manipulation.

Other important considerations include the transparency of performance reporting and the fee structure. Some market makers charge fixed monthly fees, while others use percentage-based or hybrid models. Aligning the fee structure with performance incentives is critical to ensure mutual success.

Selecting a partner with a proven track record, cutting-edge technology, ethical practices, and a deep understanding of your project’s needs will lay the foundation for long-term token performance and community trust.

For additional support, Tokenomics.net provides consulting services to help integrate market-making partnerships into your broader token economy strategy.

Conclusion

Market makers play a crucial role in shaping liquidity, stability, and value within Web3 token ecosystems. Their influence extends far beyond facilitating trades - they lay the groundwork for thriving token economies that attract investors, build active communities, and ensure long-term sustainability. Here’s a recap of their key contributions and benefits.

Key Takeaways

Market making drives liquidity, price stability, and better token performance. By ensuring consistent liquidity, market makers make trading seamless, reduce price swings that might scare off investors, and help establish fair market prices through ongoing price discovery. For example, in 2021, market makers saved retail investors over $1.4 billion through price improvements.

Market Making as a Service (MMaaS) brings professional liquidity to all Web3 projects. MMaaS solutions allow projects to access expert market-making services without needing to build expensive in-house teams or infrastructure, making professional liquidity management more accessible.

Transparency and ethical practices are non-negotiable. In the blockchain space, where openness and accountability are core values, market makers must prioritize clear reporting and regulatory compliance. Ethical conduct not only strengthens community trust but also helps projects navigate potential regulatory challenges.

Results matter. Professional market makers stand out through measurable achievements like maintaining tight spreads during market volatility, ensuring deep order books, and delivering consistent performance even in challenging conditions.

Next Steps with Market Makers

If you’re ready to incorporate market making into your Web3 strategy, here’s how to get started:

• Identify your project’s specific needs. Consider your token type, target exchanges, liquidity goals, and budget. Different sectors - like gaming, DeFi, or utility tokens - require tailored strategies to match their unique trading behaviors.

• Do your homework. Investigate potential market makers by reviewing their past performance, transparency, and ethical practices. Ask for concrete examples of how they’ve handled market crashes, exchange outages, or regulatory shifts. As Mathias Beke of Kairon Labs says, "Instilling confidence is paramount under any market condition. Our goal is to foster a secure trading environment where investors can confidently execute their strategies".

• Set clear terms. Structure agreements with performance-based metrics and transparent fee structures. Aligning both parties’ goals ensures a shared commitment to the token’s long-term success.

• Adapt as needed. Market conditions change, and so should your strategy. Regular performance reviews and updates will help your token ecosystem thrive as it grows.

With the Web3 market projected to surpass $33 billion by 2030, professional market making is more important than ever for driving success. By partnering with the right market maker and following best practices, you’re not just enhancing your token’s trading conditions - you’re building a foundation for sustainable growth in the decentralized economy.

For tailored guidance, Tokenomics.net offers consulting services to help you integrate market making into your broader tokenomics strategy effectively.

FAQs

What’s the difference between Automated Market Makers (AMMs) and traditional market makers in Web3?

Automated Market Makers (AMMs) vs. Traditional Market Makers

Automated Market Makers (AMMs) and traditional market makers take very different approaches to providing liquidity and enabling trades. AMMs function on decentralized platforms, using algorithms and liquidity pools to facilitate transactions. This setup allows anyone to trade or contribute liquidity without needing a centralized order book. The result? Trading becomes more accessible, available 24/7, and with fewer barriers to participation.

On the other hand, traditional market makers operate on centralized exchanges. They rely on advanced strategies and real-time data to maintain liquidity and manage risks. However, these systems often come with higher fees and require significant resources to operate. AMMs, by contrast, streamline the process, offering a decentralized option that minimizes the need for intermediaries. This evolution has transformed trading in the Web3 space, giving users the power to participate directly in financial ecosystems.

What should Web3 projects consider when choosing an ethical market maker?

When choosing a market maker for your Web3 project, prioritizing ethical practices is crucial. Transparency plays a major role - market makers should maintain a clear and honest trading environment by ensuring that transactions are straightforward and prices remain stable. This approach helps build trust among investors and trading platforms alike.

Ethical market makers should also adhere to regulatory requirements such as Anti-Money Laundering (AML) and Know Your Customer (KYC) protocols. These measures not only protect your project from potential risks but also enhance its credibility in the market. Seek partners with a proven history of ethical conduct, dependable audits, and straightforward reporting practices.

Focusing on these factors ensures your market-making activities align with your project's values and long-term vision, fostering growth and trust within the Web3 ecosystem.

How can a Web3 project figure out the right amount of liquidity for its token?

Determining the right amount of liquidity for a Web3 token means looking at a few critical factors. First, take a close look at the spread - a smaller spread, ideally less than 0.75% for small-cap tokens, can encourage more trading and attract users. Next, focus on having enough liquidity depth. Aim for bid and ask liquidity to be over $1,000 to ensure steady market activity.

Liquidity also plays a big role in how the market behaves. When liquidity is higher, price swings are less extreme, transactions happen faster, and trade slippage is reduced. For small-cap tokens, keeping slippage under 0.5% is a good target. By carefully managing these elements, Web3 projects can create a trading environment that's both stable and efficient for their tokens.

Related posts

• Market Makers' Role in Token Price Stabilization