Strategic Selection: A Practical Guide to Choosing the Right Market Maker
Auros' third Block Research guide helps projects pick liquidity partners - core depth plus OTC desks, structured products, and DeFi tools that boost inflows, yields, and TVL. Framework covers screening, due diligence, and milestone contracts for resilient markets.
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Quick Take
In crypto markets, where liquidity drives both perception and performance, market makers play a critical but often poorly understood role. Professional market makers are essential for maintaining orderly, liquid markets, yet the lack of transparency around their practices makes evaluating partners challenging.
This report - the third in The Block Research's market making series - provides token foundations and exchanges with a practical framework to select the right liquidity provider confidently. Read the full report by The Block Research | The Full PDF Version
The Series Context
- Report 1: Foundations of Digital Assets Market Making – Introduces core principles, strategies, business models, and the evolving landscape of market making in digital assets. Full PDF Version
- Report 2: Numbers and Narratives – Delivers quantitative analysis of liquidity's impact on volatility, with case studies showing how quality provision stabilises tokens across markets. Full PDF Version
Building on these foundations, this guide focuses on partner selection.
Strategic Benefits of Market Maker Partnerships
The right market maker delivers core liquidity - tighter spreads, deeper books, lower slippage - but top providers go further, acting as ecosystem accelerators.
Liquidity and Market Quality
Primary value lies in resilient markets: reduced volatility during events, consistent uptime (>95% quoting), and depth to absorb large trades without disruption. This fosters fair discovery and investor trust.
Strategic Benefits of Market Maker Partnerships
Beyond core liquidity (tighter spreads, deeper books, stable action during unlocks/news), partners deliver ecosystem acceleration:
- OTC Desks: Facilitate institutional raises and large transfers with minimal slippage.
- Impact: Enables efficient capital inflows without market dumps.
- Structured Products: Custom derivatives, options, and hedging tools (e.g., gamma scalping for volatility capture).
- Impact: Mitigates inventory risk, unlocks yields for holders.
- DeFi Optimisation: Liquidity mining strategies, pool efficiency, and cross-chain bridging.
- Impact: Boosts TVL, APYs, and composability in DeFi ecosystems.
These extras turn liquidity into a full growth engine.
Key Criteria for Evaluation
- Reputation & Track Record: Verify client results via independent metrics (spread tightening, volume share).
- Technical Capability & Capital: Probe algo sophistication, hedging (e.g., delta-neutral), and inventory scale.
- Market Specialisation: Prioritise venue/chain expertise for your needs.
- Operational Discipline: Demand >90% uptime KPIs, transparent reporting.
- Economic Alignment: Favor performance-linked fees over fixed retainers.
Evaluation Framework
- Initial Screening: Shortlist 3-5 via referrals, past performance.
- Due Diligence: Request live demos, API access, token loans for testing.
- Liquidity Deep Dive: Measure depth@2%, recovery time post-stress.
- Negotiation: Milestone-based contracts with call options for upside sharing.
Liquidity isn't just table stakes - it's your token's performance multiplier. The wrong partner amplifies flaws; the right one compounds strengths. Use this framework to navigate opacity, secure superior execution, and build lasting market resilience. Projects that treat selection systematically outperform - don't leave it to chance.
Note: The original summary of this report can be found on The Block.
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