5 Red Flags to Avoid Market Making Scams in 2025

The crypto market making industry has its share of bad actors. Every month, we hear from projects that have been burned by predatory market makers—losing tokens, money, and precious time. This guide will help you identify the warning signs and protect your project.

The State of Market Making in 2025

As the crypto industry matures, so do the scams. Predatory market makers have developed sophisticated tactics to exploit token projects, especially those with inexperienced teams or urgent timelines.

Red Flag #1: Guaranteed Price or Volume Promises

The Scam

"We guarantee your token will reach $X within 30 days" or "We'll deliver 500% volume increase guaranteed."

Why It's Dangerous

No legitimate market maker can guarantee prices or volumes because:

• Markets are unpredictable
• External factors affect price
• Volume depends on organic interest
• Guarantees incentivize manipulation

What Legitimate MMs Say

Legitimate Approach:
"We'll maintain tight spreads and provide
consistent liquidity, which typically
supports healthier trading conditions."

Scam Approach:
"We guarantee 10x volume and 50% price
increase within the first month."

Due Diligence Questions

Ask any potential market maker:

• "How do you handle periods of low market activity?"
• "What happens if volume doesn't meet expectations?"
• "Can you explain your pricing model in detail?"

Red Flag #2: Large Upfront Token Requirements

The Scam

"We need 10% of your total supply upfront as our working inventory."

Why It's Dangerous

Excessive token requests can lead to:

• Dump risk (they sell your tokens)
• Lock-up exploitation
• Market manipulation against you
• Total loss of tokens

Industry Standards

Protective Measures

1. Vesting schedules - Tokens unlock based on performance milestones
2. Escrow arrangements - Third party holds tokens
3. Right of recall - You can reclaim unused tokens
4. Daily limits - Caps on how many tokens can be traded

Red Flag #3: No Transparency or Reporting

The Scam

"Our strategies are proprietary. We can't share details or provide regular reports."

Why It's Dangerous

Without transparency, you can't:

• Verify they're actually providing liquidity
• Detect manipulation against your interests
• Audit their performance
• Make informed decisions

What to Expect

Legitimate market makers provide:

Standard Reporting Package:
- Daily/weekly volume reports
- Spread analytics
- Order book depth metrics
- Inventory positions
- Real-time dashboards
- Regular strategy calls

Questions to Ask

• "Can I see sample reports from other clients?"
• "Do you offer real-time dashboards?"
• "How often will we have strategy calls?"
• "What metrics do you track and share?"

Red Flag #4: Pressure Tactics and Urgency

The Scam

"This deal is only available today" or "Another project is about to take your slot."

Why It's Dangerous

Legitimate business partnerships aren't built on pressure because:

• Real market makers have steady pipelines
• Quality takes time to assess
• Rushed decisions lead to regrets
• Good partners respect your process

Warning Phrases

Watch out for these pressure tactics:

• "Limited slots available"
• "Price increases tomorrow"
• "Exclusive offer expiring soon"
• "Your competitors are signing"
• "Don't miss this opportunity"

Healthy Timeline

Proper Partnership Timeline:
Week 1-2: Initial discussions
Week 2-3: Proposal review
Week 3-4: Due diligence
Week 4-5: Contract negotiation
Week 5-6: Technical setup
Week 6+: Go-live

Red Flag #5: Unclear or Predatory Contract Terms

The Scam

Contracts with hidden fees, one-sided termination clauses, or vague performance metrics.

Dangerous Contract Terms

What to Review Carefully

1. Termination clauses - Can you exit if unsatisfied?
2. Fee structure - All fees clearly defined?
3. Token handling - How are your tokens used?
4. Performance metrics - What defines success?
5. Dispute resolution - How are conflicts handled?

Get Legal Review

Due Diligence Checklist

Before signing with any market maker, verify:

Company Verification

• Registered business entity
• Physical address verification
• Team LinkedIn profiles exist
• Company history (2+ years ideal)
• No negative press/scam reports

Reference Checks

• Request 3+ client references
• Actually call/email references
• Ask about negatives, not just positives
• Check Discord/Telegram for complaints
• Search Crypto Twitter for mentions

Technical Verification

• Demo of their dashboard/reporting
• Explanation of their technology
• Exchange API permissions needed
• Security practices for your tokens
• Backup and recovery procedures

Contract Review

• Legal review by qualified attorney
• Clear fee structure
• Reasonable lock-up terms
• Defined performance metrics
• Exit clauses present

What Good Market Makers Look Like

For comparison, here's what legitimate partnerships typically include:

Transparent Communication

• Regular scheduled calls
• Responsive async communication
• Proactive problem reporting
• Clear escalation paths

Fair Terms

• Reasonable token allocations
• Performance-based incentives
• Mutual termination rights
• No hidden fees

Proven Track Record

• Verifiable client references
• Public case studies
• Active industry presence
• Professional team profiles

Technical Excellence

• Real-time reporting dashboards
• Sophisticated algorithms
• 24/7 monitoring
• Exchange relationships

If You've Been Scammed

If you suspect you're dealing with a predatory market maker:

1. Document everything - Save all communications
2. Consult legal counsel - Understand your options
3. Secure your assets - Revoke unnecessary permissions
4. Warn the community - Prevent others from falling victim
5. Report to authorities - File complaints where applicable

Conclusion

The crypto market making industry has legitimate, professional firms alongside bad actors. By knowing these red flags and conducting proper due diligence, you can find partners who genuinely support your project's success.

Remember: the best market makers want long-term partnerships built on mutual success. They'll welcome your questions, provide transparency, and offer fair terms.

Take your time, do your research, and trust your instincts. If something feels wrong, it probably is.

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Have questions about vetting market makers? Contact MXM for honest advice—even if you don't choose us as your partner.