The Evolution of Crypto Market Makers: Strategies, Infrastructure, and Emerging Opportunities

Author: Techub Selected Compilation

Written by: Michael Oved

Compiled by: Tia, Techub News

Earlier this year, as a major market maker was preparing for an inevitable expansion into the crypto markets, I put together a roadmap for them. The opportunities are vast and still evolving. This list is not meant to be exhaustive but serves as a practical reference for trading institutions seriously considering building or expanding their crypto operations.

It also updates my 2018 article, as many protocols and conclusions mentioned then are now outdated.

Classic Strategies: Spot vs ETF and Exchange Arbitrage

The most fundamental strategy in crypto markets almost entirely replicates traditional market making: connecting multiple exchanges (like Coinbase, Binance, etc.) and executing arbitrage across different venues. The goal is to perform arbitrage trades and efficiently allocate funds between exchanges to keep prices aligned across markets. Prime brokerage infrastructure supports this by providing intraday loans and facilitating rapid settlement. Execution relies on existing low-latency optimized infrastructure, adapted for crypto exchanges’ APIs and custody layers.

In spot and ETF arbitrage, market makers typically participate as authorized participants (APs) for main products like iShares ETFs. This role grants them “creation/redemption” functions, allowing cash settlement or, under newer mechanisms, in-kind settlement. Market makers hedge ETF positions via crypto exchanges and related tools, executing trades across multiple venues, products, currencies, and jurisdictions—areas where they already have deep operational experience.

RFQ Access to Web3 Products

Request for Quote (RFQ) systems are gradually becoming the mainstream mode for market makers to interact directly with retail users in Web3. RFQ access can take various forms: through decentralized exchanges (DEXs), Web3 product frontends, aggregators, or embedded directly into wallet interfaces. The entry requirements are relatively low, mainly involving Fireblocks infrastructure for asset transfers and typically permissioned API access.

DEXs designed around RFQ include AirSwap and 0x Matcha, early and representative examples. In these systems, counterparties negotiate prices off-chain, with settlement on-chain via smart contracts. This model retains traditional OTC bilateral trading features while eliminating counterparty risk through atomic settlement. Market makers respond to quote requests in real-time, using signed messages and off-chain communication channels, balancing gas efficiency, privacy, and flexibility for large institutional orders.

Compared to automated market makers (AMMs), RFQ models eliminate the endogenous price inefficiency problem. Many AMMs have integrated RFQ quotes into their native frontends, allowing users to compare on-chain pool prices with direct market maker quotes. Platforms like UniswapX and Jupiter aggregate internal AMM and RFQ liquidity, presenting users with a combined view. In practice, RFQ often wins out, making these interfaces important opportunities for market makers to connect and quote.

Aggregators like 1inch, acting as a “meta-layer” over existing DEX and RFQ infrastructure, also directly connect to market makers. They query all DEXs and market makers simultaneously and present the best options to users. These aggregators are often integrated directly into wallets, providing broader distribution from the start.

Wallets are continuously evolving into full DeFi execution portals. Products like Metamask, Phantom, and Exodus have built-in swap features that aggregate quotes from both aggregators and direct market makers, effectively creating a “meta-aggregator.” The core remains cost—since wallets control user traffic, they aim to internalize as much spread as possible, which is central to their business model.

Towards Multi-Chain: From Wrapped Assets to Intent Protocols and Harbor

It’s important to emphasize the evolution of multi-chain infrastructure, as market makers can also provide liquidity and/or execute arbitrage around these solutions, with BTC inclusion representing the biggest opportunity in volume and profit. Initially, “cross-chain” meant wrapping or bridging—hosting assets via smart contracts on one chain and minting their mapped assets on another. Adoption has been limited because users prefer native assets over wrapped tokens.

Intent-based protocols are a newer concept in Web3 execution layers. Users submit their intent or generalized trade goals, while “solvers” (market makers) compete by finding optimal routes and/or prices to execute these intents. Essentially, these solvers act as RFQ responders, with on-chain settlement often involving multiple chains. In many ways, AirSwap can be seen as an early intent protocol, with deep practical understanding of its advantages and limitations.

THORChain is a key protocol that combines AMM models with threshold signatures and multi-party validators, bringing native BTC into the cross-chain ecosystem. It enables direct swaps between BTC and EVM-based assets without relying on wrapping or bridges. This design offers a scalable framework for native asset trading across heterogeneous chains.

Finally, @Harbor_DEX integrates and optimizes these concepts, providing a way for market makers to quote directly into Web3 wallets for any asset on any chain—native or wrapped. Harbor offers a cross-chain CLOB with familiar APIs, deterministic price control, and native cross-chain settlement. It operates purely as backend infrastructure, integrated directly with wallets, without maintaining its own frontend or interacting directly with retail users. Once scaled, Harbor could provide a unified interface for market makers to quote seamlessly across all Web3 wallets and ecosystems.

Arbitrage Between CeFi and DeFi

Compared to traditional order books, AMMs are inherently less price-efficient. This inefficiency has led to MEV extraction and front-running bots trying to capture arbitrage opportunities between liquidity pools and centralized markets, or arbitraging the AMM itself on large orders.

Price deviations between AMMs and centralized exchanges are often significant, presenting attractive opportunities for participants. AMM pool prices frequently drift away from fair levels, and market makers quickly bring them back, capturing the spread.

Executing such strategies requires a different price interpretation than CLOBs and node-level infrastructure support. AMM quotes are curves related to trade size, not discrete order book levels, so market makers must dynamically calculate executable size and actual transaction prices before trading. Successful on-chain arbitrage also depends on high-efficiency blockchain infrastructure, including direct node access, optimized transaction propagation, and reliable block inclusion strategies to reduce front-running and failed trades.

The biggest challenge in practice is “winning the block,” as multiple arbitrageurs often identify the same opportunity. Trades must be fast and discreet, often requiring private relays or dedicated builders to broadcast transactions, avoiding exposure in the public mempool. With proper infrastructure and blockchain systems, arbitrage between CeFi and DeFi can become a profitable business.

Derivatives, Perpetuals, and Options

Decentralized derivatives markets are evolving rapidly, with perpetual contracts (perps) and options protocols leading the way, replicating traditional leverage and hedging tools. Hyperliquid stands out with its perpetual design, balancing long and short demand via a market-determined interest rate mechanism.

Hyperliquid also pioneered the HLP, a vault-like liquidity pool that allows users to passively participate in active market maker P&L sharing, reducing capital requirements. The exchange’s margin system is supported by deposit vaults, enabling users to share funding rates and trading P&L simultaneously. This aligns incentives among liquidity providers, market makers, and the exchange, representing a significant innovation in decentralized leverage.

Another key development is Ethena, which creates synthetic USD through derivatives. Ethena’s model maintains stable assets by simultaneously hedging spot longs and perpetual shorts, issuing stablecoins. Each user mint or burn requires real-time hedging by market makers, generating continuous trading volume and arbitrage opportunities.

Expanding into futures and options is a natural extension of market maker capabilities. Core skills like basis management, funding rate arbitrage, inventory hedging, and capital efficiency can be directly transferred. With proper custody and execution infrastructure, market makers can operate in these environments, capturing structural inefficiencies and emerging trading flows.

Token Market Making

When a new protocol token launches, it often needs immediate liquidity on centralized exchanges. Market makers typically sign structured agreements with the protocol’s foundation or treasury. These arrangements often involve “lending + options,” where market makers receive a certain amount of tokens via loan and also get call options at a fixed strike price. For example, if the token doubles in price after launch, the market maker can exercise the option to buy some borrowed tokens at the pre-agreed strike, realizing significant gains.

Over time, this practice may evolve or fade due to lack of transparency and potential harm to retail investors and the protocol’s foundation, while benefiting market makers. Nonetheless, new tokens will continue to require liquidity support, so variants of this structure are likely to persist.

At Harbor, we are exploring a more aligned incentive model—pairing market makers directly with token teams and enabling liquidity distribution via Web3 wallets rather than centralized exchanges. This approach keeps settlement on-chain, enhances transparency, and allows users to trade directly with professional liquidity providers without intermediaries.

Regardless of the method, institutional participants have significant opportunities to collaborate with token issuers and design structured liquidity schemes, leveraging professional market discipline and transparency to advance this evolving segment of crypto markets.

Venture Capital and New Market Entry

In crypto, new markets and structural opportunities emerge roughly every 6 to 12 months—mining, exchanges, OTC, smart contract chains, ICOs, DEX, yield farming, stablecoins, RFQ, perpetuals, and recently ETF / DAT. This cycle of invention and reinvention has existed since Bitcoin’s inception and is likely to continue as the ecosystem matures. Early entrants often capture most of the gains due to lower competition and information asymmetry.

Many crypto market makers have dedicated venture capital teams, not just for investing but also for gaining early insights into upcoming market structures and liquidity needs. These investments create aligned exposure to upside in equity or tokens, as institutions leverage their infrastructure to drive usage and key metrics. I believe that for firms like Jump, Flow, and Wintermute, VC investments are a significant source of revenue. Establishing a strategic VC fund and providing capital markets capabilities—including but not limited to liquidity support—can help early teams grow, which in turn enhances the value of VC investments. At Harbor, our equity includes four market makers; we involved them early in the seed round, aligning interests from the start, and expect them to be long-term, key partners in our protocol.