Market maker token loan

Many new token projects cannot pay market makers in cash, so they lend them a block of tokens instead. The market maker uses the inventory to quote buy and sell orders on exchanges. At the end of the term, it returns the tokens or, through embedded call options, buys them at preset strike prices. If the token price rises above the strikes, the market maker exercises and profits; if it falls, it returns the tokens.

The structure is standard in crypto listings and can produce healthier order books. But it also creates incentives that can work against holders. A market maker holding loaned tokens and options may profit from selling inventory early, hedging aggressively or pushing prices around its strikes, and the terms are rarely disclosed.

After several tokens collapsed soon after listing, controversies and exchange investigations in 2024 and 2025 focused on market makers that sold loaned tokens early, and some were removed by the exchanges involved. Analysts now look for disclosed market maker agreements, loan sizes relative to float and option terms when evaluating a new listing.