If you're a token issuer or protocol looking for liquidity, you'll run into two models pretty quickly: lend your tokens to a market maker, or keep them and pay someone a retainer to run market making software on your own accounts. Most firms push the loan. We think that's worth questioning.
How the token loan model works
The market maker asks for a large allocation of your token upfront, usually for free. They use those tokens as inventory to provide liquidity on exchanges. In theory, they return the tokens at the end of the engagement (often 12-24 months), sometimes with an option to buy at a pre-agreed price.
On paper, it sounds fine. In practice, it introduces some problems that aren't obvious until you're in the middle of them.
The problem with handing over your tokens
When a market maker holds a large loan of your token, their incentives get complicated. They have inventory they didn't pay for, and they need to manage that risk. That can mean hedging against your token (effectively shorting it), selling into rallies to lock in profit on the option, or prioritizing their own P&L over your market quality.
You also lose visibility. Most loan-based agreements don't come with real transparency into what the market maker is actually doing with your supply. You handed over tokens and you get a monthly report. Maybe. What happened in between is a black box.
Then there's dilution pressure. A large token loan floating around in a market maker's hands creates sell-side overhang that the market can feel, even if it's not being actively dumped. Smart traders know it's out there.
How the self-custody retainer works
Your tokens and capital stay in exchange accounts and wallets you own. You hire an operator for a fixed monthly fee to set up and run open-source market making software on those accounts. The operator proposes the parameters, you approve them, and the operator's API keys can trade but never withdraw. There's no loan, no option, no tokens changing hands, and full visibility into every trade in real time.
The relationship is simpler. You're paying for software operations, not giving away an asset and hoping it comes back in good shape. The operator's job is to keep the software running well within the limits you set. Full stop.
Side-by-side comparison
| Token loan | Retainer | |
|---|---|---|
| Upfront cost | Token allocation (large) | Fixed monthly fee |
| Token custody | Given for free, used at MM's discretion | Stay in your accounts; operator keys can't withdraw |
| Incentive alignment | MM profits from option/inventory | Operator paid a flat fee, no position |
| Transparency | Usually limited | Full dashboard access |
| Sell pressure | Possible (hedging, option exercise) | None from the operator |
| Typical term | 12-24 months locked | Monthly, flexible |
Why we chose the retainer model
We don't want to be your market maker. We want to run the software well while you keep the tokens, the accounts and the final say. No option upside, no inventory, no position in your token, no conflicting incentives. We get a flat fee, and you get full visibility into everything the software does through a real-time dashboard.
That's it. We think the best liquidity setups are the ones where you stay in control and both sides know exactly what's happening and why.
When does the loan model make sense?
To be fair, there are situations where a token loan can work. If you're very early, have no budget for fees, and need someone to bootstrap initial liquidity, a loan might be your only option. Just go in with your eyes open about what you're trading off.
For projects with revenue, treasury, or funding, the retainer model gives you more control, more transparency, and better alignment. We think it's the better deal for most teams past the seed stage.
Want to talk about what model fits your project? Get in touch.