Token Projects Face Market-Maker Contract Risks
Token projects preparing for exchange listings may face material contractual risks when they hand inventory to market makers, particularly where token loans are paired with options that can alter the economics of a recall. An opinion editorial published by Bitcoin.com News as of November 8, 2026, argues that projects should negotiate measurable liquidity duties, return mechanics, trading restrictions and insolvency protections before transferring tokens.
The issues extend beyond spreads and visible order books. Contract terms can determine who receives gains when a token rises, what a project can recover when a relationship ends, and whether tokens remain reachable if a market maker encounters operational or financial distress.
What happened
Bitcoin.com News published a Law and Ledger opinion editorial written by Michael Handelsman for Kelman Law. The article examines legal and commercial terms that token projects may need to address before entering a market-making agreement connected to an exchange listing.
A central example in the editorial is a hypothetical loan of 1 million tokens to a market maker, coupled with an option to buy those tokens at $0.50 each. As described by Bitcoin.com News, if the market price reaches $2, exercising the option would cost the market maker $500,000 rather than requiring the return of tokens quoted at $2 million.
That example illustrates the importance of separating a market maker’s liquidity role from the economic rights it receives over loaned inventory. A token loan plus a call option can allow a market maker to retain upside when the price rises, making the details of the option, recall rights and return provisions consequential for the project.
The editorial also identifies legal limits on token recovery during insolvency. Bitcoin.com News warned that, in a U.S. bankruptcy, the automatic stay under 11 U.S.C. Section 362 can restrict collection efforts and enforcement of token recall rights. As of November 8, 2026, this means a contractual right to request tokens back may not necessarily translate into immediate recovery after a counterparty enters bankruptcy proceedings.
Why it matters
Market-making arrangements are often presented as liquidity services, but the underlying agreement can allocate far more than operational responsibility. It can determine the market maker’s access to inventory, the circumstances in which it can acquire tokens, and the process a project must follow to unwind the relationship.
Measurable obligations are one area for negotiation. The background outlined by Bitcoin.com News indicates that projects should define expectations for spread, depth and uptime rather than rely on broad promises of liquidity support. Specific obligations can help distinguish a genuine liquidity mandate from a less clearly defined arrangement involving token inventory.
Trading conduct is another central issue. The U.S. Department of Justice said as of August 6, 2026, that MyTrade founder Liu Zhou, 41, was sentenced in federal court in Boston by Judge Angel Kelley to pay a $10,000 fine after pleading guilty in October 2024 to conspiracy to commit market manipulation and wire fraud.
The same Department of Justice release said MyTrade MM wash-trading bots were responsible for millions of dollars in daily wash trades involving approximately 60 cryptocurrencies. The release also said the firm was required to permanently stop its Volume Support services. The case underscores why agreements may need explicit prohibitions on unlawful trading practices, along with audit rights that give projects a way to assess how a service provider is operating.
Background and context
Token loan and call-option structures can create a mismatch between a project’s expectation that inventory will be returned and a market maker’s contractual ability to purchase it instead. Before an inventory transfer, clear return mechanics can address when tokens must be returned, how an option affects that obligation and what happens when a party seeks to end the arrangement.
Custody and exit provisions matter alongside pricing terms. Withdrawal freezes or a market maker’s bankruptcy can impede the timely recovery of loaned tokens. The automatic-stay concern identified by Bitcoin.com News adds a legal constraint: even where a contract contains recall language, bankruptcy law may restrict enforcement while proceedings are underway.
The MyTrade matter provides a separate compliance context. According to the Department of Justice, the case involved bots used for wash trades and resulted in a guilty plea to conspiracy to commit market manipulation and wire fraud. Contractual restrictions against unlawful trading, reporting requirements and audit access can therefore be core features of a market-making relationship, rather than peripheral legal language.
Bitcoin.com News presented its report as an opinion editorial through its Law and Ledger segment, which focuses on crypto legal news and is brought by Kelman Law. The article’s framing is therefore legal and contractual, rather than an account of a specific token project or a claim that every market-making arrangement uses the structures described.
What to watch
Projects and market makers may need to clarify whether a proposed transaction is solely a service engagement or also grants purchase rights over loaned tokens. The distinction becomes especially important when an option price differs substantially from the market price at the time of exercise.
Other open questions include whether liquidity obligations are written in measurable terms, how token returns are handled at termination, who holds custody during the engagement and what remedies remain available if a counterparty becomes insolvent. The treatment of withdrawal restrictions and bankruptcy-related delays may determine whether contractual recall rights can be used when they are most needed.
Compliance provisions also warrant attention following the MyTrade case described by the Department of Justice. Parties may examine whether an agreement clearly bars wash trading and other unlawful conduct, and whether audit or reporting provisions provide a practical basis for oversight.
