Market Maker Red Flags: How Token Projects Get Burned

Roughly 85% of tokens launched in 2025 are trading below their launch price, with a median decline of over 70%. Bad market conditions explain some of this. Bad market makers explain more of it than most founders realize.

The crypto market-making industry has a transparency problem. Most agreements are protected by NDAs. Most founders signing them are technical builders, not financial professionals. And the information asymmetry between a sophisticated trading firm and a first-time token issuer is enormous. The result is that predatory deal structures, hidden conflicts of interest, and outright market manipulation have become disturbingly common, and the projects that get burned rarely talk about it publicly.

This article breaks down the specific red flags that token founders should watch for when evaluating market makers. We are writing this as practitioners: Raven is a proprietary market maker, and we have seen how the industry operates from the inside. Our interest is straightforward. Predatory market making damages the credibility of the entire sector, including firms like ours that operate differently. The more founders understand how bad deals work, the better the industry gets for everyone.

Red Flag #1: No Defined KPIs in the Agreement

A market-making contract without measurable performance obligations is an agreement without accountability. If the contract does not specify what the market maker will actually deliver, there is no way to hold them to any standard.

At minimum, a legitimate market-making agreement should define: the maximum bid-ask spread the market maker commits to maintaining; the minimum depth (in dollar or token terms) they will post on the order book at specified distances from mid-price; the minimum uptime percentage (typically 90% or higher); and reporting cadence and format.

If a market maker pushes back on including specific KPIs, that is a signal. Professional firms operating in good faith have no reason to resist measurable commitments. They know what their systems can deliver and should be willing to put it in writing.

Red Flag #2: Price Guarantees or Promises of Specific Price Targets

If a market maker promises your token will reach a specific price, walk away.

Legitimate market making is about providing liquidity: maintaining deep order books, tight spreads, and stable trading conditions. It is not about engineering price targets. A market maker that promises to "get your token to $X" is either planning to manipulate the price (which is illegal in most jurisdictions) or is making a commitment they cannot keep.

The SEC and FBI have both brought enforcement actions against crypto market makers for price manipulation. In 2024, the FBI conducted a sting operation that resulted in charges against CLS Global for wash trading on a token called NexFundAI, creating nearly $600,000 in fake volume that accounted for 98% of the token's total trading activity. GotBit was also charged in connection with similar practices. These cases demonstrated that regulators are sophisticated enough to detect manipulation and are actively pursuing it.

A promise to hit a price target should be treated as a legal liability, not a selling point.

Red Flag #3: Wash Trading Disguised as "Volume Support"

Some market makers offer to "support volume" or "increase trading activity" for your token. In some cases, this is legitimate: genuine market-making activity naturally increases volume because there is more liquidity available, which attracts more traders. But in other cases, "volume support" is a euphemism for wash trading, where the market maker trades with itself to create the appearance of activity that does not actually exist.

Wash trading is damaging in multiple ways. It inflates metrics that exchanges use to evaluate whether to maintain your listing. It misleads retail investors into thinking there is genuine interest in the token. And when the wash trading stops, volume collapses overnight, prices drop, and the project is left in a worse position than before.

The CLS Global enforcement case is instructive here. The firm used 30 wallets to conduct 740 wash trades, creating the illusion of market activity to attract retail investors. When the SEC investigated, it classified the token as a security and charged CLS Global with violating anti-fraud and market manipulation provisions.

Red Flag #4: The Market Maker Has More Clients Than It Can Serve

Some firms advertise partnerships with hundreds or even thousands of projects simultaneously. While scale is not inherently problematic, it raises practical questions about the quality of service any individual project receives.

If your market maker is running a templated approach across a massive client roster, the level of attention, customization, and accountability available to your project may be minimal.

Ask directly: how many active market-making partnerships does the firm manage? What is the ratio of trading engineers to client relationships? Who will be your day-to-day point of contact, and how responsive are they during volatile market conditions?

What Good Looks Like

Not every market-making relationship is adversarial. The best partnerships are structured so that the market maker's incentives align with the project's long-term success. Here is what that looks like in practice.

Clear, enforceable KPIs in the agreement, including spread targets, depth requirements, uptime commitments, and reporting obligations.

Transparent reporting on market-making activity, ideally through dashboards or regular written reports that the project can verify against exchange data.

Selective engagement models where the market maker limits its active partnerships to a number it can genuinely serve well, rather than maximizing client count at the expense of execution quality.

Regulatory awareness and a compliance posture that would withstand scrutiny from regulators in relevant jurisdictions.

Know what you are signing. Ask the hard questions. And choose a partner whose business model depends on your project succeeding, not on extracting value from it.

Raven was built on that principle. The firm deploys its own capital on every trade, runs a deliberately small number of active partnerships, and provides liquidity across CeFi, DeFi, and prediction markets from a single relationship. Every engagement comes with defined KPIs, transparent reporting, and direct access to senior team members. If you are evaluating market makers for your token, get in touch.

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