Market Maker KPI Structure for Crypto Issuers

The target spread—the difference between the highest bid and lowest ask—is the most visible metric of a token’s liquidity. For issuers, the impulse is often to demand the tightest possible spread to mimic the appearance of a blue-chip asset like BTC or ETH. However, an overly aggressive spread mandate forces the market maker into a defensive posture, where they must constantly 'flicker' quotes to avoid being 'picked off' by sophisticated arbitrageurs. This leads to poor execution for real users. A professional KPI structure should focus on the Time-Weighted Average Spread (TWAS). This ensures the MM is consistently present rather than just meeting the metric during low-volatility periods.

Typically, we recommend a tiered spread target. On primary venues like Binance or OKX, a 10-15 basis point spread is a standard benchmark for projects with moderate volume. On secondary venues, this may widen to 30-50 basis points. The key is to align the spread requirement with the exchange’s own 'Market Maker Program' requirements. For instance, if an exchange requires a 20bps spread for fee rebates, your MM’s KPI should be calibrated slightly tighter to ensure they remain competitive. This alignment ensures the MM can operate profitably, reducing the likelihood they will ask for higher retainers or exit the mandate during market downturns. We advise using a 95% threshold for spread compliance to account for brief periods of extreme volatility.

Depth is the true measure of a token’s resilience against price volatility. A 'thin' book allows even small market orders to cause significant slippage, damaging investor confidence and triggering cascading liquidations if the token is used as collateral. When structuring depth KPIs, focus on the ±1% and ±2% order book depth. A common error is focusing solely on the 'top of book'—this is easily gapped. A sophisticated issuer should require a specific dollar value (notably in the quote currency, such as USDT) to be available within these percentage bands at all times.

For a mid-sized protocol, a typical requirement might be $50,000 of depth at 1% and $100,000 at 2%. These figures must be adjusted based on the token’s daily trading volume and the size of the circulating supply. If depth is too low relative to volume, the token becomes a playground for speculators; if it is unnecessarily high, the MM is taking on excessive inventory risk, which will eventually be reflected in their fee structure. Furthermore, the MM must maintain symmetry. If the bid-side depth is significantly higher than the ask-side, it suggests the MM is trying to prop up the price or is 'long' on the asset, creating a risk of a sudden dump when they rebalance. We structure depth KPIs to ensure the MM provides a balanced, 'two-sided' market regardless of price direction.

Uptime is often the most misunderstood KPI. In a 24/7 market, a market maker must provide liquidity across all time zones. However, '100% uptime' is a technical impossibility due to exchange maintenance, API rate limits, and extreme market 'black swan' events. An institutional SLA typically sets uptime at 95% to 98%. This metric must be 'two-sided,' meaning the MM must have both buy and sell orders active simultaneously. If only one side is present, the MM is effectively not providing a market, yet some low-tier providers try to claim uptime credit for one-sided quotes.

The uptime KPI should be measured via independent heartbeat monitors that ping the exchange API every minute. At Xavion, we recommend that issuers avoid relying solely on the MM’s self-reported data. Instead, leverage third-party analytics platforms or direct exchange data exports. Furthermore, the definition of 'uptime coverage' should extend to 'fast-market' conditions. Many MMs pull their quotes during high volatility to protect their capital. While some widening of the spread is acceptable, a complete withdrawal of liquidity—'going dark'—should be heavily penalised. This is particularly relevant for issuers navigating the Labuan FSA or ADGM frameworks, where market stability is a key pillar of ongoing compliance. A robust uptime KPI protects the community from being unable to exit positions during periods of high stress, which is when liquidity matters most.

While spread and depth address the quality of the order book, the Share of Volume (SoV) address the MM’s activity level. A common concern for issuers is the risk of 'lazy' market making, where the MM places passive orders that are never filled. To counter this, we implement a KPI based on the percentage of total maker volume executed by the MM. In a healthy market, the MM should ideally account for 15% to 35% of the total maker volume. If the MM’s share is below 10%, they are likely being outcompeted by other participants, meaning your community is paying for liquidity that isn't actually being used.

Conversely, if the MM accounts for more than 70% of the volume, the pair may be suffering from a lack of organic interest, or worse, the MM may be engaging in wash trading to hit targets. It is vital to specify that the SoV KPI refers to 'Maker' volume, not 'Taker' volume. MMs should be rewarded for providing liquidity (bids/asks), not for crossing the spread and taking liquidity from others. We advise integrating this with exchange-specific data from venues like Bybit or OKX, which provide granular breakdowns of maker versus taker activity. This transparency is essential for the protocol’s long-term viability and for maintaining good standing with the exchange’s listing team, who monitor these ratios to detect inorganic or manipulative behaviour.

The technical execution of these KPIs requires a legal and operational framework that protects the issuer’s treasury. Most market-making mandates operate under a loan-and-option model or a service-fee model. In either case, the performance metrics must be tied to the flow of compensation. For service-fee models, we implement a 'sliding scale' payment system. If the MM achieves 100% of the KPI targets, they receive the full retainer. If they fall to 90%, the fee is reduced by a predetermined percentage. This aligns the MM’s financial incentives directly with the token’s market health.

Furthermore, it is standard practice to include a 'ramp-up' period in the first 30 days of a listing, where KPIs are slightly more relaxed as the MM calibrates their algorithms to the new pair’s organic flow. Following this, the KPIs should be reviewed quarterly. As the token’s market cap and daily volume grow, the depth requirements should increase and the spread targets should tighten. This prevents the MM from 'coasting' on a deal that was struck when the project was much smaller. Finally, for projects regulated under under the SC Malaysia or the FSC BVI, ensuring that these KPIs are documented and auditable is not just good business—it is a regulatory necessity. Clear KPIs demonstrate to authorities that the issuer is taking proactive steps to ensure an orderly market, thereby reducing the risk of 'market abuse' allegations.