The Two Dominant Market Making Models

When founders look for liquidity partners, they encounter two fundamentally different structures: the Designated Market Maker (DMM) model and the Principal Market Maker model.

The Designated Market Maker (DMM) Model

In a Designated model, the market maker acts as a service provider executing algorithmic strategies on behalf of the token project.

  • Capital Ownership: The token project provides trading capital and maintains non-custodial ownership through exchange API keys.
  • Pricing: Fixed monthly retainer fee or modest performance share.
  • Advantages:
  • Complete transparency into order books and inventory
  • Project retains 100% of upside from token appreciation
  • Zero dilution from aggressive token loans or call options
  • Best For: Startups, mid-cap projects, and founders prioritizing alignment and control.

The Principal Market Maker Model

In the Principal model, the market maker trades using their own capital or requests a large loan of the project's tokens.

  • Capital Ownership: Market maker trades on their own book and absorbs trading risks.
  • Pricing: Token loan with embedded call options (e.g., 2-5% of total token supply).
  • Advantages:
  • Lower upfront monthly cash outlay
  • Turnkey institutional engagement
  • Disadvantages:
  • Significant token dilution if the market maker exercises cheap call options
  • Lack of operational transparency into trading intent
  • Best For: Multi-billion dollar mature projects with substantial treasury reserves.