Recently, global regulatory agencies have intensified their crackdown on crypto market makers. In February 2025, Aleksei Andryunin, founder of the crypto market maker Gotbit from Portugal, was extradited to the United States facing serious charges including wash trading and market manipulation. This case not only sparked widespread concern about compliance risks among market makers but also warned the industry to confront how to seek a balance between legality and efficient operation amid tightening global regulations. The following article will analyze the various legal risks faced by crypto market makers from a global regulatory perspective and propose a practical compliance survival strategy.
Overview of Market Makers in the Crypto Space
1. Definition and Functions of Market Makers
In traditional financial markets, market makers are primarily responsible for continuously placing orders, providing liquidity, and narrowing the bid-ask spread to ensure smooth market operations. In the cryptocurrency domain, market makers not only serve as liquidity providers but also bear the important tasks of price discovery and market stability, with core functions including:
Liquidity Assurance: Continuously place buy and sell orders on the order book to ensure efficient trade matching.
Price Stability: Use algorithms and high-frequency trading strategies to smooth out market fluctuations and reduce flash crash risks.
Arbitrage Operations: Capture profits by exploiting price differences across platforms or between different assets.
Token Management: Assist project teams in managing token liquidity to prevent severe price fluctuations due to scarcity of trading in the early listing phase.
2. Main Types of Market Makers
Crypto Market Makers can be categorized into the following types based on their operational methods and business models:
Traditional Market Makers (Principal Market Makers): Use their own funds to provide liquidity, bear market risks, and earn profit from the bid-ask spread.
Agency Market Makers: Provide liquidity services on behalf of project teams or exchanges, profiting through fixed fees or revenue sharing, with lower risks.
Algorithmic Market Makers: Rely on quantitative strategies and high-frequency trading systems to continuously adjust quotes through automated programs.
Project Team Self-Operated Market Making: Some project teams develop their own market-making strategies to directly intervene in market performance, but this may raise concerns about market manipulation.
Multidimensional Legal Risk Analysis
Crypto market makers face not only risks from traditional financial operations but also expose numerous risks in the unique legal environment of crypto assets, which can be mainly categorized into criminal risks, civil liability risks, administrative regulatory risks, and operational compliance risks.
1. Criminal Legal Risks: Sword of Damocles
Illegal Operation Risks
Since some jurisdictions (e.g., mainland China, India, Russia) have not yet legalized cryptocurrency trading activities, market makers providing unlicensed liquidity services to local users may constitute illegal operations and face criminal accountability.
Money Laundering Risks
Market makers handling large amounts of funds may be deemed to facilitate money laundering and face criminal liability if they fail to strictly fulfill customer identification (KYC) and suspicious transaction reporting (STR) obligations.
Market Manipulation Risks
Using algorithms to create false liquidity, engage in wash trading, or spoofing may touch upon the criminal limits of market manipulation and could be severely punished in the US and other countries.
Fraud Risks
Providing liquidity support for token projects suspected of fraud may be deemed as 'accomplice', facing fraud charges; in severe cases, not only the company but also executives may face imprisonment.
2. Civil Liability Risks
Securities Fraud Litigation
If market makers mislead investors through false statements or significant omissions, they may face securities fraud claims and need to pay hefty damages or settlement fees.
Negligent Misrepresentation Risks
Providing false or misleading market quotes may constitute misleading investors, leading to claims for negligent misrepresentation.
Contract Breach Risks
In contracts signed with exchanges or project teams, failure to perform due to abnormal market fluctuations may lead to contract breach disputes and related claims.
3. Administrative Regulatory Risks
Market Manipulation Penalties
Regulatory agencies around the world are continuously strengthening their crackdown on market manipulation in the crypto space, and market makers may face fines, business restrictions, or even license revocation due to improper trading strategies.
Anti-Money Laundering Sanctions
Countries are increasingly tightening anti-money laundering regulations, requiring Virtual Asset Service Providers (VASP) to strictly record and report transaction information, with non-compliance leading to severe penalties.
Cross-Border Regulatory Conflicts
The global characteristics of crypto assets mean that the same business may be subject to different regulatory standards in different countries, and market makers must address compliance challenges arising from cross-border regulatory conflicts.
4. Operational Compliance Risks
Contract Structure Risks
Improper contract clause design or lack of clear applicable laws and dispute resolution mechanisms may place market makers at a disadvantage in disputes.
Technical Compliance Risks
Automated trading systems without circuit breaker mechanisms or stringent algorithm reviews may exacerbate volatility during extreme market conditions and even trigger regulatory red lines.
Data Privacy Risks
Extensive collection of user data must comply with privacy protection regulations such as GDPR; poor management may lead to fines and reputational damage.
Employee Management Risks
The movement of trading teams and technical talents may lead to the leakage of trade secrets, and poor internal management may also trigger legal joint liability.
Compliance Survival Strategy: Building Global Best Practices
Faced with a severe legal and regulatory environment, crypto market makers must build a comprehensive risk prevention system from various dimensions including business design, customer management, technical risk control, and internal compliance construction.
1. Business Model Restructuring: Compliance Design Starts from the Source
Clarify service targets and geographical boundaries
For different markets, especially in regions with strict regulations like mainland China, geographical blocking measures should be taken to prevent services from violating users through IP screening and identity verification.
Optimize Business Model Choices
Gradually transition from a principal market-making model to an agency market-making model to reduce direct capital operation risks while conducting business in compliance with local regulations.
Strict Project Due Diligence
For partner token projects, establish legal nature assessments, team background investigations, and economic model review mechanisms to prevent joint liability resulting from supporting high-risk projects.
2. Client and Fund Management: Establish Compliance Firewalls
Tiered KYC and AML Systems
Implement tiered identity verification and risk assessment for different types of customers (institutional, individual, high-net-worth clients) to ensure every transaction is traceable.
Capital Flow Path Planning
Funds should be processed through regulated financial institutions or licensed service providers to avoid using personal accounts for large amounts, ensuring the legality and transparency of the capital chain.
3. Technical Risk Control and Algorithm Compliance: Preventing Risks at the Initial Stage
Regular Algorithm Review and Code Audit
Establish internal or third-party audit mechanisms to ensure that the strategies in automated trading systems do not involve false quotes, wash trading, or other illegal activities.
Establish Circuit Breaker Mechanisms
In cases of abnormal market fluctuations or technical failures, the system automatically enters a safe mode, suspending trading to reduce technical risks and sudden losses.
Strengthen Data Security and Privacy Protection
Strictly comply with data protection regulations such as GDPR, encrypt customer data, and manage permissions to prevent data leakage risks.
4. Internal Compliance Construction and Regulatory Dialogue: Build a Culture of Continuous Improvement in Compliance
Establish a Comprehensive Compliance System
Includes regular risk assessments, employee compliance training, transaction monitoring, and complete documentation management systems to ensure compliance efforts can be demonstrated during regulatory investigations.
Proactive Regulatory Communication and Industry Collaboration
Actively maintain dialogue with regulatory agencies in various countries, participate in industry associations and standard-setting, and leverage industry collaboration to promote the regulatory environment towards more reasonable and transparent directions.
Summary by Lawyer Mankun
In the context of tightening global regulations and increasing market competition, crypto market makers are facing unprecedented legal risks and compliance challenges. Building a comprehensive risk management system covering criminal, civil, administrative, and operational aspects has become a necessary prerequisite for market makers to survive and thrive in the marketplace.
As the global cryptocurrency market matures and regulatory standards become more uniform, market makers will face a historical opportunity to transition from a 'regulatory gray area' to a 'compliance blue ocean'. Only those enterprises that embed compliance into their business models and continuously improve their internal control systems can survive in the ever-changing market, providing investors with a safer, more transparent, and efficient trading environment. The era of excessive profits for crypto market makers has ended; only by internalizing compliance as a core principle can they thrive amid regulatory waves. From business architecture to technical risk control, from customer management to a global perspective, every step must be measured by law and reflected upon with risk. Compliance is not a cost but the only ticket to sustainable development.
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