A market maker agreement should define five things clearly: what the market maker must quote (spread, depth, uptime), what assets it receives from you and on what terms, how it is paid, how performance is measured, and how either side can leave. If any of those is vague, you are signing a relationship rather than a contract, and the vagueness usually favours the party with more leverage, which at launch is rarely the token team. This checklist walks through the twelve clauses worth reading line by line, what a reasonable version looks like, and the warning signs that should slow you down.
This is a practical guide for founders, not legal advice. Have counsel in your jurisdiction review the final document.
Why the Agreement Matters More Than the Pitch
Most teams choose a market maker on reputation and a sales call, then skim the contract. But the agreement is where incentives are set. It decides whether the firm is paid for tight, deep books or merely for being present, and whether your tokens can be returned, sold or lent onward. Our guide to market making fee models explains the economics; this article covers the contract language that enforces them.
The 12-Clause Checklist
1. Scope: which venues and pairs
List every exchange and trading pair covered. "Major exchanges" is not a scope. Specify whether DEX liquidity is included, and whether adding a venue later needs an amendment or is at your discretion.
2. Quoting obligations
This is the core service. Look for measurable commitments:
- Maximum bid-ask spread, expressed as a percentage of mid price
- Minimum depth within a defined distance from mid (for example, a stated amount within a set percentage on each side)
- Minimum uptime, as a share of the trading day
- Behaviour during volatility: are obligations relaxed, and under what exact conditions?
If the contract says "commercially reasonable efforts" and nothing else, you cannot enforce anything. For how to read the underlying metrics, see what a bid-ask spread is and why order book depth matters.
3. Compensation model
State clearly whether you pay a monthly retainer, give a token loan with an option, share trading performance, or some blend. Each has different incentives, and none is automatically better. Check for any fee that triggers on events you do not control. The full comparison is in market making fees and models.
4. Token loan terms (if applicable)
If you lend tokens, the agreement should specify:
- Exact quantity and the date of delivery
- Whether the loan is for a fixed term and when it must be returned
- Whether the market maker holds a call option, and the strike price and expiry
- What happens to unreturned tokens if the market maker defaults
A loan with an option attached is not inherently bad, but you must understand the cost of the option in a rising market. Model the scenario in which the token performs well and the option is exercised in size.
5. Restrictions on use of your tokens
This is the clause teams most often skip. The contract should say your loaned tokens may only be used for market making on the agreed venues, and must not be:
- Sold into the open market outside normal quoting activity
- Rehypothecated, lent onward or pledged as collateral
- Moved to wallets or venues not listed in the agreement
Ask for the right to see wallet addresses and balances. If transparency on inventory is refused, treat that as a major warning.
6. Reporting and data access
You need regular, verifiable reporting: spreads, depth, volume, uptime and inventory by venue. Better still, ask for read-only API access or a dashboard you can check yourself. The metrics to demand are covered in how to evaluate market maker performance.
7. Prohibited conduct
The agreement should expressly bar wash trading, spoofing, layering and trading on non-public information, and make the market maker responsible for complying with exchange rules. Exchanges can delist or penalise projects associated with manipulative volume, so this protects you directly. Background in what wash trading is.
8. Term and renewal
Check the initial term, auto-renewal mechanics and notice periods. A long lock-in with a short notice window for renewal is a common trap: miss the date and you are bound for another cycle.
9. Termination rights
You should be able to terminate for cause quickly, for example if quoting obligations are missed repeatedly, if reporting stops or if the firm breaches the usage restrictions. Also check for termination without cause, and what it costs. Whatever the reason, the contract should require return of loaned tokens within a short, fixed period.
10. Performance remedies
What happens when obligations are missed? Reasonable options include fee reductions, cure periods, extended terms without extra cost or termination rights. Without a remedy, the quoting obligations in clause 2 are decorative.
11. Confidentiality and non-disclosure of your plans
The market maker will see your launch plans, unlock schedule and inventory. Confirm confidentiality covers that, and that the firm cannot trade your token for its own account on information received from you beyond what the agreement allows. Relatedly, review your own disclosure duties around unlock calendars; see token unlocks and sell pressure.
12. Governing law, regulatory status and liability
Check which law governs, where disputes are resolved, and whether the firm represents that it holds any licences it needs in its jurisdiction. Look at liability caps and indemnities: a cap far below the value of the tokens you lend is worth negotiating. Regulatory expectations vary and change; treat anything here as a prompt for questions to your lawyer, not conclusions.
Quick Reference Table
| Clause | Strong version | Red flag |
|---|---|---|
| Quoting | Numeric spread, depth and uptime | "Best efforts" only |
| Token use | Restricted to listed venues and wallets | No limits on use |
| Reporting | Independent data access | Monthly summary PDF only |
| Termination | For-cause exit, fast token return | Long lock-in, slow or unspecified return |
| Remedies | Fee reduction or exit on breach | No consequence for missing targets |
| Conduct | Explicit ban on manipulation | Silence on wash trading |
Red Flags Beyond the Contract
- Guaranteed price levels or guaranteed volume. No market maker can promise price, and "guaranteed volume" often means artificial volume.
- Reluctance to name the venues, wallets or team behind the account.
- Pressure to sign quickly or to loan a larger inventory than the books need. Sizing guidance is in how much liquidity a token needs at launch.
- No sample report or reference you can speak to.
Negotiation Priorities for a Small Team
You will not win every point, so rank them. A sensible order: restrictions on token use, return mechanics, measurable quoting obligations, reporting access, then fees. Money can be adjusted later; tokens that were sold or lent onward cannot be recalled.
Pre-Signing Checklist
- Scope lists every venue and pair
- Spread, depth and uptime are numeric
- Token usage limits and wallet visibility are written in
- Loan, option and return terms are modelled for a bull case
- Reporting and data access are specified
- Manipulation is explicitly prohibited
- Termination for cause is quick, and token return is time-bound
- Counsel has reviewed the final version
Where Fibonacci Fits
Fibonacci Capital works with token teams on market making and launch liquidity, and we believe clear, measurable agreements are good for both sides. If you want a second pair of eyes on a term sheet or help scoping liquidity for your listing, get in touch with our team.