Main Takeaways

  • Market making can improve liquidity and support orderly trading, but not every market-making arrangement is aligned with long-term market integrity. Users and projects should watch out for behaviors such as aggressive selling that conflicts with token distribution plans, since this can undermine price stability, community trust, and long-term sustainability.

  • Project teams should carefully vet and manage market makers by conducting thorough due diligence, establishing clear contracts with defined roles and compliance requirements, and continuously monitor market maker activity to protect project stability and community interests.

  • Users should remain mindful of market conditions, especially for newly listed or volatile assets, and be aware of potential signs of non-organic activity when making trading decisions.

Healthy markets depend on real liquidity, spreads that reflect genuine supply and demand, and participants who play by rules designed to keep trading fair and orderly. Market makers are a big part of that system. When they operate responsibly, they continuously quote buy and sell orders to tighten spreads, deepen liquidity, and reduce slippage, especially during volatility. To dive deeper, read our previous article Market Makers and Market Integrity: How Binance Ensures a Fair Trading Environment.

Market conditions can vary widely across the industry, and certain trading patterns on both centralized and decentralized venues may indicate elevated risk to orderly trading. In this article, we’ll share red flags that can help users and projects recognize potentially harmful market-making behavior along with practical steps projects can take to reduce risk.

What is a Market Maker?

In the crypto context, a market maker is a firm or entity that provides liquidity to a trading pair by continuously posting both buy and sell orders on an exchange. Their goal is to make trading smoother, ensure prices remain orderly, and narrow the gap between buying and selling prices, so that users can enter and exit positions without extreme price swings.

Market makers appear on both centralized and decentralized exchanges. On centralized exchanges like Binance, they provide liquidity to the order books for various tokens, especially those with lower trading volumes, helping maintain consistent trading activity. On decentralized exchanges, market makers act as liquidity providers by depositing token pairs into automated market maker pools, which enables other users to trade without waiting for a matching counterparty. Market makers are also often involved in token launch events or early-stage listings, supporting liquidity and reducing volatile price movements in the initial trading period.

Thus, the key role of a market maker is to maintain liquidity, stabilize prices, and support orderly trading by balancing buy and sell orders. However, not all market makers operate responsibly.

Red Flags to Watch for in Market Maker Activity

Ongoing monitoring of on-chain activity across the industry suggests that while most market makers operate responsibly, certain behaviors can signal elevated risk. Below are some common red flags, including but not limited to the following.

1. Selling That Conflicts With Token Release Schedules

Market makers should respect agreed token release schedules. Early, excessive, or repeated selling that appears inconsistent with these timelines may indicate misaligned incentives or poor controls.

2. One-Sided Trading Behavior

Healthy market making should support two-sided liquidity. A pattern of persistent sell-side orders without corresponding buy-side activity may contribute to price pressure and undermine orderly markets.

3. Coordinated Sell-Offs Across Platforms

Large, simultaneous token deposits and selling activity across multiple exchanges – beyond normal liquidity rebalancing – can be a warning sign of coordinated distribution rather than genuine market making.

4. Volume That Doesn’t Match Price Behavior

Be cautious of high trading volume with limited price movement. In a healthy market, sustained volume usually pushes price up or down. When it doesn’t, it can indicate wash trading rather than organic demand.

5. Price Spikes or Drops With Thin Liquidity

In a healthy market, deep order books mean there are many buy and sell orders at different price levels, which helps absorb trades smoothly. When liquidity is thin or order books are shallow, even relatively small trades can cause outsized price swings, making prices easier to push up or down artificially.

6. Unbalanced Volume and Liquidity

Genuine volume is typically supported by meaningful liquidity. When liquidity is shallow, large trades can move prices easily. Hence, if an asset appears heavily traded but has little depth on the order book, the activity may not represent genuine market interest.

Conducting Due Diligence, Managing Risk

Understanding how market makers influence liquidity can help you better assess market conditions before engaging with a market maker – especially in newly listed assets and fast-moving markets. Early-stage markets carry structural risks, making upfront diligence essential.

Before engaging with market makers, consider the following steps:

  • Assess liquidity depth, not just volume: Review order books to confirm that trading activity is supported by meaningful buy and sell interest across price levels.

  • Monitor price behavior relative to volume: Consistent volume without natural price movement, or sharp moves on minimal trades, may signal artificial activity.

  • Evaluate market balance: Healthy markets typically show two-sided activity, with both buy and sell orders contributing to orderly liquidity.

  • Watch for irregular trading patterns: Coordinated activity across platforms or repeated short-term spikes may warrant caution.

  • Avoid making rushed decisions: Take time to observe how liquidity and pricing behave across different market conditions before participating.

Applying disciplined due diligence can help you reduce exposure to unstable market dynamics and support more informed decision-making.

Best Practices for Token Launch or Listing

A successful token launch or listing depends on transparent token management, responsible market practices, and strong governance frameworks. Projects launching or listing are expected to uphold the following best practices to support orderly markets and protect users.

  • Adhere strictly to token release schedules: Tokens must not be sold, released, or distributed ahead of agreed timelines, as premature supply can disrupt market stability.

  • Strictly prohibit market-disruptive token activity: Large-scale token offloading (also known as token dumping) that creates excessive downward price pressure is prohibited.

  • Maintain market integrity: Report your market maker’s details, legal entity, and contract terms to the listing platform promptly. Projects must not coordinate with market makers or other third parties in ways that manipulate prices or distort liquidity.

  • Apply rigorous due diligence when selecting partners: Market makers and service providers should be vetted based on proven track records, industry credibility, and alignment with compliance standards. Profit-sharing models and guaranteed profit models with MMs are prohibited, and token loan agreements should clearly define the permitted use of tokens.

  • Define clear and enforceable mandates: Agreements with market makers should explicitly outline roles, trading parameters, compliance obligations, and safeguards to mitigate risk.

  • Monitor continuously post-listing: Ongoing oversight is essential to detect irregular activity early and ensure continued alignment with agreed terms and market expectations.

Final Thoughts

At Binance, we’re committed to ensuring transparency and integrity across the crypto industry. We actively monitor market-making activity to enforce the highest standards and will take swift, decisive action against any misconduct, including blacklisting market makers who breach our rules – because protecting our users and maintaining a fair, trustworthy trading environment comes first. 

If you have information about suspected market maker misconduct, please report it promptly to audit@binance.com.

Further Reading

  • How to Spot and Avoid Lookalike Token Scams: 2026 Guide

  • P2P Crypto Safety – How to Spot and Avoid Pay-to-Canceled-Order Scams

  • Binance’s 8-Level Defense Against Account Takeovers

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