Written by: Ada, Deep Tide TechFlow

In the realm of cryptocurrency, market makers seem to always stand at the top of the food chain. They are regarded as "system-level winners" alongside exchanges, imagined by outsiders as "siphons" that do not bear directional risks but can profit from every market fluctuation.

However, when you truly step into this industry, what you see is a different, harsher reality: some face liquidation overnight in extreme market conditions, others exit quietly due to a single risk control misstep, and many are forced to completely reconstruct their business models amid slashed profits, ineffective price wars, and a scarcity of quality assets.

The life of crypto market makers is far from the glamorous image often portrayed.

Over the past two years, the industry has undergone a quiet yet bloody cleansing. As exorbitant profits recede and regulations tighten, compliance capabilities, risk control systems, and technological accumulation have replaced the former boldness and gray-area operations, becoming the new survival thresholds. This is no longer a game of "who dares wins," but rather a long-term, professional, low-tolerance survival competition.

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

When the tide recedes, competition returns to rationality, and risks are fully exposed, who is exiting? Who can remain at the table?

From "Rough Arbitrage" to "Highly Institutionalized"

If we rewind to 2017, the modern concept of "crypto market makers" hardly existed.

At that time, market making resembled a carnival of gray-area arbitrage. Borrowing coins, dumping, covering, returning coins… dumping chips during times of ample liquidity and slowly accumulating during long-tail periods. The boundaries between exchanges, project parties, and market makers were extremely blurred, and operations such as price manipulation and false trading, considered serious crimes in traditional finance, were the norm.

But time is ruthlessly eliminating this model.

Multiple interviewees reached a consensus that market makers in 2017 relied on boldness and information asymmetry; today’s market makers depend on systems, risk control, and compliance.

The core of the change is not merely an "upgrade in gameplay," but a fundamental shift in the underlying structure of the industry. In the past, whether market makers "played by the rules" might have been a moral choice; now, it is a life-and-death red line.

Joesph, a partner at Klein Labs, revealed that all their current operations must revolve around "auditability." Contract specifications, financial audits, transaction details, delivery reports have shifted from "optional" to "default configuration." As a result, compliance costs now account for 30% to 50% of total operating expenses.

With the acceleration of exchanges' compliance processes, the transparency of project financing paths, and the mainstreaming of regulatory narratives, the survival logic of market makers has been forced to reconstruct. The past "black box operations + results-oriented" rough model is being systematically eliminated.

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

The role transformation is equally profound. In the rough era, market makers were merely executors; project parties provided funds and tokens, while market makers were responsible for order placement. Today, market makers resemble secondary partners.

"Whether we take on a project has become akin to an investment decision. The project's fundamentals, circulation structure, exchange allocation, and volatility range are all quantified and assessed in advance," Joesph said. "Projects that cannot enter the top 1000 by market cap may not even qualify for discussions."

The reason is simple. A subpar project can consume an entire year's risk budget for a market maker. In this sense, market making is no longer a simple "service fee business," but a long-term game centered around risk exposure.

Of course, rough arbitrage has not completely disappeared, but it has been marginalized.

In the dark corners of the industry, high-risk, high-gray operations still exist, but their scalability is increasingly difficult, and their survival space is severely compressed. When exchanges, project parties, and market sentiment all prefer "stable liquidity," players who do not play by the rules become systemic risks themselves.

In the current crypto market making field, "playing by the rules" has transformed from a moral constraint into a core competitive advantage.

Exorbitant Profits are Disappearing

Compared to the last bull market, project parties have significantly reduced their budget allocations for market makers. "Data shows that this year, some projects have even cut their Token budgets by 50% compared to the last round," pointed out Vicent, Chief Information Officer of Kronos Labs.

But this is not just a matter of "budget cuts"; the deeper driving force comes from the evolution of the thinking of the project parties.

Project parties have greatly improved their understanding of market making; they have begun to grasp the profit margins of market makers and are no longer satisfied with vague liquidity commitments. Instead, they demand quantifiable KPIs, clear delivery logic, and in-depth explanations of the efficiency of every fund usage.

In short, less funding, higher demands.

Faced with this pressure, leading market makers have not blindly fallen into price wars. Vicent emphasized that market making is an industry that values systems, risk control, and experience. Once quotes fall below the cost of risk coverage, market makers face not just profit declines, but survival crises. Therefore, when the risk-reward ratio is unbalanced, they would rather walk away.

This means that the market has not been completely penetrated by "low-price players," but has instead filtered out a group of survivors who adhere to their bottom lines.

Currently, there is also a phenomenon where quality clients are scarce, and long-tail projects are unprofitable.

Reele from ATH-Labs stated, "The number of projects that truly have market making value is far fewer than the number of market makers in the market." Many long-tail projects lack depth or are easily arbitraged, making it difficult to generate sustainable profits even if they meet market making targets.

This has led to a typical "too many monks, too little porridge" situation: leading market makers cluster around quality projects, while small to medium teams can only compete in low-profit, high-risk marginal projects.

Against this backdrop, market making is evolving from a simple "profit center" to a "relationship entry point." Many market makers view market making as a stepping stone to secure long-term cooperation, using it to penetrate project parties' Treasury management, OTC trading, structured products, and even becoming a starting point for secondary market consulting or asset management.

In other words, the real profits are increasingly not found in "market making fees," but in subsequent structures. This also explains why many still active market makers are simultaneously expanding into investment, asset management, consulting, and other business lines; they are not transforming but are seeking "survival space" for a core business that has already been compressed.

Industry Restructuring: Splitting the Table

In the last cycle, competition among market makers primarily occurred at the same table, with the same exchanges, the same product forms, and the same liquidity indicators.

However, this year, that table is being dismantled.

The emergence of new tracks such as on-chain market making, derivatives, and tokenization of stocks is systematically changing the competitive landscape for market makers.

On a narrative level, on-chain market making is often labeled as "open and decentralized," but in practical terms, its barriers to entry are rising rather than falling. The uncertainty of real liquidity, limitations of the execution environment, and the normalization of smart contract risks create a completely different capability curve, rather than a dimensional reduction attack.

In contrast to on-chain market making, derivatives market making presents opposite characteristics. Its entry barriers are high, but once established, the moat is extremely deep.

In derivatives market making, the contract market imposes extremely strict requirements on risk control and position management, which naturally favors institutional market makers with larger capital scales, richer risk control experience, and more mature systems. In this track, new players do have opportunities, but the margin for error is extremely low.

As for stock tokenization, while it is seen as a key narrative connecting traditional finance, it remains in its early stages at the market making level. Its core difficulty lies in the complexity of hedging and delivery structures, leading most market makers to adopt a "research first, cautious participation" attitude.

In other words, this is a track with high potential but has yet to form a stable market making model.

In Reele's view, these new market making tracks are not only reshaping the industry structure but also serve as a source of pressure for their innovation. Although the client base has decreased, they still need to adapt to the ever-emerging new gameplay in a short time and provide better market making strategies to project parties. "The market making industry is transitioning from a 'unified market' to a 'structured ecosystem with multiple tracks running in parallel.' Competition among market makers is shifting from 'homogeneous involution' to cross-track capability differentiation," Reele stated.

The Moat of Crypto Market Makers

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

At this stage, the real differentiator is not a single advantage, but a whole set of hard-to-replicate systemic capabilities.

These systemic capabilities include a stable trading system, a strict risk control system, strong research capabilities, compliance, and auditability, all of which together build the trust system of crypto market makers.

Joesph revealed that the credit and compliance costs incurred in building this trust system are currently the largest expenses. Although the crypto market making industry is already a fully competitive market, for newcomers, establishing consensus and reputation, as well as managing risks, may not necessarily be more experienced than established market makers.

The crypto market cleansing on October 11, 2025, serves as a validation of this. Vicent stated that this event reflects that the speed of transmission for leverage and liquidation has far outpaced traditional risk control response mechanisms; the industry is accelerating its differentiation, and teams lacking infrastructure and risk control capabilities will be eliminated, with the market evolving towards greater concentration and institutionalization.

"Market making has now become a systematic engineering project. Those who can truly remain long-term are not the teams that merely evade risks once, but those that assume that a cleansing will inevitably occur from the start and prepare for it," Vicent said.

In summary, the true moat of market makers lies in their ability to "not easily make fatal mistakes" at multiple key points. This leads to a seemingly counterintuitive result: the most successful market makers are those who are the most restrained, institutionalized, and systematic.

As the market enters a new phase of full competition and institutionalized risks, crypto market makers are no longer "marginal arbitrageurs," but rather indispensable yet highly constrained foundational roles within the crypto financial system.

Their survival logic is increasingly approaching that of traditional finance, operating with the precision of Wall Street's high-frequency trading giants, yet situated in a "dark forest" that never closes, with volatility ten times that of Nasdaq.

This is not only a return to traditional finance but also an evolution of species under extreme conditions.

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