Crypto Market-Making Agreements: The Terms Token Projects Should Settle Before Signing

A token project is preparing for an exchange listing when a market maker comes forward with an offer: liquidity support in return for a token loan and an option to purchase part of the allocation. The pitch highlights tighter spreads, deeper order books, and a smooth launch. Behind the pitch is a specific service: market makers quote continuous bid and ask prices on designated venues, and spreads, order-book depth, and uptime are the metrics used to describe that quoting activity.

Several months later, the project asks for its tokens back. The market maker points to an option exercise provision, an extended repayment period, and authority to hold inventory on third-party exchanges. Only then do the founders discover that their understanding of “providing liquidity” never made it into the written agreement.

Before transferring any inventory, a project should establish what the market maker is permitted to do with the tokens, how performance will be measured, and exactly what must be returned. Those terms deserve as much attention as the headline fee.

Define the Token Loan and Purchase Rights

The first step is to identify the legal entities supplying the tokens, performing the services, and owing repayment. If a foundation holds the treasury while a development company signs the agreement, the foundation's authorization and contractual rights must be clearly established.

The documents should also distinguish among a loan, an outright sale, and assets held for trading on the project's behalf. Key questions include whether ownership transfers, whether inventory may be commingled with the market maker's own holdings, and whether the recipient must return equivalent tokens or account for specifically held assets.

Where the market maker receives a purchase option, the quantity, exercise price, expiration, notice procedure, settlement currency, and interaction with repayment should all be negotiated.

A hypothetical illustrates the stakes. Consider a loan of one million tokens paired with an option to buy them at $0.50 each. If the token later trades at $2, exercising the option could allow the market maker to pay $500,000 rather than return tokens with a quoted value of $2 million. That may be an intentional commercial bargain, but the project should model the outcome before signing.

Provisions covering partial exercise, token migrations, supply changes, and early termination also warrant attention. The parties should determine whether an option survives a service breach, and whether repayment obligations are reduced only after a valid exercise and payment.

Translate the Proposal Into a Measurable Trading Mandate

A promise to “maintain liquidity” leaves substantial room for disagreement. The agreement should specify the approved exchanges, trading pairs, inventory allocation, and the services expected on each venue.

Useful performance measures may include maximum quoted spreads, minimum order-book depth within defined price bands, and the percentage of time qualifying quotes remain available. The reference price, measurement intervals, data sources, and treatment of exchange outages should likewise be defined. These are matters for negotiated service obligations with realistic exceptions.

Language that treats a desired token price or artificial transaction volume as the service being purchased should be avoided.

Trading authority also needs boundaries. The agreement should address whether the market maker may transfer inventory between venues, lend it onward, pledge it, use leverage, or hedge through derivatives. If hedging is permitted, its purpose, limits, and reporting requirements should be identified. For accounts controlled by the project, trading-only permissions may be considered, along with separate authorization for withdrawals.

Require Lawful Activity and Meaningful Oversight

A promise of “volume support” warrants scrutiny of the actual trading strategy behind it.

In an August 6, 2026 announcement concerning MyTrade's founder, the Department of Justice described his sentencing following a guilty plea to conspiracy to commit market manipulation and wire fraud. MyTrade's service used bots to conduct wash trades that created misleading trading activity. The practical lesson for token projects is to examine exactly how promised results will be achieved.

The agreement should prohibit manipulative trading, deceptive orders, and coordinated transactions intended to create false market activity. Compliance with applicable law and venue rules should be required, together with controls appropriate to the strategy.

Projects should also secure rights to investigate suspicious activity, obtain relevant records, and suspend trading when necessary. A general compliance warranty offers little operational protection if the project cannot see what is actually happening.

Kelman PLLC's earlier coverage of market-maker enforcement actions provides background on the allegations that prompted several proceedings. Contract negotiations should convert those concerns into concrete oversight rights.

Make Reporting Sufficient to Reconcile the Inventory

A dashboard showing aggregate volume does not explain where the project's assets are located or how they have been used. Reporting terms should allow the project to reconcile:

• Opening and closing token and cash balances.
• Trades, transfers, fees, rebates, and other charges.
• Inventory held at each approved venue or wallet.
• Outstanding loans, collateral commitments, and permitted hedges.
• Performance against the agreed quoting obligations.

The agreement should specify reporting frequency, delivery format, record retention, and access to records after termination. Prompt notice should be required for withdrawal restrictions, security incidents, material trading errors, and regulatory inquiries affecting performance.

Reporting should also separate trading gains and losses from service fees. Who receives exchange rebates? Who funds losses? Can the market maker deduct disputed charges from repayment?

A project should be able to reconstruct its position without relying entirely on the market maker's explanation of a proprietary dashboard.

Address Conflicts, Information Use, and Exclusivity

A market maker may hold interests that diverge from the project's. The agreement should address its ability to trade for its own account, serve competing projects, transact with affiliates, and receive compensation from exchanges or other counterparties. Disclosure of material conflicts should be required, along with an agreed approach to managing them.

Confidentiality provisions should govern the use of nonpublic information about listings, token unlocks, treasury transactions, and commercial announcements.

Exclusivity deserves particular attention. A broad restriction could prevent the project from appointing another provider even when performance deteriorates. Options include limiting exclusivity by venue, trading pair, duration, and satisfaction of measurable service standards.

The project should also retain approval rights over public statements suggesting that the market maker guarantees a token's price, listing, or commercial success.

Negotiate the Exit Before Delivering the Tokens

Termination and repayment are separate obligations. Ending the service relationship should trigger a defined process for stopping new trades, closing permitted positions, reconciling balances, and returning inventory.

Notice periods, cure rights, and the circumstances permitting immediate suspension or termination should be spelled out. Relevant scenarios include material breach, unauthorized asset use, persistent performance failures, loss of necessary permissions, and security incidents.

For repayment, the agreement should identify the token, network, destination-verification procedure, deadline, and responsibility for transaction fees. If cash substitution is permitted, the terms should define who may elect it and how valuation works.

Exchange withdrawal freezes should be addressed expressly. The parties should decide whether the market maker remains responsible for timely repayment and what evidence or mitigation steps it must provide. An open-ended extension tied to a venue reopening can leave a project unable to recover its inventory when it is needed most.

Reporting, audit, confidentiality, and dispute-resolution obligations should survive termination.

Review Liability Limits and Recovery Prospects Together

A liability cap based on a few months of service fees may be commercially inadequate where the market maker controls a substantial token allocation. Negotiations should cover how the cap applies to repayment obligations, unauthorized transfers, fraud, willful misconduct, and confidentiality breaches. Indemnities should be reviewed alongside exclusions of damages and defense-control provisions, and these clauses should operate coherently under the chosen law.

The counterparty's financial capacity should be assessed, and collateral or a guarantee considered where appropriate. A contractual recall right does not ensure immediate recovery: in a U.S. bankruptcy, the automatic stay under 11 U.S.C. § 362 can restrict collection and enforcement, subject to statutory exceptions. Counsel should evaluate the arrangement's specific insolvency treatment before relying on contractual remedies.

Finally, governing law and a court or arbitration forum should be selected with enforcement in mind. The location of the counterparty and its assets should be identified, and access to urgent relief addressed.

Kelman PLLC's commercial transactions practice assists digital asset businesses with negotiating and documenting agreements. Before committing treasury inventory, projects can contact the firm to review the proposed agreement, token allocation, trading mandate, and repayment structure.

Attorney Advertising. This article provides general information, not legal advice. Rights and obligations depend on the agreement, applicable law, and the facts. Contacting the firm does not establish an attorney-client relationship.