Market Making: Retainer vs Loan Model
Almost every MM mandate sits on one of two foundations. Picking the wrong one is the single most expensive mistake an issuer makes in the first year of trading.
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- Retainer / working capital
- Cash out, no upside given
- Loan model
- Inventory loaned, option granted
- Hybrid
- Reduced retainer + smaller option
- Best for
- Working capital fits most credible issuers
Where the loan model fits
Tokens with high expected volatility and a long runway, where the issuer is comfortable parting with embedded upside in exchange for a smaller cash bill and a real inventory commitment.
Where it usually doesn't
Mid-cap tokens with controlled emissions and a defensible thesis. The option value the issuer hands away is almost always larger than the cash saving.
Frequently asked
Can a model be renegotiated mid-term?
Rarely. Renegotiation happens at renewal, which is why the first signature matters disproportionately.
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