The Hidden Machinery Behind Crypto Token Launches: Market Making, Manipulation, and the Path Forward

The cryptocurrency industry has long operated under a veil of opacity when it comes to market structure, but recent high-profile token collapses have thrust the world of market making into the spotlight. From Movement Labs to Mantra to Polyhedra, the first half of 2025 has been marked by a series of dramatic token implosions that have left investors questioning the fundamental mechanics of how crypto markets actually function. In a revealing conversation on Lightspeed, Matt Jobbé-Duval, co-founder and CEO of CoinWatch, pulled back the curtain on the complex, often problematic world of crypto market making.

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Jobbé-Duval brings a unique perspective to this discussion. With a decade of traditional finance market making experience followed by years negotiating market maker deals for major crypto protocols including Solana, Optimism, Sui, and Jito, he has witnessed the evolution of these structures from their inception. His firm, CoinWatch, has negotiated over 60 market making deals and now offers tracking solutions that allow protocols to monitor their market makers' activities in real-time. The insights he shared paint a picture of an industry at a crossroads, where legitimate liquidity provision often intersects with predatory practices that can devastate token holders.

Understanding the Fundamentals of Market Making

Market making, at its core, is a straightforward concept that applies equally across traditional and crypto markets. A market maker's job is to continuously provide both a bid price (at which they will buy) and an offer price (at which they will sell) for a given asset. By placing orders on both sides of the order book around the current trading price—known as the mid price—market makers ensure that traders can execute transactions efficiently without causing excessive price impact.

The more orders a market maker provides around the mid price, the better liquidity becomes available for that token. This translates directly into practical benefits: when someone wants to buy or sell a large amount of tokens, they can do so at a price closer to the mid price than would otherwise be possible. Without market makers, even modest-sized trades could move prices dramatically, creating a poor trading experience and discouraging participation.

However, while the fundamental concept remains the same, the application of market making in crypto differs dramatically from traditional finance. The unique characteristics of cryptocurrency assets have necessitated entirely different compensation structures, risk management approaches, and ultimately, have opened the door to practices that would be unthinkable in regulated equity markets.

The Volatility Challenge: Why Crypto Market Making Is Fundamentally Different

The first major distinction between crypto and traditional market making lies in the extreme volatility of digital assets. While a volatile stock in the S&P 500 might move 20-30% annually, cryptocurrency tokens routinely experience annualized volatility of 100-200%. For newly launched tokens, the numbers can be even more extreme—Jobbé-Duval pointed to a recent token launch that experienced 20% movement in its first day, which annualizes to approximately 400-500% volatility.

One might assume that higher volatility would be advantageous for market makers, who theoretically profit from buying low and selling high as prices fluctuate. This would indeed be true if cryptocurrencies exhibited mean-reverting behavior—where upward movements are typically followed by downward corrections and vice versa. But crypto assets are fundamentally different: they tend to follow persistent trends rather than reverting to a mean.

"Crypto is really not like that," Jobbé-Duval explained. "When something starts to go up, it goes up a lot. And every day it will not stop going up and vice versa." He cited Solana as a prime example: the token launched at approximately 75 cents and rose to $200 within about a year and a half—essentially a straight line up. Conversely, tokens that trend downward often continue their descent relentlessly.

This trending behavior creates enormous risk for market makers. A market maker providing offers on a token like Solana would continuously sell as the price rose, becoming increasingly short on a position that showed no signs of stopping. The opposite scenario presents similar dangers: being long a token that spirals downward creates mounting losses with no relief in sight.

The Birth of the Call Option Structure

These unique challenges required a novel compensation structure, and according to Jobbé-Duval, the solution emerged around 2017-2018 during the Blockstack token launch. When Blockstack approached Jump and GSR for market making services, both firms recognized that traditional retainer-based compensation would be inadequate given crypto's extreme volatility and trending nature.

"They all kind of went with their quant department to think about what could they do to be paid in a way that would protect them against massive run-ups," Jobbé-Duval recounted. The result was an elegant structure built around an embedded call option. While the exact originator remains unclear—"the jury is still out on who came up with the structure, either Jump or GSR"—this innovation became the foundation for nearly all crypto market making agreements that followed.

The structure works as follows: a protocol's foundation lends a chunk of tokens to the market maker. At maturity (typically one year), the market maker must return either the borrowed tokens or a fixed US dollar amount. The price at which the market maker can effectively purchase the tokens from the foundation—the strike price—is established at launch. This creates an embedded call option that protects the market maker against unlimited upside losses.

Returning to the Solana example, this structure would have allowed the market maker to sell tokens continuously as the price rose from 75 cents to $150. Despite being short throughout this rally, they would remain protected because they could ultimately purchase tokens back from the foundation at the predetermined strike price of approximately one dollar. If the token performed well, the market maker would be handsomely compensated through the appreciation of their option. If it performed poorly, they would simply return the borrowed tokens at no additional cost to the foundation.

"That structure was really very elegantly allowing the market maker to do their job throughout the life of the trade," Jobbé-Duval noted, "and also to be paid handsomely potentially because if the asset was going to have a very big up trajectory, the market maker would be set to be paid a good amount, which of course the foundation would be super happy about because the tokens are up a lot."

When Call Options Become Toxic: The Size Problem

While the call option structure solved the fundamental problem of compensating market makers in a trending, volatile market, it introduced new risks that have become increasingly apparent. The structure's elegance masks potential for significant abuse, particularly when deals are improperly sized.

The first critical issue involves oversized loans. When the market maker's call option represents too large a portion of the circulating supply, what Jobbé-Duval calls a "magnet effect" takes hold. The strike price of the call option begins to act as a gravitational force, pulling the token price toward it and preventing healthy price discovery.

"If the market maker, let's say in a crazy scenario, they are in control of 99% of the circulating supply, and the rest of the market is only 1% of the circulating supply," Jobbé-Duval explained, "as soon as the price of the token goes above the strike, the market maker through gamma trading is incentivized to start selling, because they want to capture that increasing delta."

The reverse occurs when prices fall below the strike: the market maker is incentivized to buy back their short positions, pushing prices back up toward the strike. The result is a token price that cannot escape the orbit of the strike price, effectively eliminating the market's ability to determine fair value. "The token price basically cannot achieve healthy price discovery. It's stuck at the strike," Jobbé-Duval warned. "And that's a big problem because the market no longer works. It's completely controlled because of that gamma trading effect."

The Power to Devastate: Large Loans and Bearish Market Makers

Beyond the magnet effect, oversized market maker loans create another dangerous dynamic. In the period between token launch and the typical one-year vesting cliff for investors and team members, market makers often become among the largest single holders of liquid tokens. This concentration of power can prove devastating if the market maker believes the token price will decline.

When a market maker anticipates downward price movement, they face a choice: short via perpetual futures or sell spot tokens from their loan. Selling spot offers significant advantages. Shorting perpetuals carries liquidation risk if prices unexpectedly surge, plus the cost of funding rates that can be extremely negative when many traders are simultaneously shorting.

"Selling on perps gives you two extra risks: liquidation risk if the spot was to jack up higher, your proposition is blown out if you're too leveraged," Jobbé-Duval explained. "And number two, funding risk. You don't have to look very far to get crazy negative funding rates these days."

By contrast, selling spot tokens from the loan is essentially free—no funding costs, no interest rates, no liquidation risk. The market maker can even capture perpetual arbitrage by buying the perp (which now pays them funding) while selling spot. This dynamic gives bearish market makers enormous power to influence prices, potentially upending the carefully planned supply and demand dynamics that protocols establish for their token launches.

"If the market maker is to sell 100% of what they received, that's really going to weigh down on the supply and demand dynamic of the token, meaning lower price," Jobbé-Duval noted, "while not really getting anything out of the market maker, but allowing them to make money."

The Retainer Model: An Alternative with Hidden Costs

While call option deals dominate the market making landscape—representing approximately 95% of the deals Jobbé-Duval has negotiated—an alternative structure exists called the retainer deal. On the surface, retainer deals appear simpler and potentially cheaper: the protocol pays a fixed monthly fee (typically $5,000-15,000 per exchange) for the market maker to provide liquidity.

However, a critical distinction lies in how tokens are handled. In a retainer arrangement, the foundation provides a deposit rather than a loan. The market maker receives tokens (both the native token and stablecoins) and, at the end of the engagement, returns whatever remains in their wallet. If the market maker loses money through poor trading or adverse market conditions, they simply return fewer tokens to the foundation.

"What's the main difference between a deposit and a loan?" Jobbé-Duval asked rhetorically. "With a deposit, the market maker essentially at the end of the engagement is going to return to the client, to the foundation, whatever is in their wallet, meaning if the market maker has done a bad job or the markets were horrible and they lost a lot of money, they're just gonna return less tokens to the foundation."

This structure creates a heads-I-win-tails-you-lose dynamic for market makers. While many retainer arrangements include profit-sharing provisions where the protocol receives 60-80% of upside gains, 100% of losses fall on the client. This asymmetric risk profile explains why market making firms specializing in retainer deals can achieve "very, very lofty valuations compared to a trading firm—simply because this is a business that looks amazing. You cannot lose money when you are market making on a retainer deal, because any loss is passed on to the client."

The practical implications become stark during volatile periods. Using the Solana example, imagine a market maker receiving deposits of SOL and USDC at launch. If the price rallies persistently, the market maker quickly exhausts their SOL inventory as they continuously sell into demand. They face an impossible situation: either request additional token deposits from the foundation or stop providing liquidity entirely. The monthly retainer fees are never sufficient to cover trading losses from shorting a rapidly appreciating asset.

"When we look at the quality of liquidity that happens between a retainer deal and an option deal, you're in two different worlds," Jobbé-Duval observed. "Retainer deals look okay when everything's quiet, when nothing happens, but when a crisis starts to go up a lot or down a lot, market makers pull everything."

The Rise of "Active Market Making": A Euphemism for Manipulation

Perhaps the most troubling development in crypto market making is the emergence of what industry participants have euphemistically dubbed "active market making." This practice, which Jobbé-Duval traced back to marketing by DWF Labs approximately two years ago, represents something fundamentally different from legitimate liquidity provision.

"The first time I heard the term, I think it was coined by DWF about a year or two ago," Jobbé-Duval recalled. "And I'm like, what do you mean? I've been a market maker for 10 years before this, right? At big banks around the world, I've never heard that term."

Active market making, as described by its practitioners, involves "helping your price goes in a direction that makes sense for you, the client." In practice, this means artificially manipulating token prices—a radical departure from the market maker's traditional role of facilitating price discovery through liquidity provision.

The pitch to founders is seductive: treat your struggling token price as an engineering problem to be solved. "Founders are being told by these active market makers that they have a solution for the price of their token," Jobbé-Duval explained. "You don't like the price of your token. It's a bit like an engineering problem that you have on your protocol. It's a bit like a bug that you wish fixed. We have a solution for it. We can help you put the token price wherever you want it to go."

For founders unfamiliar with market structure—typically technologists focused on building products rather than financial engineering—this proposition can seem reasonable. After all, if a competitor appears to be benefiting from similar arrangements, why not pursue the same advantage?

The Mechanics of Active Manipulation: Selling the Future for Today

The mechanics of active market making involve a troubling scheme that Jobbé-Duval characterized as "selling the future for today." The basic recipe requires three ingredients: a small true circulating supply, a source of cash to buy tokens and push prices higher, and time before the consequences become apparent.

Obtaining cash requires selling something, but selling liquid tokens would be counterproductive—you cannot sell liquid tokens to generate capital for buying them back. The solution: sell locked tokens that won't settle for months. The buyer receives tokens three, six, or nine months in the future, but the seller receives cash immediately.

Of course, buyers demand significant discounts for accepting this delay. "Six to nine months ago, the discount was about 20-30%," Jobbé-Duval noted. "Lately, on some tokens that have abused the system, let's say, the discounts have gone to 70, even 80%."

The mathematics quickly become problematic. At an 80% discount, selling a token that settles in six months might yield only 20 cents on the dollar today. To generate one dollar of buying power now requires selling five dollars worth of tokens in the future. "Now you start to see how things maybe can go wrong," Jobbé-Duval observed. "But that's a problem for the future."

The active market maker's pitch frames this as temporary bridge financing: use the cash to drive prices higher, create momentum, generate marketing opportunities, and ultimately achieve organic success that renders the future token sales irrelevant. "It's a bit like putting a rocket to orbit," Jobbé-Duval analogized. "Once you reach escape velocity, you breach the Earth's gravity and now you're set."

When the Fuel Runs Out: The Cascade Effect

The problem, of course, is what happens when the rocket runs out of fuel before achieving escape velocity. The charts Jobbé-Duval examined during the discussion—Polyhedra, Mantra, Solayer, and others—all exhibited a telltale pattern: dramatic gains followed by catastrophic collapses, often within weeks of launch rather than the months implied by locked token settlement schedules.

The explanation lies in the behavior of the sophisticated buyers of these locked tokens—typically hedge funds with separate liquid trading operations from their venture arms. These buyers watch prices closely. As a token rises, they're pleased with their paper gains. But the moment momentum stalls and prices begin to decline, their risk calculus changes dramatically.

"The liquid funds are like, 'Oh shit, it used to go up 10% every week. Now it's not doing that anymore,'" Jobbé-Duval described. "So maybe the first time that actually a few people in the market that have tokens start to sell, the liquid fund is like, 'Whoa, whoa, whoa. I don't want to be holding the bag here.'"

Unable to sell their locked tokens, these funds hedge by shorting perpetual futures. "Usually if you were to plug the funding rate of the perp alongside the spot, you would see pretty much exactly like that scenario—the perp funding rate dropping like a stone," Jobbé-Duval explained. "Like 20, 30% per day, sometimes completely normal when these things happen, even more."

The first fund to short perps hedges their position. The next fund shorts at lower prices. Soon, everyone who bought locked tokens has piled into the same hedge, driving perpetual prices dramatically lower. The weakness eventually transmits to spot markets as arbitrageurs sell spot and buy discounted perps. The result: a decimated price chart well before any locked tokens actually vest.

"Nothing might happen on the unlock because by now these guys are completely hedged," Jobbé-Duval noted. "But now you've destroyed your chart. And now every time you're going to go somewhere, whether in your community or a builder, it's going to be hard to look serious because—what happened here?"

The Troubling Prevalence of Active Market Making

The prevalence of these arrangements appears disturbingly high. While acknowledging selection bias—protocols engaging CoinWatch for transparency have self-selected away from these arrangements—Jobbé-Duval estimated that the practice touches nearly every project.

"I can count on the fingers of my hands the number of clients that we have who have not been approached by these active market makers," he revealed. "Sometimes even looking like white knights, sometimes looking, you know, big firms that are dipping their toes into it."

More concerning is the apparent increase in founders' willingness to engage with these arrangements. Jobbé-Duval attributed this shift to changed regulatory expectations following the new US administration's crypto-friendly posture.

"This is a change of vibe in the crypto industry since the new administration took office. And since there is a general feeling that it's okay—whatever happens, you can hire people to get out of it and probably nothing bad will happen. And so people are willing to try things that quite frankly, their legal counsel or their big investors, even just a few months ago, would have said, 'Are you completely insane?'"

Are Founders Getting Away With It?

A critical question is whether founders who engage in active market making face consequences. The short answer appears to be: less so than one might hope, though the window of impunity is narrowing.

"The answer is the earlier you did this, the easier it's going to get away with it," Jobbé-Duval acknowledged. However, market forces are imposing their own discipline. The collapse cycle is accelerating—schemes that once took nine months to unravel now implode within three weeks. Discounts demanded by locked token buyers have deepened dramatically, making the underlying economics increasingly untenable.

"The economics stop to make sense even for someone who's like, 'Oh, this guy did it nine months ago and it worked,'" Jobbé-Duval observed. "Well, let's check price today. Price doesn't work anymore."

Beyond financial consequences, reputational damage proves lasting. "Once you have them, they're there for posterity," Jobbé-Duval said of the telltale charts. References to Mantra's founders allegedly being unable to return to Dubai underscore the personal stakes involved.

The broader industry is also responding negatively. Legitimate market makers find themselves unwillingly entangled in these schemes—the Movement Labs situation reportedly involved several reputable firms who signed standard market making agreements, unaware of parallel active market making arrangements. These firms now face potential legal exposure despite having done nothing wrong.

"The general legit ethical market making industry is really not happy about this," Jobbé-Duval emphasized. "Liquid funds are really not happy about this. They thought they were getting something at a discount. Actually, they were getting toxic waste into their balance sheet."

Exchange Responsibility: The Launch Day Problem

While founders bear primary responsibility for engaging in manipulation, exchanges contribute to problematic market dynamics through their handling of token launches. Exchanges profit from trading volume, which peaks during volatile periods. The first hours and days of a token launch typically generate enormous volume—Jobbé-Duval cited figures of $10-20 million in trading fees from major launches.

This creates misaligned incentives. "Exchanges have a very strong incentive to have the thing as volatile and as explosive as possible," Jobbé-Duval explained. "Because when things explode higher, emotions kick in."

The mechanics of launch day amplify this problem. When a token launches, concentrated buying meets limited selling. Airdrop recipients need time to claim and deposit tokens. Technical issues with new chains can delay deposits. The result is a wave of buying that temporarily overwhelms available supply, pushing prices to unsustainable levels.

"A lot of buying, everything goes up, and a lot of selling through the next couple of days," Jobbé-Duval described. "People are like, 'Oh, I hope it goes back up.' And then it doesn't, and they panic sell and so on and so on."

The catastrophic implication: the initial price, however irrational, becomes the benchmark against which the token is forever measured. "The initial prices for posterity set super high, and it's not only by crazy buyers who are buying at market at crazy prices," Jobbé-Duval noted. "As a result, the benchmark for the eternity of your token is that price on day one, even in the first hour, that first candle."

This explains why so many crypto tokens appear "down only"—they're not necessarily failing fundamentals; they're simply normalizing from absurd launch prices. Exchanges could implement more orderly price discovery mechanisms but lack economic incentive to do so.

Who Actually Controls Launch Prices?

A common misconception is that founders, investors, or market makers control initial token prices. In reality, none of these parties typically participate in price discovery at launch.

"Founders, foundations, execs of tokens that are about to launch do not decide the price at which the token will list," Jobbé-Duval emphasized. "That's super important. They do not decide unless they are in the order book themselves, unless they start to sell at a certain price, start to buy at a certain price."

VCs and early investors are similarly absent—most token agreements include lock-ups that prevent sales at launch. "By and large, I've never seen a deal or a launch when VCs get unlocked at TGE," Jobbé-Duval noted. "They're not part of the process."

Even market makers, despite their prominent role in conspiracy theories, typically stand aside during the chaotic initial hours. "We track market makers real-time. I can tell you the first couple of hours post-launch, nobody's in the book. Nobody is in the book. There isn't a single dollar of orders in the books."

Market makers do participate in launch-day trading, but for a different purpose: hedging their call options. They sell a portion of their loan—roughly 25-50%, corresponding to the option's delta—but these are hedging transactions, not price-setting activities.

The actual price-setters are retail buyers submitting market orders at any price. "Really the price discovery at launch is driven by people—the crazy buyer who's buying at market, any size, any price. That's the person who establishes the first candle. And that's a problem."

Traditional Finance Solutions: The IPO Model

The irony is that traditional finance solved these price discovery problems long ago. The IPO process includes mechanisms specifically designed to prevent the chaos that characterizes crypto launches.

First, an underwriting price anchors expectations. Investment banks work with companies to establish a reasonable IPO price through book-building exercises with institutional investors. This is precisely what Pump.fun did with their 4 billion dollar pre-launch sale—establishing a reference price before trading began.

Second, the "green shoe option" provides post-launch stabilization. This mechanism allows the lead underwriter to increase the size of an IPO if demand proves overwhelming (adding supply to moderate price increases) or reduce the size if demand disappoints (supporting prices by limiting supply).

"Part one is now being explored," Jobbé-Duval observed, citing CoinList, Echo, and Pump.fun's recent launch as examples of pre-launch price anchoring. The second component—post-launch stabilization—remains largely absent from crypto.

Jobbé-Duval proposed a crypto-native implementation: projects could commit to selling additional tokens if prices exceed the launch price, with proceeds held in a smart contract. If prices subsequently fall below the launch price, those proceeds would automatically purchase tokens, providing stabilization. "Now you have a stabilization mechanic after launch," he explained. "That green shoe is valid for a month in traditional finance. You could have it much shorter in crypto."

The Counterintuitive Wisdom of Launching Low

Perhaps most counterintuitively, Jobbé-Duval argued that foundations benefit from launching at lower rather than higher valuations. "The lower the foundation is willing to sell tokens, the better they are setting themselves up for success."

This seems to contradict founders' natural instincts—selling tokens cheaply feels like leaving money on the table. But the logic is sound. A lower starting price is easier to exceed, creating positive momentum and narrative tailwinds. A higher starting price creates the opposite dynamic: even moderate declines feel like failure, damaging community confidence and builder interest.

He cited Plasma's approach approvingly: "When Plasma selling 10% of their network at 50 million valuation, when they could probably have achieved 10 times more, that means that starting price, if they have the stabilization mechanism in place, that starting price will be very low. It will be easier, way easier to impress from it than starting at 5 billion."

CoinWatch: Bringing Transparency to Market Making

Against this backdrop of opacity and manipulation, Jobbé-Duval's CoinWatch offers a different approach. The firm began as an advisory service, leveraging his experience negotiating market making deals to help protocols secure fairer terms.

"I negotiated the first market making deals of clients including Solana, Filecoin, Flow," Jobbé-Duval recounted. "The idea back then was simple. I'm going to help you out getting a slightly better deal because, God, these deals were insane. Like massive, way too big."

Advisory work remains central to the business—CoinWatch has now worked with over 50 clients including Optimism, Sui, Morpho, Euler, and Aptos. Services include negotiating market making agreements, exchange listing deals, and broader token launch strategy.

However, the firm's evolution reflects a crucial insight: even the best contracts are meaningless without verification. "If you don't track your market maker, you were missing a huge part of the equation simply because you can have the best piece of paper in the world. If you don't verify, not much is going to happen."

Market making is expensive and difficult. Without accountability, market makers face constant temptation to reduce their commitment—pulling quotes during volatile periods, limiting inventory exposure, or simply failing to meet contracted liquidity targets.

CoinWatch's technical solution, CoinWatch Track, addresses this gap. The platform connects directly to market maker API keys, providing real-time visibility into trading activity, order depth, and spread quality. "It's the holy grail of market making—of tracking your market makers—simply because now you know exactly at the source, in real-time, what your market makers are trading, what kind of trading volume they are generating, what depth they're streaming, what bid-offer spread they have in your book at all times, trustlessly from the exchange."

An Untold Chapter from Solana's Early Days

Jobbé-Duval's personal history includes a fascinating connection to Solana's earliest days. As the person responsible for negotiating market making deals for CoinList clients around 2020, he witnessed firsthand the drama surrounding Solana's launch.

"When Solana launched, it only launched on one exchange on Binance," he recalled. "That's kind of crazy to think about now. Now that SOL is as ubiquitous as Bitcoin, but it only launched on Binance."

The single-exchange listing created enormous vulnerability—a delisting threat from Binance would have been effectively a death sentence. And that threat materialized almost immediately. Community members noticed a large token transfer to an undisclosed address and demanded answers. When Solana revealed the recipient was their market maker, the community erupted.

"Binance turns around and publishes a public blog post to say Solana, either you make this right—you know, the market maker sends you back the tokens—or trouble is coming your way," Jobbé-Duval recounted.

The crisis deepened when the market maker revealed they had already sold a portion of their tokens as a delta hedge—a standard practice, but one that made immediate remedy impossible. The situation required tense behind-the-scenes negotiations.

"The Solana team was extremely angry about that," Jobbé-Duval recalled, though he declined to share specifics of the resolution. "It could have been the best trade for them, right? To buy back at 90 cents and then run it into the sunset. But hindsight is 20/20."

The episode underscores both how far Solana has come and how early market structure decisions can create lasting consequences. It also illustrates the power dynamics between exchanges and nascent projects—a dynamic that persists today.

The Path Forward: Transparency and Traditional Wisdom

The conversation ultimately points toward a synthesis of crypto innovation and traditional market wisdom. The call option structure, whatever its flaws, represents a thoughtful solution to real problems posed by crypto's unique characteristics. The question is how to capture its benefits while preventing abuse.

Better sizing of deals is essential—market maker loans should never represent a controlling share of circulating supply. Transparency mechanisms like CoinWatch Track can hold market makers accountable to their commitments. Pre-launch price anchoring through token sales establishes realistic expectations. Post-launch stabilization mechanisms borrowed from traditional IPOs could moderate first-day chaos.

Most importantly, founders must resist the temptation of short-term price manipulation. The rewards appear obvious; the consequences are less immediately visible but ultimately more severe. Every project that collapses 90% in a day damages not just its own community but the broader credibility of the crypto ecosystem.

"I hope that the pendulum is swinging back," Jobbé-Duval reflected. "We see more and more people saying, 'I'm not going to get anywhere close to that because it's extremely toxic. It's a very short-term optimization.'"

The industry's maturation depends on this shift—from viewing markets as problems to be engineered to understanding them as complex systems that function best when left to discover prices organically. Market makers have a legitimate and valuable role in facilitating this discovery. When they're compensated fairly and held accountable, everyone benefits. When they become instruments of manipulation, everyone loses—eventually including the manipulators themselves.

Facts + Figures

• Market maker deal prevalence: Approximately 95% of crypto market making deals use the call option structure rather than retainer models, according to CoinWatch's experience across 60+ negotiated deals.

• Volatility comparison: S&P 500 stocks might experience 20-30% annualized volatility, while crypto tokens routinely see 100-200% annualized volatility; new token launches can exhibit 400-500% annualized volatility on day one.

• Exchange trading fees: A single major token launch can generate $10-20 million in trading fees for the listing exchange over its first few months.

• Retainer deal costs: Standard retainer market making arrangements cost $5,000-15,000 per month per exchange, but carry the hidden cost of potential loss absorption by the protocol.

• Locked token discount evolution: Discounts for locked token sales have expanded from 20-30% six to nine months ago to 70-80% currently as buyers have been burned by active market making schemes.

• Historical reference: The call option structure for crypto market making was pioneered around 2017-2018, reportedly by either Jump or GSR during the Blockstack token launch.

• Solana's launch: Solana launched exclusively on Binance at approximately $0.75-0.90, rising to $200 within about 18 months—a trajectory that created significant challenges for market makers using traditional hedging approaches.

• CoinWatch client base: The firm currently tracks market maker work for approximately 45 live tokens and has advised over 50 protocols including Optimism, Sui, Morpho, Euler, and Aptos.

• Compound's historical deal: Rumors suggest Compound lent between 5-10% of their total supply to market makers—an arrangement Jobbé-Duval characterized as "completely insane."

• Active market making prevalence: Nearly every CoinWatch client has been approached by active market makers offering price manipulation services.

• Call option delta hedging: Market makers typically sell 25-50% of their borrowed tokens at launch to hedge the delta of their embedded call option.

• Collapse timeline acceleration: Schemes that previously took nine months to unravel now collapse within approximately three weeks.

• Pump.fun ICO: The recent Pump.fun token launched at approximately $5 billion FDV after an ICO conducted at $4 billion FDV, representing an early example of pre-launch price anchoring.

Questions Answered

What is crypto market making and how does it differ from traditional market making?

Crypto market making involves the same fundamental activity as traditional market making—continuously providing bid and ask prices to facilitate trading. Market makers place orders on both sides of the order book around the current price, allowing traders to execute transactions efficiently. However, crypto market making differs dramatically due to extreme volatility (100-200% annualized vs. 20-30% for stocks) and persistent trending behavior rather than mean reversion. These characteristics make traditional compensation models inadequate and have led to the development of novel structures like embedded call options to protect market makers from unlimited directional losses.

How are crypto market making deals structured?

Approximately 95% of crypto market making deals use a call option structure pioneered around 2017-2018. The protocol's foundation lends tokens to the market maker, who at maturity (typically one year) must return either the borrowed tokens or a predetermined dollar amount. This creates an embedded call option that protects market makers against extreme upward price movements. Alternative "