Market Making for Newly Listed Tokens

Relying on a single market maker (MM) is a structural risk that many issuers overlook in the rush to list. A sole provider operates in a vacuum; without competition, they have a natural incentive to maintain wider spreads to minimise their own risk and maximise trading margins. When an issuer appoints two or more firms—termed a 'panel'—the dynamics shift. These firms now compete to capture the flow by being the most competitive bid or offer on the book. This competition naturally compresses spreads and increases depth without requiring additional incentives from the project treasury.

Furthermore, a multi-MM strategy provides essential redundancy. If one firm experiences technical downtime or hits their risk limits, the remaining firms ensure the market doesn't collapse into wider spreads and extreme volatility. This is particularly vital on Tier-1 exchanges like Binance or Bybit, where consistent liquidity is a formal requirement for maintaining a listing. From a governance perspective, having multiple data points allows the issuer to benchmark performance. You can compare the uptime, spread maintenance, and fill rates of firm A against firm B. This transparency ensures that the project is receiving high-quality service and that the liquidity provided is truly institutional-grade. We typically recommend a panel of 2–3 firms for a major listing, balanced between high-frequency specialists and those with deeper books for institutional block trades.

Liquidity management is not a static obligation; it must evolve alongside the token’s lifecycle. The first 90 days after listing are characterised by extreme volatility as early backers, airdrop recipients, and speculators interact. Forcing a market maker into ultra-tight spreads during the first 48 hours is often counterproductive, leading to 'toxic' flow that drains the MM’s inventory. Instead, we structure a staggered KPI ladder that aligns the interests of the issuer and the liquidity provider.

In the initial 'warm-up' phase (Day 1–14), KPIs should focus on presence and depth rather than razor-thin spreads. A spread of 50–100 bps may be acceptable if it is backed by significant depth. As the price finds its range, the ladder moves to the 'stabilisation' phase (Day 15–45), where spreads compress to 20–40 bps. By the 'maturity' phase (Day 60+), the MM should be held to institutional standards of 10–20 bps. This phased approach allows the MM to manage their delta risk effectively while providing a predictable environment for the market. These KPIs must be documented in a service level agreement (SLA) and monitored through independent reporting tools. This ensures that the MM is not just 'showing up' on the book, but actively contributing to a healthy trading environment that encourages long-term holding and institutional entry.

The choice of venue significantly impacts the market-making strategy and the required capital. Transitioning from a Decentralised Exchange (DEX) like Uniswap to a Centralised Exchange (CEX) requires a shift from passive liquidity provision to active, order-book-based strategies. On a CEX, liquidity is measured by the quality of the order book—the 'bid-ask spread' and 'depth.' Professional MMs use proprietary algorithms to react in milliseconds to global market moves, ensuring your token price remains correlated across all active pairs.

In the Asia-Pacific and Gulf regions, where many top-tier exchanges are headquartered or heavily regulated (such as VARA-regulated entities in Dubai), compliance is non-negotiable. MMs must operate within the framework of market integrity, avoiding anything that could be construed as wash trading or market manipulation. This involves using 'Self-Trade Prevention' (STP) mechanisms and providing transparent reporting to the exchange’s surveillance teams. A credible MM doesn't just provide liquidity; they act as a bridge between the project and the exchange’s listing team. They help the project navigate the nuance of each venue’s trading rules and ensure that the token remains in good standing. This relationship is critical when negotiating future expansions, such as the introduction of perpetual futures or margin trading, which require even more robust liquidity guarantees from the market-making panel.

A standard market-making agreement involves two primary components: the inventory loan and the service fee. The inventory loan typically consists of the native token and, in many cases, a stablecoin (USDT or USDC). This capital is used by the MM to populate the bid and ask sides of the book. It is crucial that these assets are governed by a robust legal agreement, often under a Commonwealth jurisdiction like Singapore or the BVI, to ensure the return of principal at the end of the term. The 'buy-side' stablecoin capital is particularly sensitive; projects must decide whether to provide this themselves or pay a higher retainer for the MM to use their own capital.

The service fee usually consists of a fixed monthly retainer plus a performance-based bonus, often denominated in the project’s native token. This aligns the MM’s incentives with the success of the project. However, the 'zero-fee' models often proposed by some firms can be a red flag. These firms often make their money through aggressive 'internalization' or trading against the project’s own users, which can suppress price discovery. We advise our clients to prioritise transparency over low costs. A performance bonus based on the achievement of specific, time-weighted spread and depth KPIs is the most effective way to ensure the MM is genuinely working for the project's long-term health rather than just mining the spread for their own profit.

High-quality volume is a byproduct of high-quality liquidity, not the other way around. One of the most common mistakes projects make is focusing on 'headline volume' at the expense of 'real depth.' Organic traders, especially institutional ones, look for a 'thick' book where they can execute large orders without moving the price by more than 1–2%. If a project focuses solely on volume, it often invites wash trading, which creates a 'hollow' book that collapses during a sell-off. This leads to the infamous 'wicking' seen on many low-liquidity tokens, where the price drops 50% on a single moderate-sized sell order.

A professional MM focuses on 'Mean Reversion' and 'Inventory Skewing' to maintain price stability. If a large sell-off occurs, the MM will adjust their quotes to absorb the pressure while maintaining a presence. They also provide 'Cross-Exchange Arbitrage,' ensuring that the price on Bybit stays consistent with the price on a DEX or other CEXs. This creates a cohesive market where traders feel confident that they are getting a fair price regardless of where they trade. By month three, a successful market-making strategy should result in an organic ecosystem where the MM is only providing a fraction of the daily volume, with the rest coming from genuine market participants who are attracted by the tight spreads and reliable depth. This is the ultimate goal of post-listing liquidity management.