Crypto market makers have become one of the most mistrusted groups in the industry, but a TechFlowPost analysis argues that much of that distrust comes from firms that were never performing genuine market-making functions in the first place.
The article says traders know the pattern well: a token lists, spikes quickly, then falls just as fast, while volume dries up almost overnight. In many cases, the blame lands on market makers. Yet the piece draws a line between legitimate liquidity providers and firms that use the label to manipulate prices, inflate volume, or dump tokens after collecting fees.
According to the article, the Federal Bureau of Investigation has brought cases against multiple firms that offered what it described as manipulation services. In South Korea, teams that inflated trading volume under the guise of providing liquidity have also led to criminal convictions. Those operations, the piece argues, should not be confused with market makers whose role is to keep two-sided liquidity available.
Why markets need market makers
The article describes market makers as core participants that continuously quote both bids and offers, allowing trades to happen even when natural counterparties are not immediately available.
In the Korean market, the terms liquidity provider, or LP, and market maker are often used interchangeably. In a broader sense, though, liquidity provision is not limited to licensed institutions. Any passive order that sits on an order book and waits for a counterparty adds liquidity. High-frequency trading firms such as Jump Trading, which use their own capital to fill order books, fall into that category.
TechFlowPost compares the function to a currency exchange booth at an airport. Travelers do not need to wait for another traveler with the opposite need to appear. The booth stands ready to quote both sides. A market maker serves the same purpose in trading venues.
Lower hidden costs for investors
The article says trading fees are only one part of an investor’s real cost. Hidden costs matter more: whether an order can be filled immediately at the expected price, whether a large order moves the market, and whether major price gaps exist across centralized exchanges.
That is where market makers come in. They place dense quotes on both sides of the book, step in as counterparties when natural flow is missing, and use cross-exchange quoting and arbitrage to narrow price differences between venues.
- Bid-ask spreads narrow, reducing trading costs.
- Large orders face less slippage.
- Investors can trade more consistently at any time.
- Cross-exchange price gaps shrink.
The article gives a simple example. If an asset is quoted at 1,010 won to buy and 990 won to sell, an investor who buys and immediately sells locks in a 2% loss. The larger the order, the worse the result can get once the best level of liquidity is consumed and execution moves down the book. By placing orders across multiple price levels, market makers tighten spreads and increase displayed size, which reduces slippage.
They also keep trading continuous. In illiquid tokens, a seller may have to wait for a buyer to appear, and the price can keep moving in the wrong direction during that wait. Under normal conditions, a market maker keeps quoting and stands ready to take the other side.
What token issuers gain
Listing is not the end of a token’s life cycle. The article says it is the beginning. Once a token is listed, users and investors need to be able to enter and exit freely if the market is going to discover a fair price.
For issuers, market makers offer two main benefits. First, they help keep trading conditions stable. In a thin market, even a small order can trigger a sharp move. That kind of volatility increases uncertainty and can damage a project’s reputation regardless of fundamentals. Second, using an independent market maker can reduce suspicion that the issuer is directly controlling the token’s price.
If an issuer trades its own token directly, it can easily be accused of pumping or dumping. A cleaner structure is one in which an independent market maker handles quoting and execution while the issuer only lends tokens. The article says a compliant mandate typically includes clauses that prohibit price manipulation.
In that framework, the spread earned by a market maker is effectively the fee traders pay for immediate execution. As competition compresses those returns, the benefits of better liquidity flow through to the broader market.
The difference from traditional finance is the rulebook, not the function
TechFlowPost argues that crypto market making is not fundamentally different from market making in traditional finance. The real difference lies in market structure and regulation.
In equities, market making is a legally defined activity. Financial institutions pass a review process, sign formal agreements with exchanges, and quote continuously under established obligations. In return, they may receive fee rebates or other incentives. Exchanges also disclose which firms make markets in which stocks, and years of law and precedent have drawn clearer lines around compliant conduct.
Crypto markets do not have that framework. Market makers perform similar functions, but there is little formal structure governing how they contract with centralized exchanges, what obligations each side carries, or what compensation is allowed. The article highlights two main differences:
- There is no standard definition of compliant market making, no clear rule on which firms can take exchange mandates, and no settled framework for duties and compensation.
- Crypto markets carry structural risks of their own, including exchanges trading as market makers themselves and private, undisclosed contracts between market makers and token issuers.
South Korea faces the same problem. The country bars centralized exchanges from making markets directly, but still lacks a unified standard or formal process for deciding whether a given market-making arrangement is compliant.
The article also stresses a point that often gets lost: the regulatory gap concerns formal commissioned contracts with exchanges or brokers. Trading with a firm’s own capital, whether licensed or not, is legal in itself. The European Union’s Markets in Crypto-Assets framework, or MiCA, follows the same logic. Proprietary market making on an exchange does not require a license, while client-facing market-making services do.
Issuer mandates are a defining feature of crypto
The most visible difference from traditional finance, the article says, is how common issuer-mandated market-making contracts are in crypto.
It separates several models. One is pure proprietary trading with no contract. In that setup, a firm signs with no one, collects no service fee, and trades only with its own capital under its own strategy. Any liquidity it provides is a byproduct of that activity. The article treats this as a lawful form of broad liquidity provision that does not trigger licensing requirements.
Another is token lending. If the market maker decides how to trade, bears the price risk, and the issuer does not direct the trading, the article says the arrangement is economically similar to proprietary trading.
The bigger risk lies in issuer contracts that use trading volume as a performance target. Industry participants cited in the article say those contracts differ from exchange mandates in both funding source and risk allocation, and their terms vary widely. They can cover spread settings, listing windows, and unlock-period trading strategies. If volume generation becomes the core objective, the contract can easily encourage wash trading. Because the terms are usually not public, the problem is hard to detect.
That is why the article argues that market makers should not be judged mainly by volume. Volume can be manufactured. What matters is executable depth:
- How much order-book depth exists within 1% to 2% above and below the current price.
- How much slippage a fixed-size order would cause.
- How long two-sided quotes remain live.
If volume is high but the book is thin and a small order can move the price sharply, there is no real liquidity. The core test, the article says, is whether outside traders can execute the size they want at a fair price.
Crypto’s market structure creates extra risk
Stocks usually trade on a single exchange during fixed hours, with exchanges and clearing institutions managing abnormal moves and settlement risk. Crypto trades around the clock across multiple centralized venues worldwide, without the same protections.
First, 24/7 fragmented trading makes cross-platform price gaps common. Market makers have to spread assets across exchanges and use arbitrage to keep prices aligned. If withdrawals or deposits are suspended because of network problems, that mechanism can break down.
Second, hedging tools are limited. There are no circuit breakers of the kind seen in traditional markets, while high-leverage futures trading is widespread. Market makers often rely on futures positions to hedge spot inventory. The article points to a roughly $19 billion cascade of liquidations in a single day in October 2025. When exchange auto-deleveraging mechanisms kicked in, even compliant hedge positions could be forcibly closed. Once that protection disappeared, market makers had little choice but to pull quotes, which made conditions worse.
The deepest problem, the article says, is the lack of a central counterparty clearing system. In traditional finance, trading and settlement come with institutional guarantees. In crypto, market makers must place assets directly on exchanges to trade. If an exchange fails, those assets can be lost in full. The article cites the 2022 collapse of FTX as the clearest example.
Five structural weaknesses in today’s market-making industry
The article says market making itself is not defective. The problem is that the market lacks clear standards and monitoring systems, so compliant liquidity provision and illegal manipulation are often treated as if they were the same thing.
1. Legitimate risk management can be mistaken for manipulation
Frequent order cancellations, quote changes, and hedging trades can look suspicious from the outside. The article points to a case in South Korea’s stock market. In 2021, the Financial Supervisory Service concluded that nine broker-dealer market makers had disrupted the market through frequent quote changes and cancellations, imposing fines of 48.7 billion won, or about $35 million. Market-making activity then stalled.
In July 2022, however, the Securities and Futures Commission reversed that conclusion. It found that frequent repricing and cancellations were necessary to fulfill obligations and manage risk. The firms’ cancellation ratios, between 95.68% and 99.55%, were close to the New York Stock Exchange level of about 94.6%, and there had been no clear ex ante standard for judging the conduct. Even so, the market had gone a full year without market makers during the investigation.
Crypto lacks those standards. The same trading record can be framed by one side as manipulation and by the other as liquidity provision. Even compliant firms cannot be sure how their activity will be judged, and some leave the market as a result.
The article says the key should be trading intent, not cancellation frequency alone. Industry participants commonly look at three questions:
- Was the activity within a pre-agreed contract and internal risk rules?
- Did it actually reduce the market maker’s own price risk?
- Did the firm maintain two-sided quoting rather than trying to push price in one direction?
A market maker that sells spot and buys an equal amount of futures during a sharp move may look aggressive, but the trade can simply be a hedge. By contrast, spreading negative information while selling spot in size without hedging would not fit that description.
2. Volume-boosting firms present themselves as market makers
The article says many of the market-making scandals seen in crypto involve firms that were not market makers in any meaningful sense.
It cites Gotbit as a representative case. U.S. prosecutors said that from 2018 to 2024, Gotbit sold wash-trading services that used multiple accounts to create fake volume, with the goal of lifting token rankings and helping projects secure listings on major exchanges. The founder pleaded guilty and received an eight-month sentence, while the company forfeited about $23 million in crypto assets.
According to the article, those firms do not take real price risk. Their business model is to manufacture volume. In a market that still treats volume as the main scorecard, they can look impressive on paper.
That is why the article argues for a shift in evaluation. Exchanges and issuers should focus on real depth, slippage, and the persistence of two-sided quotes. For firms that take mandates from exchanges or issuers and provide market-making services to clients, registration or licensing requirements could screen out operators like Gotbit at the contracting stage. Pure proprietary traders, by contrast, would not need to be licensed. Again, that mirrors MiCA’s approach.
3. Hidden counterparties and opaque conflicts
Even when a firm appears credible, opaque contracting can create serious problems. In crypto, issuer-market maker agreements often do not disclose the true contracting parties, making it easier for one entity to represent both sides of the same transaction.
The article points to the MOVE case. Movement Foundation transferred 66 million tokens, equal to 5% of total supply, to intermediary Rentech, which described itself as a subsidiary of Web3Port, to provide liquidity. Later disclosures showed that in the same contract, Rentech acted as the foundation’s agent while also acting as Web3Port’s agent, effectively representing both sides.
According to the article, those tokens were sold into the market in December 2024 when the token had just launched and there was little buying interest. Binance removed the market maker and froze $38 million in related proceeds. Coinbase later suspended trading in MOVE. The foundation said the sale had not been approved by it. What was labeled a liquidity agreement, the article says, did not involve genuine two-sided quoting at all. It amounted to one-way selling of the issuer’s tokens.
That leads to two principles for compliant market-making contracts: the market maker must bear real price risk, and the issuer must not direct the price path.
In a token-lending model, the market maker should use the borrowed tokens together with its own capital to quote both sides, then return the same number of tokens at the end of the contract. A proper agreement should spell out:
- No wash trading.
- No one-way price pushing.
- A maximum spread.
- A minimum quote size.
The same logic applies to option-based structures as long as the market maker controls day-to-day quoting and the issuer only sets the option terms without directing individual trades.
The article adds that contracts should at least be visible to exchanges and regulators so they can verify the market-making entity, token size, contract terms, and whether an intermediary is representing both sides. Binance has required projects to submit that information since March 2026. The article goes one step further and says investors should also be able to see which firm is making markets in a given token.
4. Exchange-affiliated market makers create conflict risk
If a market maker is affiliated with a centralized exchange, the risk of conflicts rises sharply. A group that runs an exchange, custody, and proprietary trading at the same time can give its affiliated market maker privileges unavailable to ordinary users.
FTX and Alameda Research remain the clearest example. Alameda was a core market maker on FTX and received credit lines and privileges other users could not access. U.S. regulators later found that customer funds from FTX had been routed to Alameda for investments and to cover losses. Both firms collapsed in 2022.
The article says the problem was not market making as such. It was the lack of oversight around credit access and operational discretion, which allowed customer assets to be misused. The answer, in its view, is not a blanket ban on affiliated market making but structural separation and ongoing monitoring. The International Organization of Securities Commissions, or IOSCO, identified this kind of conflict as a major risk in a 2023 report, and Hong Kong later put rules in place.
In February 2026, the Hong Kong Securities and Futures Commission allowed exchange-affiliated entities to conduct market making under three hard conditions:
- The market-making unit must be separated from exchange functions.
- The two sides must have clear business boundaries.
- An independent third-party professional assessment must be submitted to the regulator before the activity begins.
The article says South Korea should follow the same principles from the outset if its exchanges ever use affiliates for market making.
5. No binding duty to stay in the market during a crisis
The final weakness appears when markets fall hard. Most crypto market makers have no binding obligation to keep quoting during a selloff. As losses widen, the rational move is to pull orders. That leaves large gaps in the book and can accelerate a collapse.
The article points to Oct. 10, 2025, when many crypto assets fell 40% to 70% in a single day. Industry participants broadly viewed the mass withdrawal of quotes by market makers as a key factor behind the loss of control in the market.
To avoid that outcome, the article says markets need both clear performance obligations and matching incentives. Firms operating under binding contracts behave differently in a crisis. In one example from industry interviews, a market maker widened spreads during a macro-driven selloff but did not remove quotes entirely, which kept trading from breaking down. The difference came from contractual duties and risk-management guidance.
Traditional equity markets already formalize this. The Korea Exchange requires market makers to quote a single instrument for at least 80% of each trading day and at least 90% of the quarter. Incentives are paid only if those thresholds are met. If a firm falls short and accumulates enough penalty points, the mandate can be terminated and the firm can be barred from taking market-making assignments for one year.
The article says post-shock recovery should also be measured by market function rather than price rebound alone:
- Did widened spreads narrow again?
- Did removed order-book size return?
- Did cross-exchange price gaps converge?
- How long did it take to normalize?
If those metrics are tied to performance reviews and incentives, market makers have a stronger reason to stay active during stress.
South Korea’s gap is concentrated in commissioned market making
The article’s central conclusion is that distrust of market makers is not baseless, but the root problem is not market making itself. It is the fact that anyone can call themselves a market maker in a market that still lacks a clear definition of normal, compliant conduct.
Under current Korean law, proprietary trading with a firm’s own capital, including trading with borrowed tokens, is legal in itself. If the conduct amounts to price manipulation, it can be punished, but proprietary liquidity provision is not illegal on its own. The gray area lies in commissioned contracts.
TechFlowPost identifies several gaps in the current Korean framework:
- There is no formal compliance channel for exchange-mandated market-making contracts. The Virtual Asset User Protection Act prohibits price manipulation but does not create a safe harbor for compliant market making.
- There is no registration or licensing system for commissioned market makers.
- Corporate entities still face difficulty opening accounts on won-denominated exchanges.
In other words, Korean regulation does not ban liquidity provision itself. What it lacks is a route for commissioned market making to be formally mandated and supervised. Without that route, regulators are left reacting after problems emerge.
Other jurisdictions are moving, and Korea is drafting its own framework
The article says major jurisdictions are converging on a similar direction: crack down on unfair trading and manipulation while formally recognizing compliant liquidity providers.
- European Union: MiCA took full effect on Dec. 30, 2024, banning crypto-asset price manipulation. Proprietary market making on exchanges does not require a license, while client-facing services do. Keyrock and Flowdesk obtained the relevant licenses in June 2026 for client business.
- Hong Kong: regulators concluded that exchange liquidity was insufficient and, in February 2026, allowed exchange-affiliated entities to make markets under separation requirements.
- Japan: in July 2026, lawmakers revised the law to bring crypto assets under the Financial Instruments and Exchange Act and added an insider trading ban.
The paths differ, but the direction is the same. South Korea, the article says, needs to find the same balance. It should neither reject market makers outright nor treat them as inherently benign.
It then lays out a reform agenda:
- Legally distinguish compliant activity from misconduct using industry standards such as whether the market maker bears price risk, avoids one-way price control, and allows outside investors to trade normally.
- Set qualification requirements for commissioned market makers, limiting licensing or registration to firms that take exchange or issuer mandates with performance obligations.
- Make contracts more transparent so exchanges and regulators can verify the market-making entity, token size, and terms, while investors can identify the firm behind a token’s liquidity.
- Control conflicts of interest through business separation and external review for exchange-group market making.
- Tie obligations to incentives so market makers have a reason to keep quoting during market stress.
The Digital Asset Basic Act is nearing the finish line, but issuer mandates remain a blind spot
The article says this is the right moment for South Korea to build that framework.
A draft Digital Asset Basic Act submitted for review in June 2025 already states that exchange-mandated market making should not be treated as price manipulation. In September 2026, an official at the Financial Services Commission, or FSC, said the agency would assess the need for a market-making regulatory framework. At a parliamentary audit session in October, the FSC chair said the bill text had been completed and had entered final consultations, with the government aiming to finish legislation within the year.
Still, the article says the main debate is no longer whether market making should be allowed. It is what standard should govern it. The public draft focuses on exchange-mandated market making and follows the stock-market model. Yet many of the worst distortions discussed in the article come from issuer-mandated contracts. If the law does not address issuer mandates, the biggest regulatory blind spot will remain.
That issue also intersects with broader institutional access. In February 2025, the FSC announced a pilot plan to allow about 3,500 listed companies and professional investors to trade crypto assets. The related guidance has not been finalized and is being considered for release alongside the Digital Asset Basic Act.
The article ends with a warning. If Korea opens the door to institutional capital without bringing market makers into the regulatory framework, liquidity provision will still sit outside the system. For the market to absorb institutional money more safely, it first needs to rethink what a market maker is. Ex post punishment alone will not retain compliant firms or filter out impostors. The Digital Asset Basic Act, the article argues, is a chance to move market makers from the category of targets to be cracked down on into the category of actors subject to routine supervision.
