A real market maker, or a whale pretending to be one?

A professional market maker is, in the simplest and most technical sense, a counterparty that commits to stand on both sides of an order book continuously, posting bids and offers within a defined spread and a defined minimum size, and to do so through calm markets and volatile ones alike. That obligation is the entire point. It is what converts a thin, unpredictable order book into a venue where a buyer and a seller can transact at a reasonable price without waiting for the other to appear. The obligation is usually written into a contract, measured against agreed key performance indicators, and monitored by someone other than the market maker itself.

Behind that obligation sits real infrastructure. A professional desk runs low-latency connectivity to each venue it quotes on, colocated or near-colocated where the venue supports it, with order management systems capable of updating thousands of quotes per second as reference prices move on other markets. It runs pricing models that reference a composite of venues rather than a single exchange, so that its quotes do not lag the wider market and become a source of easy arbitrage for others. None of this is optional; without it a desk cannot maintain a tight two-sided quote without taking losses whenever the market moves faster than it can react.

Capital is put genuinely at risk. A market maker holds inventory in both the token and the quote currency so that it can fill orders from either side without waiting to source stock elsewhere, and that inventory moves against it constantly as prices tick. The desk manages that exposure through hedges across spot and derivatives markets, through position limits that trigger automatic quote widening or withdrawal, and through capital buffers sized to absorb a bad run without becoming forced sellers at the worst possible moment. The risk is real, continuous and priced into how the desk earns.

The economics of a professional desk are earned from the spread it captures between its own bid and offer, from exchange rebates on the maker side of trades, and in many arrangements from a retainer or fee paid by the issuer for the obligation itself, regardless of how much the desk happens to trade in a given period. None of these revenue sources depend on the token's price rising, and a properly structured mandate does not give the market maker an incentive to inflate demand artificially, because its income is tied to the quality and continuity of its quoting rather than to the direction or volume of the market.

Governance sits around all of this. A professional firm has a named legal entity, a jurisdiction of incorporation, and in many cases a regulatory registration or licence relevant to the activities it performs, whether that is dealing, brokerage or a virtual asset service provider authorisation depending on where it operates. It has risk committees, position limits that are enforced independently of the trading desk, and an audit trail that a client or a regulator can request. This is unglamorous, but it is the substance of the difference between a liquidity provider and an unaccountable trading position.

Reporting is another defining feature. A professional market maker will typically provide the issuer with regular, verifiable reporting on quoted spread, quoted depth, fill rates and uptime measured against the agreed KPIs, and will not object to that reporting being cross-checked against independent exchange data or a third-party monitoring service. The willingness to be measured against an objective standard, using data the market maker does not control, is one of the clearest practical signals of a genuine market-making relationship, and its absence is equally telling.

Finally, professional liquidity provision is bounded. A real market maker quotes within the limits of its mandate, on the venues named in the contract, at the sizes and spreads agreed, and it does not use its position to take directional bets against the issuer's own token using information gained through the relationship. The mandate itself typically includes conflict-of-interest provisions preventing the desk from trading proprietarily against the client in ways unrelated to the quoting obligation, and issuers should expect and request this in writing rather than assuming it.

An opportunistic actor dressed up as a market maker typically holds a large position in the token, acquired cheaply through a private allocation, a loan, or an early investment round, and its trading activity is oriented around exiting or managing that position rather than around maintaining a continuous two-sided market. The quoting, where it exists at all, is a by-product of managing a directional exposure, not an obligation entered into independently of that exposure. This distinction matters enormously, because the incentives it creates are the opposite of those created by a genuine mandate.

A common pattern is self-crossing, where an entity trades with itself or with closely related accounts to generate reported volume without any change in beneficial ownership. This can be done manually across two or more wallets or accounts, or automated through simple bots that alternate buy and sell orders at a fixed cadence. The purpose is to create the appearance of an active, liquid market that will attract genuine buyers, or to satisfy a listing venue's minimum volume requirements, or to support a narrative used in fundraising. It does not add any real liquidity for a third party wanting to trade.

Another pattern is conditional quoting, where the actor posts tight, attractive spreads in calm conditions when doing so costs little and creates a positive impression, but withdraws entirely or widens dramatically the moment volatility rises or the token comes under selling pressure. This is the opposite of what a market maker is meant to provide, because the value of continuous quoting is precisely that it exists when it is needed most, during stress, not when it is easy. An actor that only shows up when conditions are benign is not providing a market-making service in any meaningful sense.

A further variant is the large discounted allocation dressed as a service arrangement. An entity receives tokens at a steep discount to the prevailing or anticipated market price, in exchange for a vague or unenforced promise to support liquidity, and its actual economic interest lies entirely in selling that allocation into whatever demand exists, at whatever pace maximises its own proceeds. Any quoting it performs is incidental to that objective, and the issuer typically has no meaningful mechanism to compel continuous, obligated behaviour once the tokens have been transferred.

These actors often resist defining measurable KPIs, preferring loose language about supporting the market or providing liquidity as needed, because vague commitments cannot be breached and cannot be independently verified. Where an issuer pushes for defined spread, depth and uptime commitments, an opportunistic counterparty will frequently push back, propose to self-report rather than accept independent monitoring, or walk away from the negotiation altogether, which is itself a useful piece of information for the issuer conducting diligence.

The reporting these actors provide, when they provide any at all, is usually volume-based rather than obligation-based, citing large trading totals as evidence of value delivered. Volume, however, is the easiest metric to manufacture and the least informative about whether a market is actually functioning, because it says nothing about spread, depth, or whether the trades represent genuine transfers of ownership between independent parties. An issuer that accepts volume as its primary success metric has effectively invited the counterparty to optimise for the wrong thing.

Perhaps the most damaging feature of this imitation is that it is often difficult to distinguish from genuine market making by looking only at superficial indicators such as a busy-looking chart or a reasonable-looking spread captured at a single point in time. The difference only becomes visible under closer, structured examination of the underlying data across time and across stress conditions, which is precisely why issuers need a diligence process rather than a impression formed from a dashboard, and why independent monitoring matters more than self-reported summaries.

The starting point of any credible diligence process is establishing exactly who the counterparty is as a legal matter. This means obtaining the full legal name of the contracting entity, its jurisdiction of incorporation, its corporate registration number, and ideally sight of its constitutional documents or a corporate registry extract that an issuer's own counsel can verify independently rather than accepting a name on a slide deck or a website. An entity unwilling to provide this basic information, or that only offers a name with no verifiable registration, should not proceed further in the process.

The next question is regulatory standing. Not every jurisdiction requires a licence for the specific activity of digital asset market making, and the absence of a licence is not automatically disqualifying where none is required, but the issuer should understand precisely what regime applies to the counterparty in its home jurisdiction and in the jurisdictions where it will actually be trading on the issuer's behalf. Where a licence or registration is claimed, it should be checked directly against the relevant regulator's public register rather than taken on trust from the counterparty's own materials.

Beneficial ownership matters as much as the corporate name. An issuer should ask who ultimately owns and controls the entity, whether that ownership overlaps in any way with the issuer's own investors, advisers, exchange contacts or existing service providers, and whether the entity or its principals have any history of enforcement action, exchange sanction, or public dispute with a previous client. These are reasonable, standard questions in any institutional counterparty relationship and a professional firm will expect to answer them as a matter of course.

Venue relationships are a further pillar of entity diligence. A genuine market maker will typically hold formal market-maker programme status on at least some of the exchanges it proposes to quote on, which usually involves an application process, a demonstration of technical capability, and in some cases a fee rebate agreement specific to that status. Asking which venues the counterparty holds such status with, and being willing to verify that directly with the venue rather than relying solely on the counterparty's own claim, is a straightforward and revealing diligence step.

Operational history is another area worth probing directly. How long has the entity operated as a market maker, how many mandates has it run concurrently, what is the typical size of token it works with, and can it demonstrate a track record across a full market cycle including a period of sustained decline rather than only during a rising market. A firm that has only operated during favourable conditions has not yet demonstrated that its risk management and quoting discipline hold up when they are actually tested.

Financial standing should also be examined, proportionate to the size of the mandate under discussion. This does not require a full audit in every case, but an issuer is entitled to ask about the scale of capital the desk deploys across its book, whether it uses its own balance sheet or manages third-party capital, and how it would behave if its inventory in the issuer's token needed to be unwound quickly. A desk that cannot describe its own risk capacity in concrete terms is unlikely to manage the issuer's liquidity programme responsibly.

Finally, technology and risk process diligence should cover the practical architecture of the desk: which venues it connects to and how, what latency it achieves, whether its quoting is automated or manually operated, what position limits exist and who has authority to override them, and what happens operationally if connectivity to a venue fails. These questions are technical rather than commercial, but they distinguish a desk built to perform a continuous obligation from one that trades opportunistically when convenient and stops when it is not.

Requesting references from comparable issuers is standard practice in institutional service procurement generally, and there is no reason liquidity provision should be treated differently. An issuer should ask for at least two or three references from projects of a similar size and stage, ideally including at least one whose mandate has concluded or lapsed, since a reference from a client still actively dependent on the relationship carries an obvious incentive to be positive regardless of the underlying quality of service delivered.

The value of a reference lies not in a generic endorsement but in specific, checkable detail. A useful reference call covers what KPIs were agreed, whether they were consistently met, how the provider behaved during a period of market stress, how disputes or shortfalls were handled, and whether the referencing issuer would enter into the same arrangement again on the same terms. Vague enthusiasm without operational specifics is of limited diagnostic value and should prompt further questions rather than being accepted at face value.

Where possible, references should be corroborated independently rather than relying solely on contact details supplied by the counterparty itself, since a provider with something to hide has an obvious incentive to supply only friendly contacts. Searching for the referenced project independently, reaching out through a separate channel, and asking pointed questions about the specific KPI history rather than general satisfaction produces a far more reliable picture than a curated list of introductions.

Track record should also be examined against public, verifiable market data rather than the counterparty's own summary of its performance. If a provider claims to have supported a particular token's liquidity over a defined period, an issuer's own analyst, or an independent monitoring service engaged for this purpose, can pull historical order book snapshots or trade data for that token over that period and assess whether the claimed spread, depth and uptime commitments are consistent with what the market actually showed at the time.

It is also worth examining how a provider's claimed track record holds up during known periods of broad market stress, such as sharp sector-wide sell-offs, because this is precisely when the difference between obligated and opportunistic behaviour becomes visible. A provider whose quoted spreads for a given token widened dramatically or disappeared entirely during a stress period that affected the wider market, while claiming continuous market-making service through that period, has effectively demonstrated the gap between its marketing and its actual conduct.

Duration of relationships is a further useful signal. Providers that retain mandates with issuers for extended periods, including through periods where the token's price has fallen, tend to be those delivering a genuine, valued service rather than a short-term arrangement built around a single allocation event. An issuer should ask not only for references but for the length of each referenced relationship and, where a relationship ended, the reason it ended, since providers that are frequently replaced after short mandates warrant closer scrutiny.

Ultimately, reference and track record checks are not a formality to be completed quickly before signing a term sheet; they are one of the few tools an issuer has to assess a counterparty's actual behaviour under conditions it cannot yet observe directly in its own mandate. Treating this stage with the same seriousness as the commercial negotiation itself materially reduces the risk of entering into a relationship with a counterparty whose real intentions differ from its presentation.

Market-making arrangements are typically priced in one of a small number of recognisable structures, and understanding how each one aligns or misaligns incentives is essential before an issuer signs anything. The simplest is a fee-for-service or retainer model, in which the issuer pays a fixed periodic fee in exchange for a defined quoting obligation measured by KPIs, and the provider's income does not depend on the token's price or on trading volume. This structure creates the cleanest alignment between what the issuer wants and what the provider is paid to deliver.

A second common structure combines a smaller retainer with rebate capture, where the provider also earns exchange maker rebates generated by its own quoting activity, in addition to or instead of a full fee. This remains reasonably well aligned provided the rebate income is transparent and modest relative to the retainer, because the provider's incentive is still to quote continuously and tightly rather than to generate volume through non-genuine trading, since rebates on manufactured volume are usually too small to justify the effort and risk of detection.

The structure that requires the most careful scrutiny is the loan-plus-option arrangement, in which the issuer lends the provider a quantity of tokens, the provider uses that inventory to quote the market, and the provider is granted a call option to purchase some or all of the loaned tokens at a fixed strike price within a defined tenor, in lieu of or in addition to a cash fee. This structure is common and can be entirely legitimate, but its incentive effects depend heavily on the specific terms, and issuers frequently underestimate how much those terms matter.

The strike price and tenor of the option determine the provider's real incentive. A strike set close to the token's price at the time of signing, with a long tenor, gives the provider a strong incentive to see the token's price rise, because its profit is the difference between the strike and the market price at exercise; this can align interests reasonably well provided the loan is genuinely used for quoting and the KPI obligations are enforced independently of the option's value. A strike set well below prevailing price, however, effectively guarantees the provider a profit regardless of whether it performs any real quoting service at all.

An unKPI'd loan, meaning a loan of tokens with no enforceable, independently measured quoting obligation attached, is in economic substance very close to a discounted sale of tokens dressed in the language of a service arrangement. The provider receives the tokens, has no binding requirement to use them for continuous two-sided quoting, and its rational course of action is to manage the position to maximise its own return, which may include selling into demand rather than maintaining it. Issuers should treat any loan structure without hard, monitored KPIs as functionally equivalent to a token sale and price it accordingly.

A further nuance worth understanding is how the size of the loan relative to the token's typical daily trading volume affects risk. A loan sized appropriately to support genuine quoting at the agreed depth is proportionate to the market's actual liquidity needs; a loan many multiples larger than what continuous quoting would require has no operational justification for market making and functions instead as a large speculative position, with the option structure providing the mechanism for the provider to monetise it.

Issuers evaluating any of these structures should model the provider's expected profit and loss under a range of price scenarios, not just the scenario the provider presents, and should ask the provider directly to explain how its own economics change if the token's price falls, stays flat, or rises sharply. A provider that cannot or will not walk through this analysis candidly, or whose explanation reveals that it profits regardless of whether it performs the quoting obligation, has effectively told the issuer everything it needs to know about where the real incentive lies.

The single most revealing element of any market-making contract is how KPIs are defined and who is responsible for measuring them. A well-drafted mandate specifies quoted spread as a percentage or basis-point figure at a stated size, quoted depth within a stated distance of the mid-price, and an uptime percentage measured across trading hours, with all of these figures calculated from independently sourced exchange data rather than from figures the provider generates itself. A contract that leaves KPIs undefined, or defines them only qualitatively, gives the provider an effectively unenforceable obligation.

Stress-period carve-outs deserve close attention, because this is where many contracts quietly hollow out the obligation they appear to create. Some agreements allow the provider to widen spreads or suspend quoting during periods of extreme volatility, which can be a reasonable, narrowly defined protection against genuinely disorderly markets, but issuers should insist that any such carve-out be tightly bounded, with an objective volatility threshold, a maximum duration, and a requirement to resume normal quoting promptly once conditions normalise, rather than an open-ended discretion the provider can invoke whenever convenient.

Exclusivity clauses should be evaluated in combination with the compensation structure rather than in isolation. A request for exclusivity is not unusual and can be reasonable where the provider is being paid a meaningful retainer and is taking on genuine risk, but exclusivity combined with a large discounted token allocation and weak KPIs concentrates significant risk and discretion in a single counterparty with limited accountability, and issuers should be particularly cautious about accepting that combination without strong offsetting protections.

Inventory return provisions determine what happens to any loaned tokens, and unused or excess inventory, at the end of the mandate or in the event of early termination. A contract should specify clearly that loaned tokens not deployed in active quoting, and any tokens remaining at termination, are returned to the issuer within a defined period, and should include penalties for delay. The absence of a clear return mechanism effectively converts what was presented as a loan into a permanent transfer with no corresponding consideration paid to the issuer.

Data and audit access clauses are what make ongoing monitoring possible in practice. The contract should grant the issuer, or an independent monitor acting on the issuer's behalf, the right to receive regular trading and quoting data, and the right to request an audit of the provider's activity relating to the mandate, without requiring the provider's discretionary consent each time. A provider resistant to including this as a standard term, arguing confidentiality or proprietary methodology, is asking the issuer to trust its performance without the means to verify it.

Termination provisions matter as much as the obligations themselves. A well-structured contract allows the issuer to terminate for cause on defined KPI breaches, with a cure period appropriate to the breach, and without punitive exit costs designed to lock the issuer into an underperforming relationship. Contracts that impose steep termination penalties, particularly where the same contract offers only loosely defined KPIs, are structured to protect the provider from accountability rather than to protect the issuer's interest in a functioning market.

Finally, notice periods and transition arrangements should be specified so that the issuer is never left without any quoting coverage during a change of provider. This includes a minimum notice period for either party to end the arrangement, an obligation on the outgoing provider to cooperate with an orderly wind-down of its positions, and clarity on how any outstanding loaned inventory is unwound without creating disorderly price impact in the process. Contracts silent on transition mechanics create unnecessary operational risk at exactly the moment an issuer is most exposed.

Signing a well-drafted contract with clear KPIs accomplishes little if the issuer then relies solely on the provider's own periodic reports to assess whether those KPIs are being met. A provider has an inherent incentive to present its own performance favourably, and even well-intentioned providers can make measurement choices, such as which time window or which venue to report against, that flatter the picture without technically being false. Independent monitoring exists to close this gap by measuring performance against data the provider does not control or select.

Exchange-level data provides one useful, largely objective source for this monitoring. Most major venues offer historical order book and trade data, either directly or through data vendors, that can be used to reconstruct the actual quoted spread, depth and time-weighted presence of a given market maker's orders over any period, and to compare that reconstruction against the KPIs specified in the contract. This analysis does not require access to the provider's internal systems and can be performed entirely from public or licensed market data.

A third-party monitoring service, engaged by the issuer specifically for this purpose and reporting only to the issuer, adds a further layer of independence beyond internal analysis, particularly for issuers without in-house trading expertise. Such a service typically ingests exchange data on an ongoing basis, calculates the agreed KPIs automatically, flags breaches or unusual patterns such as sudden withdrawal of quotes during volatility, and produces reporting the issuer can use both operationally and, if necessary, as evidence in a dispute with the provider.

Monitoring should specifically look for patterns consistent with self-crossing or wash trading, which are visible in granular trade data even when they are not visible in headline volume figures. Indicators include trades that consistently occur at round, non-market-driven intervals, trade sizes that repeat unusually often, counterparties that appear to be linked accounts trading back and forth with minimal net position change, and volume that is heavily concentrated in specific low-liquidity hours where it is easier to move a thin book without genuine counterparties present.

It is also useful to monitor behaviour specifically during periods of market-wide stress, since this is where the gap between obligated and opportunistic providers is most visible, as discussed earlier. An issuer or its monitor should specifically flag any period where the token's own quoted spread or depth deteriorated by a materially greater degree than comparable tokens on the same venue during the same stress event, since this suggests the provider is not maintaining its obligation under exactly the conditions it exists to cover.

Regular structured review meetings, at a defined cadence such as monthly or quarterly, in which the issuer and provider go through the monitoring data together against the contracted KPIs, help keep both parties accountable and surface problems before they become disputes. These meetings should be minuted, and any agreed remediation steps for KPI shortfalls should be recorded with a timeline, so that a pattern of underperformance is documented rather than being addressed only informally and then forgotten.

Certain signals recur often enough across problematic liquidity arrangements that they are worth listing plainly as things an issuer should treat as immediate cause for further scrutiny rather than reassurance. Foremost among these is any provider that guarantees a specific price level, a market capitalisation target, or a rate of price appreciation as part of its pitch. No legitimate market maker can honestly make this promise, because no participant controls the independent decisions of buyers and sellers across a market, and a provider willing to promise an outcome it cannot control is signalling either a misunderstanding of the role or a deliberate misrepresentation of it.

Pricing tied primarily to trading volume generated, rather than to a retainer for an obligation or a properly structured rebate arrangement, is a second significant warning sign, because it directly rewards the provider for generating activity regardless of whether that activity reflects genuine two-sided interest from independent counterparties. Where a provider's compensation scales with volume and the contract offers no corresponding, independently measured spread or depth KPI, the commercial incentive points toward maximising reported activity by whatever means are available.

Refusal to define measurable KPIs, or persistent vagueness when an issuer attempts to pin down specific spread, depth and uptime figures during negotiation, should be treated as a serious signal rather than a minor drafting gap to be resolved later. A provider confident in its ability to deliver continuous, obligated quoting has every reason to agree to specific, measurable terms, since doing so is how it demonstrates and gets paid for genuine performance; reluctance to commit to specifics more often reflects an intention to retain maximum discretion.

The absence of a clearly identified, verifiable legal entity, or reliance on a brand name, a Telegram handle, or an introducer without a named contracting counterparty, should end the conversation until this is resolved. Similarly, unwillingness to provide references, or providing references that cannot be independently corroborated through a channel the provider does not control, should be treated with the same seriousness as a refusal to answer the question at all.

Insistence on exclusivity bundled together with a large token allocation at a steep discount, particularly where the accompanying KPIs are weak or absent, concentrates exactly the combination of risk described earlier: significant token supply in the hands of a single counterparty with limited enforceable obligation and no competitive pressure from an alternative provider. Issuers should be especially cautious when a provider pushes hard for this specific combination early in negotiations, before diligence has been completed.

Reluctance to accept independent monitoring or third-party audit rights, framed as a concern about confidentiality or proprietary trading strategy, is a further recurring pattern. Legitimate providers routinely accept monitoring arrangements with institutional clients across traditional finance and increasingly across digital assets, and reasonable confidentiality can be protected through standard non-disclosure terms rather than by denying the issuer visibility into whether its own mandate is being fulfilled.

Finally, pressure to sign quickly, bypass normal diligence, or bundle the market-making mandate together with other services such as a token sale, a listing introduction or promotional activity in a single opaque arrangement, should prompt an issuer to slow down rather than speed up. Legitimate institutional counterparties generally accommodate a proper diligence timeline, because they expect to be diligenced, and undue urgency is more often a sign that scrutiny is unwelcome than a sign of genuine commercial opportunity.

It is important for issuers to understand that the exposure created by manufactured trading activity does not fall only on the counterparty performing it; the issuer itself typically bears significant, direct consequences, because the activity occurs in the issuer's own token and is frequently traceable back to arrangements the issuer entered into. Treating this as solely the market maker's problem, rather than a risk the issuer must actively manage, is a common and costly misjudgement.

Exchange surveillance has become considerably more sophisticated over recent years, and most established venues now run automated systems designed to detect patterns consistent with wash trading, spoofing and other forms of manufactured activity, drawing on techniques developed in traditional securities surveillance. Where such patterns are detected in a listed token, the consequences for the issuer can include formal warnings, suspension of trading, removal of market-maker incentive arrangements, or in more serious cases delisting of the token from the venue entirely, none of which the issuer can necessarily attribute cleanly to the counterparty rather than to itself.

In jurisdictions where digital asset markets fall within the scope of financial services or market abuse regulation, activity designed to create a false or misleading impression of trading activity or price can constitute market manipulation as a matter of law, exposing the issuer, its officers, and any facilitating counterparty to regulatory investigation, financial penalties and in serious cases criminal referral. The fact that a third-party provider executed the activity does not reliably shield an issuer that arranged, funded or knowingly benefited from it, and regulators in several jurisdictions have shown a clear willingness to look through such arrangements to the underlying conduct.

Beyond direct enforcement risk, there is a durable reputational cost that compounds over time. Institutional investors, serious exchanges and professional counterparties increasingly conduct their own diligence on a token's trading history before engaging with an issuer, and evidence of manufactured volume or a documented history of associating with providers known for this conduct can permanently impair an issuer's ability to raise institutional capital, secure premium exchange listings, or attract long-term liquidity partners, long after the original arrangement has ended.

There is also a direct harm to the issuer's own community and token holders, who transact on the basis of a market that appears more liquid and more actively traded than it genuinely is, and who may make decisions about entering or exiting positions based on that misleading impression. Even where no formal enforcement action follows, an issuer that later becomes known to have facilitated this kind of activity typically suffers a serious and lasting loss of trust within its own holder base, which is difficult to rebuild.

Because of this, Xavion treats the avoidance of manufactured trading activity not as an optional compliance add-on but as a foundational condition of any liquidity mandate it structures or advises on. This is addressed in detail in the final section of this guide, but the principle bears stating plainly here: an issuer cannot outsource this risk to a counterparty and remain insulated from it, and the only durable protection is refusing to enter into arrangements designed, in substance, to create a misleading impression of the market in the first place.

Relying on a single market maker for a token's entire liquidity programme concentrates a set of risks that are avoidable through structural diversification, and institutional practice in traditional markets has long favoured multiple, competing liquidity providers for exactly this reason. Where one provider controls all quoting activity, the issuer has no independent point of comparison for whether the terms it agreed are reasonable, no fallback if that provider withdraws or underperforms, and limited leverage in any dispute, since interrupting the relationship risks leaving the token with no quoted market at all.

A structure involving two or more independent providers, each responsible for a defined portion of the quoting obligation or for coverage on a different set of venues, creates a natural benchmark: the issuer and its monitor can compare each provider's actual delivered spread, depth and uptime against the others operating in the same market conditions, which makes underperformance far easier to identify than it would be against a single provider's self-reported figures alone. It also reduces the influence any single counterparty has over the token's overall trading conditions.

Multi-provider structures additionally provide operational resilience. If one provider experiences a technical outage, a risk-limit breach that forces it to withdraw quotes, or a commercial dispute that leads to early termination, the token's market does not lose all quoted liquidity simultaneously, because at least one other provider continues to operate under its own independent obligation. Building this kind of redundancy into a liquidity programme is a standard risk-management practice in institutional markets and is increasingly available to digital asset issuers as the provider landscape matures.

There are legitimate reasons a smaller issuer might begin with a single provider, principally cost, since running parallel mandates involves proportionally higher total fees and more diligence and monitoring overhead. Where this is the case, the issuer should at minimum retain a documented contingency plan identifying at least one alternative provider that has already been through initial diligence, so that a transition can happen quickly and without a coverage gap if the primary provider needs to be replaced.

Contingency planning should also address the practical mechanics of transition, including how any loaned inventory with the outgoing provider is recovered, how quickly a second provider can be operationally onboarded to the relevant venues, and what interim coverage, if any, exists during the handover period. Issuers that only think through these mechanics after a provider relationship has already broken down typically experience a much longer and more damaging gap in market quality than those who have planned the transition in advance.

Structuring multiple mandates also allows an issuer to allocate different roles deliberately, for example one provider focused on a primary listing venue with deep obligations and another providing lighter coverage on a secondary venue, calibrated to that venue's actual trading volume and the issuer's budget. This kind of deliberate, proportionate design, rather than a single undifferentiated mandate applied uniformly, tends to produce a more resilient and more cost-efficient overall liquidity programme.

Most of the diligence difficulty described throughout this guide arises because issuers approach potential providers informally, one at a time, with loosely comparable questions, and end up trying to compare proposals that describe themselves in entirely different terms, using different metrics, over different timeframes. A structured request for proposal process addresses this directly by asking every provider under consideration to respond to an identical set of questions and to price an identical, precisely defined scope, so that the resulting proposals can actually be placed side by side.

The RFP document should begin by specifying the scope precisely: which token, which venues, what quoted size and spread targets are being sought, what trading hours or time zones require coverage, and what the issuer's budget parameters or preferred structure are, whether that is a cash retainer, a rebate-sharing arrangement, a loan-plus-option structure, or some combination. Providers should then be asked to respond against this fixed scope rather than being invited to propose their own preferred structure in isolation, which is what makes their answers genuinely comparable.

Each provider should be required to submit standardised entity and regulatory information as part of the proposal itself, rather than as a separate, later diligence step, including legal entity name and jurisdiction, relevant licences or registrations, venue market-maker programme memberships, and at least two verifiable references, using the same disclosure template for every respondent. This ensures diligence information arrives at the same time and in the same format for every candidate, rather than being gathered piecemeal and inconsistently across a series of separate conversations.

The commercial section of the RFP should require each provider to quote against the same defined KPIs, specifically stated spread at stated size, stated depth within a stated distance of mid-price, and a stated uptime percentage, together with the fee, rebate share, or loan-and-option terms it proposes in exchange for meeting those KPIs. Providers should also be asked explicitly to disclose how their own profitability changes across a range of token price scenarios, using the economic transparency principles set out earlier in this guide, so the issuer can compare not just headline pricing but underlying incentive alignment.

A scored evaluation matrix, prepared in advance of receiving proposals and applied consistently across every respondent, helps prevent the process from being decided by the most persuasive presentation rather than the most substantively sound proposal. Weighting should typically favour KPI specificity, entity and regulatory verification, reference quality, and incentive alignment considerably more heavily than headline fee levels alone, since the cheapest proposal on paper is frequently the one with the weakest enforceable obligation behind it.

Shortlisted providers should be invited to a structured follow-up session, ideally involving the issuer's technical and legal advisers as well as its commercial team, to walk through their proposed technology, risk limits, and contract terms in detail, and to answer the specific diligence questions raised earlier in this guide directly and on the record. This step frequently surfaces the clearest signal in the entire process, since the manner in which a provider responds to detailed, informed questioning is itself diagnostic of how it is likely to behave once a mandate is signed.

Finally, the RFP process should conclude with a written comparison memorandum, even for a relatively small mandate, documenting how each provider was assessed against the fixed criteria, which questions raised concerns, and why the selected provider was chosen over the alternatives. Beyond improving the immediate decision, this record becomes a valuable reference if the relationship is later disputed, and establishes a disciplined practice the issuer can repeat for future mandates or when adding a second provider to its liquidity programme.

Xavion's role in a liquidity mandate begins before any provider is approached, with structured scoping of what the issuer actually needs: which venues matter to its holder base and its fundraising plans, what size and spread commitments are realistic given the token's actual trading profile, what budget and structure the issuer can sustain, and what regulatory considerations apply given the jurisdictions in which the token trades and the issuer operates. This scoping produces a defined mandate brief rather than an open-ended search, which is the foundation everything that follows is built on.

From that brief, Xavion conducts provider due diligence directly, verifying legal entity registration and beneficial ownership, checking claimed regulatory standing against the relevant public registers, confirming market-maker programme status with the named venues rather than relying on the provider's own claim, and independently contacting and corroborating references from comparable prior mandates. Technology and risk process are reviewed in the same detail described throughout this guide, covering connectivity, position limits, and the governance around who can override those limits.

Where an issuer wants to compare more than one provider, which Xavion generally recommends for mandates of meaningful size, we run a structured RFP on the issuer's behalf using a fixed scope and identical disclosure requirements for every respondent, so the proposals that come back are genuinely comparable on KPI specificity, economic structure and incentive alignment rather than on which pitch was most persuasive. This produces a documented evaluation the issuer's own board or investors can review.

Once a provider or providers are selected, Xavion leads the negotiation of contract terms with the specific protections set out earlier in this guide as a baseline: precisely defined and independently measured KPIs, narrowly bounded stress-period carve-outs, clear inventory return provisions for any loaned tokens, data and audit access rights that do not depend on the provider's discretionary cooperation, and termination and transition terms that protect the issuer from being locked into an underperforming arrangement.

After the mandate is live, Xavion arranges independent, ongoing monitoring of the provider's actual quoting activity against the contracted KPIs, using exchange data the provider does not control, rather than leaving the issuer dependent on the provider's own periodic reporting. Where a second provider or a documented contingency arrangement is appropriate, we help structure and maintain that redundancy, including keeping a pre-vetted alternative provider ready so a transition, if ever needed, does not leave the token without quoted coverage.

This liquidity work sits alongside the wider infrastructure Xavion provides to token issuers, including treasury and OTC banking architecture built across a network of more than 120 institutions spanning correspondent banking, digital-asset-native banking partners and payment rails across 19 jurisdictions of company formation and structuring, and exchange relationships accessed through the Institutional Access Program, which supports issuers navigating listing and venue engagement processes. As with liquidity provision itself, no institution or venue relationship can be guaranteed, since every institution and every venue decides independently, and Xavion's role is to prepare a rigorous, well-documented case rather than to promise an outcome no adviser can control.

Xavion will not accept, structure or facilitate any mandate whose underlying purpose is to create a misleading impression of trading activity, price, or demand in a token, regardless of how the arrangement is described commercially, and we decline engagements where a prospective provider's proposed structure is, in substance, designed to achieve that outcome under a different label. This is not a marketing position; it reflects the direct legal, regulatory and reputational exposure such arrangements create for issuers, described in detail earlier in this guide, and it is a condition we apply consistently regardless of mandate size. This article is general information, not legal or investment advice, and issuers should take independent legal advice specific to their own circumstances and jurisdictions before entering into any liquidity or market-making arrangement.