Written by: Michael Oved
Translated by: Tia, Techub News
Earlier this year, as a large market maker was preparing to inevitably expand into the crypto market, I organized a roadmap for them. The opportunities within this space are vast and continue to evolve. This list is not intended to be exhaustive but serves as a practical reference for trading firms seriously considering establishing or expanding their crypto business.
This also serves as an update to an article I wrote in 2018, as many of the protocols and conclusions mentioned then are now outdated.
Classic Strategies: Spot vs ETF and Exchange Arbitrage
The most fundamental strategy in the crypto market closely replicates traditional market-making models: connecting multiple exchanges (such as Coinbase, Binance, etc.) and executing arbitrage between different trading venues. The goal is to maintain price consistency across different markets by executing arbitrage trades and efficiently allocating funds between exchanges. Prime Brokerage infrastructure plays a supporting role, providing intraday loans and facilitating quick settlements. The execution layer relies on existing, low-latency optimized infrastructure, needing only to adapt to the APIs of crypto exchanges and the custody layer.
In the arbitrage opportunities between spot and ETFs, market makers typically participate as authorized participants (AP) for primary products (such as iShares ETFs). This role grants them the "creation/redemption" function, allowing APs to settle in cash or, under newer mechanisms, in-kind. Market makers hedge ETFs through crypto exchanges and related tools, executing trades across multiple venues, products, currencies, and jurisdictions, which are areas where they already have deep operational experience.
RFQ Access to Web3 Products
Request for Quote (RFQ) systems are gradually becoming the mainstream model for market makers to interact directly with retail users in Web3. The forms of RFQ access are diverse, including decentralized exchanges (DEX), Web3 product frontends, aggregators, or directly embedded in wallet interfaces. The requirements for access are relatively low, mainly including Fireblocks infrastructure for asset entry and exit with counterparties, as well as typically required API access permissions.
DEXs designed around RFQ include AirSwap and 0x Matcha, which are early and representative cases. In these systems, counterparties negotiate prices off-chain, while settlement is completed on-chain through smart contracts. This model retains the characteristics of traditional OTC bilateral trading while eliminating counterparty risk through atomic settlement. Market makers respond to quote requests in real-time, using signed messages and off-chain communication channels, ensuring gas efficiency, privacy, and flexibility for institutional-sized orders.
Compared to automated market maker (AMM) models, the RFQ model eliminates inherent price inefficiencies. As a result, many AMMs have integrated RFQ quotes into their native frontends, allowing users to compare on-chain liquidity pool prices with direct quotes from market makers. Platforms like UniswapX and Jupiter aggregate liquidity from both their internal AMMs and RFQs, presenting users with a combined result when requesting quotes. In practice, RFQs often outperform, making it an important opportunity for market makers to connect and provide quotes through these interfaces.
Aggregators like 1inch act as a "meta-layer" on top of existing DEX and RFQ infrastructure, directly connecting to market makers. They simultaneously initiate quote requests to all DEXs and market makers, presenting the best options to users. Aggregators are typically integrated directly into wallets, gaining broader distribution capabilities from the start.
Wallets are continuously evolving into complete DeFi execution gateways. Products like Metamask, Phantom, and Exodus have built-in Swap functions that can aggregate quotes from both aggregators and direct market makers, effectively acting as "aggregators of aggregators." The core issue here remains cost. Since wallets control user traffic, they aim to internalize as much of the price spread as possible, as this is central to their business model.
Towards Multi-Chain: From Wrapped Assets to Intent Protocols, to Harbor
It is essential to emphasize the evolution of multi-chain infrastructure, as market makers can also provide liquidity and/or execute arbitrage around these solutions, with BTC being included as the largest opportunity in terms of trading volume and profit. Initially, "cross-chain" meant wrapping or bridging, where assets are hosted on one chain via smart contracts and their mapped assets are minted on another chain. The adoption of this method has been limited, as users prefer to hold native assets rather than wrapped tokens.
Intent-based protocols are a newer concept in the Web3 execution layer. Users submit their intent or generalized trading goals, while market makers, referred to as "solvers," compete to execute these intents by finding optimal paths and/or prices. Essentially, these solvers play the role of RFQ responders, ultimately completing settlements on-chain, often involving multiple chains. In many ways, AirSwap can be seen as one of the earliest intent protocols, and we have a deep practical understanding of its advantages and limitations.
THORChain is an important protocol that brings native BTC into the cross-chain ecosystem by combining the AMM model with threshold signatures and a set of multi-party validators. This protocol enables direct exchanges between BTC and EVM-based assets without relying on wrapped tokens or bridging. This design provides a scalable framework for trading native assets across heterogeneous chains.
Finally, @Harbor_DEX integrates and optimizes the aforementioned concepts, ultimately providing a way for market makers to directly quote any asset (native or wrapped) on any chain into Web3 wallets. Harbor launches as a cross-chain CLOB, offering familiar APIs, deterministic price control, and native cross-chain settlement capabilities. It operates entirely as backend infrastructure, integrating directly with wallets without maintaining its own frontend or interacting directly with retail users. Once scaled, Harbor could provide market makers with a unified interface to seamlessly quote across all Web3 wallets and ecosystems.
Arbitrage Between CeFi and DeFi
Compared to traditional order books, AMMs are structurally a model with lower price efficiency. This inefficiency has given rise to MEV extraction behaviors and competition among bots trying to capture arbitrage opportunities between liquidity pools and centralized markets, or arbitraging AMMs themselves in the case of sufficiently large orders.
Price discrepancies between AMMs and centralized exchanges are often significant, presenting attractive opportunities for many current participants. AMM pool prices frequently deviate, and market makers pull them back to reasonable levels, thus immediately capturing spread profits.
However, executing such strategies requires a different price interpretation than CLOBs and node-level infrastructure support. AMM quotes are not discrete order book levels but curves related to trade size, so market makers must dynamically calculate executable sizes and actual transaction prices before analyzing trades. Additionally, successful on-chain arbitrage relies on efficient blockchain infrastructure, including direct node access, optimized transaction propagation, and reliable block packaging strategies to reduce the risk of front-running or transaction failures.
In practice, the biggest challenge is "winning the block," as multiple arbitrageurs often identify the same arbitrage opportunity. Transactions must be not only fast but also discreet, often requiring private relays or dedicated builders to broadcast to avoid exposure in the public mempool and being front-run. With the right infrastructure and blockchain systems in place, arbitrage between CeFi and DeFi can become a lucrative business.
Derivatives, Perpetual Contracts, and Options
The decentralized derivatives market is rapidly evolving, with perpetual contracts (perps) and options protocols representing it, replicating leverage and hedging tools from traditional markets. Among these protocols, Hyperliquid stands out, as its perpetual contract design balances supply and demand for both long and short positions through a market-determined interest rate mechanism.
Hyperliquid also pioneered HLP, introducing a pool-based treasury that allows users to passively participate in the profit and loss distribution of active market makers while reducing the capital requirements for market makers. Essentially, the exchange's margin system is funded by the deposit treasury, enabling users to simultaneously share funding rate income and trading profits and losses. This design aligns incentives among liquidity providers, market makers, and exchanges, representing a significant innovation in decentralized leverage mechanisms.
Another important development is Ethena, which generates synthetic dollars through derivatives. Ethena's model maintains stable assets and issues stablecoins by simultaneously establishing long positions in spot and short positions in perpetual contracts. Each time a user mints or redeems, market makers must complete hedging in real-time, creating ongoing trading volume and arbitrage opportunities.
Expanding into the futures and options space is a natural extension of market makers' existing capabilities. Core skills such as basis management, funding rate arbitrage, inventory hedging, and capital efficiency optimization can be directly transferred to this new environment. With the right custody and execution infrastructure, market makers can operate in these venues just as they do in traditional derivatives markets, capturing structural inefficiencies and emerging trading flows.
Token Market Making
When a new protocol token launches, it typically requires immediate liquidity provision on centralized exchanges. Market makers often sign structured agreements with protocol foundations or treasuries. Such arrangements usually take the form of "lending + options," where market makers receive a certain amount of tokens to lend and simultaneously obtain call options allowing them to purchase tokens at a fixed strike price. For example, if the token doubles in price after launch, the market maker can exercise the option to buy some of the borrowed tokens at the pre-agreed strike price, thus realizing substantial profits.
Over time, this practice may evolve or gradually fade away due to insufficient transparency, benefiting market makers while harming retail and protocol foundation interests. Nevertheless, newly launched tokens will continue to require liquidity support, so variants of this structure are expected to persist in some form.
At Harbor, we are exploring a model that better aligns incentives by pairing market makers directly with token teams and allowing them to distribute liquidity through Web3 wallets rather than centralized exchanges. This approach keeps settlement on-chain, increases transparency, and enables users to trade directly with professional liquidity counterparties without relying on intermediated venues.
Regardless of the approach taken, there remains a significant opportunity for institutional participants to collaborate with token issuers and design structured liquidity solutions, driving this continuously evolving segment of the crypto market with professional market-making discipline and greater transparency.
Venture Capital and New Market Entry
In the crypto space, new markets and structural opportunities emerge approximately every 6 to 12 months, such as mining, exchanges, OTC, smart contract chains, ICOs, DEXs, yield farming, stablecoins, RFQs, perpetual contracts, and the recent ETFs/DATs. This cycle of constant invention and reshaping has existed since the birth of Bitcoin and is likely to continue as the ecosystem matures. Participants who enter these new fields early often capture the majority of the profits due to lower initial competition and information asymmetry.
Many crypto market makers have dedicated venture capital teams, whose purpose is not only to invest but also to gain early insights into upcoming market structures and liquidity demands. These investments create aligned exposure to the upside potential of equity or tokens, as institutions can leverage their infrastructure to drive usage and key metrics growth. I believe that for institutions like Jump, Flow, and Wintermute, VC investments themselves constitute a significant source of their revenue. In my view, establishing a strategically significant VC fund and providing capital market capabilities, including but not limited to liquidity support, will aid the growth of early teams, thereby enhancing the value of VC investments. For example, at Harbor, our equity structure includes four market makers; we involved them in the seed round and completed early alignment, and we expect them to become long-term and important partners of our protocol.
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