Market-maker agreements: the terms to push back on.

A market maker's job is to keep a two-sided market in your token: bids and offers on each venue, at a tight enough spread and with enough depth that real buyers and sellers can trade without moving the price. A good one is worth having. But the agreement is usually the market maker's own form, signed late in a launch and under time pressure, and the economics are not always obvious. This article walks through the terms we see most often and where a founder should push back. It covers general market practice, not any particular firm's terms.

Two commercial models

Most arrangements are one of two kinds, or a blend of both.

• Loan and call option. The issuer lends the market maker a fixed quantity of tokens for a fixed term and grants it a call option over those tokens at one or more strike prices. At expiry the market maker either returns the tokens or pays the strike price and keeps them. Little or no cash changes hands up front, which is why early-stage projects like this model.
• Retainer. The issuer pays a monthly fee. The market maker quotes using its own inventory or an account funded by the issuer. It costs more in cash but gives the market maker no option upside to chase.

Look at the incentive in the loan model before negotiating a word of it. If the price rises above the strike, the market maker exercises and keeps the upside. If the price falls, it returns tokens it can buy back cheaply. Either way, selling borrowed tokens in the first days of trading, when prices and attention are at their highest, is profitable. The agreement is the only thing standing between that incentive and your chart.

Strike, expiry and how the tokens may be used

• Strike price. Resist a strike set at a discount, or fixed before there is any market. Set strikes by reference to a price you can verify, such as the listing price or a time-weighted average over an initial period. Use several tranches at rising premiums, so that the market maker profits only if the token does well.
• Expiry and exercise windows. Set a minimum period before any exercise, a defined exercise notice and payment in a named stablecoin or fiat within a short deadline. The option should lapse if the market maker is terminated for breach.
• Usage restrictions. Loaned tokens should be used only for two-sided quoting on the venues listed in the agreement. They should not be lent on, posted as collateral or moved to undisclosed wallets. Ask for limits on net selling of loaned inventory over defined periods, and require any hedging on derivatives venues to be disclosed and agreed.

Loan return and default

Under most token loans legal title passes to the market maker. If it fails or walks away, the issuer is an unsecured creditor for the return of its own tokens. The terms that protect against this are:

• return of the same quantity in kind within a short period after expiry or termination, with adjustments for token migrations, redenominations and airdrops;
• a cash alternative if tokens are not returned, at the higher of market value on default and on payment;
• events of default that include non-return, insolvency, persistent KPI failure, regulatory or criminal investigation, and breach of the conduct clauses;
• collateral, a parent guarantee or release of the loan in tranches tied to KPI performance, where the market maker's balance sheet does not speak for itself; and
• a governing law and arbitration seat that give you an award you can enforce where the market maker's assets actually are.

KPIs that mean something

"Commercially reasonable efforts to provide liquidity" is not a KPI. A useful schedule specifies, for each venue and trading pair:

• Spread: a maximum bid-ask spread, expressed as a percentage of the mid price;
• Depth: a minimum value of orders on each side within a stated band around the mid price, for example 2%;
• Uptime: the percentage of each measurement period during which the spread and depth obligations are both met.

Then say how performance is measured: from which data source, over what period, and who calculates it. Keep the exclusions narrow and objective, such as exchange outages and price moves beyond a defined threshold. Most importantly, attach consequences: fee credits under a retainer, recall of part of the loan under a loan model, and a right to terminate after repeated failure. A KPI with no remedy is a forecast, not an obligation.

Reporting and wallet transparency

You should always know where your tokens are. List the designated wallet addresses and exchange sub-accounts in a schedule. Require notice before any change, and prohibit loaned tokens from going anywhere else. Ask for regular inventory and KPI reports, trade-level data on request, and an audit right. Reserve the right to give the addresses and reports to exchanges, auditors and regulators, and to publish them in transparency reporting. A market maker that resists wallet disclosure is telling you something.

Retainers and issuer-funded accounts

Where the market maker trades with issuer funds, hold the account in the issuer's name, give the market maker trade-only access and keep withdrawal rights with the issuer. Trading profits and losses belong to the issuer, so the reporting obligations above apply with more force. Location matters here too. VARA's Broker-Dealer Services include making a market in virtual assets using client assets. A market maker operating from Dubai with an issuer's inventory therefore needs to be licensed for it. In the DIFC, a firm that holds itself out as a market maker cannot rely on the exclusion from Dealing in Investments as Principal for trades done through authorised firms (GEN Rule 2.7.4). Ask your market maker where it operates and under what licence, if any.

Termination and exclusivity

The issuer should be able to terminate on short notice for convenience, and immediately for breach, insolvency or credible allegations of misconduct. The market maker's own termination rights should be limited. Every termination should trigger loan return on fixed timelines, and termination for cause should cancel any unexercised option.

Market makers often ask for exclusivity. Where you give it, limit it to named venues and a fixed term, and make it conditional on KPI performance. Keep the right to appoint a second market maker. The market maker will also learn listing dates, unlock schedules and treasury plans before the market does. VARA's definition of inside information expressly covers people who come by it through their profession or duties (Regulation VIII.B.3). The agreement should therefore carry confidentiality and insider dealing restrictions, and should prohibit trading in your token outside the mandate.

Wash trading, manipulation and founder liability

The line between providing liquidity and manufacturing volume is the most important line in the agreement. VARA's Regulations treat it as Market Manipulation to enter into transactions or place orders that give false or misleading signals about supply, demand or price (Regulation VIII.H.1(a)). The same applies to orders on a trading venue that create a false signal about supply, demand or price (VIII.H.1(g)). These rules apply to conduct in Dubai or conduct that affects the price of a virtual asset traded there (VIII.A.1). Where a company is involved, they also reach the individuals who take part in the decision (VIII.H.2). In the DIFC, the market abuse provisions of the Markets Law apply to crypto tokens. In ADGM, the FSRA applies Part 8 of FSMR to Accepted Virtual Assets admitted to trading on an MTF.

Regulators elsewhere have shown how these cases are built. In October 2024 the US SEC charged three firms that held themselves out as market makers, alleging they used bots to wash trade tokens. It also charged the promoters who hired them. Parallel criminal charges followed. The issuer is not a bystander in that picture. A founder who pays for volume, approves "volume targets" or knows that trading is circular is a participant. The agreement should expressly prohibit wash trades, self-matching, layering and spoofing, and coordinated trading. It should include a warranty of compliance with applicable market conduct rules and an obligation to operate self-trade prevention. Breach should give an immediate right to terminate and an indemnity. Volume should never appear as a KPI.

Which entity signs

The counterparty should be the issuer company: the entity that owns the treasury tokens and is named as issuer in the whitepaper and token sale documents. It should not be a founder personally, and it should not be a service company that happens to employ the team. Approve the agreement by board resolution, document the transfer of loaned tokens from treasury, and reflect the loan in your circulating supply and tokenomics disclosures. If the signing entity or its decision-makers sit in Dubai, the market conduct rules above apply directly. Our guides to a BVI token launch step by step and to why the issuer must be a company cover the wider structure.

How listing exchanges look at market-making arrangements

In our experience, listing diligence increasingly asks for the identity of each market maker, copies of the agreements, loan quantities, option terms and wallet addresses. Exchanges then check the answers against on-chain data and the tokenomics you have published. In Dubai the regulatory driver is explicit. Every VARA-licensed VASP must have VA Standards that consider whether a virtual asset may be susceptible to price manipulation and what mitigations apply (Market Conduct Rulebook VIII.A.4(h)). For derivatives, exchanges must keep records of their market makers and the criteria used to select them (Exchange Services Rulebook V.L). An undisclosed loan, or a market maker that is quietly a large seller, can cost you the listing or the relationship with the exchange afterwards. The legal opinion an exchange relies on should describe the same token you are actually launching, as our note on listing legal opinions explains.

A short checklist before you sign

1. Model the option economics at several price paths, and set strikes that reward performance, not early selling.
2. Put spread, depth and uptime in a schedule with a measurement method and remedies.
3. Schedule every wallet and sub-account, with reporting and audit rights.
4. Secure the loan return: timelines, a cash alternative, events of default and enforceable dispute resolution.
5. Ban wash trading and manipulation expressly, and never pay for volume.
6. Sign through the issuer company and make your disclosures match the agreement.

Neo Legal reviews and negotiates market-maker agreements for token issuers as part of launch and listing work, alongside the token documents and listing opinions that exchanges rely on.

Frequently asked questions

What is a loan and call option market-making deal?

The issuer lends the market maker a fixed number of tokens for a set term and grants it an option to buy them at agreed strike prices. At expiry the market maker returns the tokens or pays the strike and keeps them. It saves the issuer cash but gives the market maker an incentive to sell borrowed tokens early, which the agreement has to control.

What KPIs should a token market-maker agreement include?

At minimum, a maximum bid-ask spread, a minimum depth of orders on each side within a stated band around the mid price, and an uptime percentage for meeting both. Each should be set per venue and pair, measured from a defined data source, and backed by remedies such as fee credits, loan recall or termination.

Can founders be liable if their market maker wash trades?

Yes. Under VARA's Regulations, market manipulation provisions reach the individuals who take part in a company's decision, and they apply to conduct affecting the price of a virtual asset traded in Dubai. In 2024 US regulators charged token promoters alongside the market makers they hired. Paying for volume, or approving it, makes a founder a participant.

Should the issuer company or a founder sign the market-maker agreement?

The issuer company. It owns the treasury tokens, it is the issuer named in the documents exchanges review, and it keeps the obligations and liabilities away from founders personally. A board resolution should approve the agreement and the token loan.

Do exchanges ask about market-maker arrangements when listing a token?

In our experience, increasingly yes: who the market makers are, what they were lent, on what option terms and to which wallets. In Dubai, VARA requires licensed VASPs to consider a token's susceptibility to price manipulation as part of their VA Standards, so undisclosed or inconsistent arrangements are a listing risk.

Is a retainer model better than a loan and option model?

It depends on budget and risk appetite. A retainer costs cash but removes the option upside that rewards early selling. A loan model saves cash but needs tighter drafting on strikes, usage limits, reporting and return. Many issuers combine a modest loan with a retainer and strict KPIs.

This article is general information on the position at the date shown and is not legal advice. Token classification and licensing turn on the specific facts of each project; speak to us before relying on it.