Author: Techub Curated Translation
By: Michael Oved
Translated by: Tia, Techub News
Earlier this year, I developed a roadmap for a major market maker preparing to expand into crypto. The opportunities are immense and the landscape is evolving fast. While not exhaustive, this list serves as a practical guide for trading firms seriously considering launching or scaling their crypto operations.
It also updates my 2018 article, as many of the protocols and conclusions from that time are now outdated.
Classic Strategies: Spot vs. ETF & Exchange Arbitrage
The most fundamental crypto strategy mirrors traditional market-making: connecting to multiple exchanges (like Coinbase and Binance) to arbitrage price differences. The goal is to maintain price consistency across markets by executing trades and efficiently allocating capital. Prime brokerage infrastructure supports this with intraday loans and rapid settlement. Execution relies on existing low-latency systems, adapted only to handle crypto exchange APIs and custody layers.
In spot-ETF arbitrage, market makers often act as Authorized Participants (APs) for flagship products like iShares ETFs. This role grants them "creation/redemption" rights, allowing for cash-settled redemptions or, under newer models, in-kind settlements. Market makers hedge ETF exposure using crypto exchanges and related tools, executing trades across multiple venues, products, assets, and jurisdictions—areas where they already have deep expertise.
RFQ Access to Web3 Products
Request-for-Quote (RFQ) systems are becoming the dominant way for market makers to interact directly with retail users in Web3. RFQ access comes in many forms—integrating with decentralized exchanges (DEXs), Web3 product frontends, aggregators, or embedding directly into wallet interfaces. Entry barriers are relatively low, primarily requiring Fireblocks infrastructure for asset flows and typically permissioned API access.
Early RFQ-based DEXs include pioneers like AirSwap and 0x Matcha. In these systems, parties negotiate prices off-chain, with settlement occurring on-chain via smart contracts. This preserves the bilateral nature of traditional OTC trading while eliminating counterparty risk through atomic settlement. Market makers respond to quote requests in real time using signed messages and off-chain channels—ensuring gas efficiency, privacy, and flexibility for institutional-sized orders.
Compared to Automated Market Maker (AMM) models, RFQ eliminates inherent pricing inefficiencies. As a result, many AMMs now integrate RFQ quotes into their frontends, letting users compare on-chain pool prices against direct market-maker quotes. Platforms like UniswapX and Jupiter aggregate both internal AMM liquidity and RFQ liquidity, presenting users with the best option. In practice, RFQ often wins—making connection and quoting through these interfaces a key opportunity for market makers.
Aggregators like 1inch act as a "meta-layer" on top of existing DEXs and RFQ infrastructure, interfacing directly with market makers. They send quote requests to all DEXs and market makers simultaneously, presenting users with the optimal choice. Aggregators are often natively integrated into wallets, giving them broad distribution from day one.
Wallets are evolving into full-fledged DeFi execution gateways. Products like MetaMask, Phantom, and Exodus already embed Swap functionality that aggregates quotes from both aggregators and direct market makers—effectively acting as "aggregators of aggregators." At the core is the question of cost: since wallets control user traffic, they aim to capture as much spread as possible, which is central to their business model.
Going Multi-Chain: From Wrapped Assets to Intent Protocols and Harbor
The evolution of multi-chain infrastructure is crucial, as market makers can provide liquidity and execute arbitrage around these solutions. Incorporating BTC should be seen as the largest opportunity in terms of both volume and profit. Initially, "cross-chain" meant wrapping or bridging: locking assets on one chain via smart contract and minting a representation on another. Adoption has been limited, however, as users prefer holding native assets over wrapped tokens.
Intent-based protocols are a newer concept in the Web3 execution layer. Users submit their intent—or general trading goals—while "solvers" (market makers) compete to fulfill them by finding the optimal paths and prices. Fundamentally, solvers play the same role as RFQ responders, ultimately settling on-chain, often across multiple chains. In many ways, AirSwap was an early intent protocol, and we have deep hands-on experience with both its strengths and limitations.
THORChain is a significant protocol that brings native BTC into cross-chain ecosystems by combining the AMM model with threshold signatures and a multi-party validator set. It enables direct swaps between BTC and EVM-based assets—without relying on wrapped tokens or bridges. This design provides a scalable framework for native asset trading across different chains.
Finally, @Harbor_DEX integrates and optimizes several of the above concepts, delivering a solution that lets market makers quote any asset—native or wrapped—on any chain, directly into Web3 wallets. Harbor launches as a cross-chain Central Limit Order Book (CLOB), offering familiar APIs, deterministic price control, and native cross-chain settlement. It operates entirely as backend infrastructure—integrating directly with wallets without its own frontend or direct retail user interaction. At scale, Harbor could give market makers a unified interface to quote seamlessly across all Web3 wallets and ecosystems.
CeFi–DeFi Arbitrage
Structurally, AMMs are less price-efficient than traditional order books. This inefficiency fuels MEV extraction and frontrunning races among bots seeking to capture arbitrage between liquidity pools and centralized markets—or even arbitrage between AMMs themselves on large orders.
Price discrepancies between AMMs and centralized exchanges are often substantial, creating attractive opportunities. AMM pool prices frequently drift, and market makers bring them back toward fair value—instantly capturing the spread.
However, executing these strategies requires a different approach to price interpretation than CLOBs, as well as node-level infrastructure support. AMM quotes are not discrete order-book levels but curves dependent on trade size; market makers must dynamically compute executable size and effective price before analyzing each trade. Moreover, successful on-chain arbitrage depends on efficient blockchain infrastructure—including direct node access, optimized transaction propagation, and reliable block-building strategies—to minimize frontrunning or failed transaction risks.
In practice, the biggest challenge is "winning the block," as multiple arbitrageurs often spot the same opportunity simultaneously. Transactions must not only be fast but also discreet, typically broadcast via private relays or dedicated builders to avoid exposure in the public mempool and subsequent frontrunning. With the right infrastructure and blockchain systems, CeFi–DeFi arbitrage can become a major profit center.
Derivatives, Perpetuals, and Options
Decentralized derivatives markets are evolving rapidly, with perpetuals ("perps") and options protocols replicating traditional leverage and hedging tools. Among these, Hyperliquid stands out for its perpetual contract design, which balances long/short supply and demand via a market-determined funding rate mechanism.
Hyperliquid also pioneered the Hyperliquid Pool (HLP)—a pooled treasury that lets users passively share in active market makers' P&L while reducing market makers' capital requirements. Effectively, the exchange's margin system is funded by the deposit treasury, allowing users to earn both funding rate income and trading P&L. This design aligns incentives among liquidity providers, market makers, and the exchange—a key innovation in decentralized leverage mechanisms.
Another important development is Ethena, which synthesizes USD using derivatives. Ethena's model maintains a stable asset and issues stablecoins by simultaneously establishing a spot long position and a perpetual short hedge. Every user mint or redemption triggers real-time hedging by market makers—generating continuous trading volume and arbitrage opportunities.
Expanding into futures and options is a natural extension of market makers' existing capabilities. Core skills—including basis management, funding-rate arbitrage, inventory hedging, and capital-efficiency optimization—translate directly into this new environment. With suitable custody and execution infrastructure, market makers can operate here just as they do in traditional derivatives markets—capturing structural inefficiencies and emerging trading flows.
Token Market Making
When a new protocol token launches, it immediately needs liquidity on centralized exchanges. Market makers often enter into structured agreements with the protocol’s foundation or treasury. These typically take the form of a "lending + options" model, where the market maker borrows tokens while also receiving call options to buy them at a predetermined strike price. For instance, if the token's price doubles after launch, the market maker can exercise the option to repurchase some of the borrowed tokens at the agreed-upon price, securing a significant profit.
Over time, this opaque practice—which often benefits market makers at the expense of retail investors and the protocols themselves—may evolve or fade away. However, new tokens will always need liquidity, so variations of this model are likely to persist in some form.
At Harbor, we're working on a more aligned model: connecting market makers directly with token teams and enabling them to distribute liquidity through Web3 wallets instead of centralized exchanges. This keeps settlement on-chain, improves transparency, and lets users trade directly with professional liquidity providers, bypassing intermediaries.
Regardless of the approach, institutional players still have a major opportunity to partner with token issuers and design structured liquidity solutions. By applying professional market-making discipline and greater transparency, they can help drive this dynamic segment of the crypto market forward.
Venture Capital and New Market Entry
In crypto, new markets and structural opportunities emerge every 6–12 months—from mining and exchanges to smart contract chains, ICOs, DEXs, yield farming, stablecoins, RFQ systems, perpetual futures, and most recently, ETFs and DATs. This cycle of innovation has been constant since Bitcoin's inception and will likely continue as the ecosystem matures. Early entrants into these spaces often capture most of the returns, thanks to lower competition and information asymmetry.
Many crypto market makers run dedicated venture capital (VC) teams not just to invest, but to gain early insight into emerging market structures and liquidity needs. These investments—whether in equity or tokens—create aligned upside, as institutions can use their own infrastructure to boost adoption and key metrics. In my view, VC investing is itself a major revenue stream for firms like Jump, Flow Traders, and Wintermute. Strategically deploying a VC fund and offering capital markets services like liquidity provision helps early-stage teams scale, which in turn increases the value of the VC's stake. At Harbor, for example, four market makers hold equity in our company. We brought them on during our seed round to align interests early, and we expect them to be long-term, essential partners for our protocol.