The Truth Behind Crypto Market Makers | Matt Jobbé-Duval
🎯 Summary
Podcast Episode Summary: The Truth Behind Crypto Market Makers | Matt Jobbé-Duval
This 65-minute episode of Light Speed features Jack Cubanek interviewing Matt Jobbé-Duval, co-founder of CoinWatch, an advisory firm specializing in negotiating token launch and market-making deals for crypto projects (including Gido, Optimism, and Sui). The discussion dives deep into the often-opaque world of crypto market-making, contrasting it with traditional finance and exposing the structures that can lead to extreme price volatility and token collapse.
1. Focus Area
The primary focus is Crypto Market-Making Mechanics and Incentives. Key sub-topics include the structure of market-making agreements (specifically the “call option” loan structure vs. “retainer” deals), the inherent risks in crypto volatility, and how these structures can be exploited, leading to price manipulation and sudden token crashes.
2. Key Technical Insights
- The Call Option Loan Structure: Market makers are often compensated via a loan of native tokens, which they must repay after a set period (usually one year) either with the tokens or a fixed USD amount (the strike price). This structure effectively acts as a built-in call option, protecting the market maker from massive upside risk by allowing them to buy back tokens cheaply if the price skyrockets.
- Retainer Deals vs. Option Deals: Retainer deals involve fixed monthly payments for liquidity provision, but the underlying tokens are often held as a deposit, not a loan. This means the market maker bears no downside risk; any losses are passed entirely to the client foundation, making these deals look deceptively cheap but offering inferior liquidity during crises.
- The Magnet Effect: When a call option loan is too large relative to the circulating supply, the strike price acts as a “magnet.” Through gamma trading incentives, the market maker is forced to sell when the price rises above the strike and buy when it falls below, artificially pinning the price near the strike and preventing healthy price discovery.
3. Market/Investment Angle
- Risk of Trend-Following Assets: Unlike traditional assets that are mean-reverting, crypto tokens exhibit strong intrinsic trends (straight-line rallies or collapses). This makes standard market-making difficult, necessitating the complex option-based compensation structure to protect against being continuously short during a rally.
- Liquidity Quality Varies by Structure: Option deals generally provide superior, more reliable liquidity, especially during periods of high volatility, because the market maker has skin in the game (the loan obligation). Retainer deals often see liquidity vanish precisely when it is needed most (during sharp rallies or crashes).
- Warning Against “Active Market-Making”: The term, sometimes associated with firms like DWF, is presented skeptically. It often implies strategies that go beyond passive quoting, potentially involving aggressive positioning or manipulation that can lead to extreme, non-organic price movements (like the 99% overnight drops seen in some tokens).
4. Notable Companies/People
- Matt Jobbé-Duval (CoinWatch): The expert guest, providing insider knowledge from negotiating dozens of market-making deals.
- Jump & GSR: Mentioned as pioneers in developing the embedded call option structure for market-making compensation back in 2017/2018.
- Projects Mentioned: Gido, Optimism, Sui (clients of CoinWatch); Solana (used as a primary volatility example); Polyhedra (ZKJ), Mantra, and Solare (used as examples of extreme, potentially manipulated price charts).
5. Regulatory/Policy Discussion
While no specific regulatory framework was detailed, the discussion heavily implies that these opaque, highly leveraged structures (especially the ability of market makers to short spot assets for free via the loan structure) operate in a regulatory gray area, contributing to market instability and investor harm. The lack of transparency in these private deals is a core issue.
6. Future Implications
The industry is heading toward greater scrutiny of these backend deals. Protocols need to adopt rigorous tracking mechanisms (like CoinWatch provides) to monitor market maker performance and prevent the toxic outcomes associated with oversized call options or unreliable retainer agreements. The prevalence of extreme price action suggests that many current token launches are relying on structures that prioritize market maker profit over sustainable token health.
7. Target Audience
Crypto Professionals, Token Founders/Protocol Teams, Institutional Investors, and Advanced Traders. Anyone involved in launching a new token, negotiating liquidity agreements, or analyzing the underlying mechanics of crypto price action will find this highly valuable.
🏢 Companies Mentioned
💬 Key Insights
"The lower the foundation is willing to sell tokens at, the better they are selling themselves for success. It might seem counterintuitive, except for they're selling something for cheap, but think about it. When Blasmai is selling 10% of their network at 50 million valuation, when they could probably have achieved 10 times more, that means that that starting price, if they have the stabilization mechanism in place, that starting price will be very low, which will be easier, way easier to impress from it than starting at 5B."
"It is that the project should have that green shoe option built in, which is something like selling tokens continuously, if the price of the token launches above, I'd be a price of token launch price. And that proceeds that are put in the smart contract, that's not for the founders, that's not, you know, exactly the liquidity, it stays in the smart contract, and it's only unlocked and used to buy back the token, if and when it trades below the token launch price."
"In traditional finance that's called the green shoe option. That option is essentially very schematically to simplify. It's a little more complicated than that, but to simplify, it says that if the IPO does extremely well, the bank that is leading the IPO... has the right to increase the size of the IPO, meaning to issue more shares, to grow the size of the IPO. By adding supply, they're going to calm things down."
"Really, the price discovery at launch is driven by people, the buyer, that crazy buyer who's buying at market, any size, any price, that's the person who establishes the first candle."
"Nobody's in the book. Nobody is in the book. There isn't a single dollar of all those in the books [in the first couple of hours post-launch]."
"on a decent, large launch, so not a giant parent or giant bear chain, like normally large launch that goes well, they can make 10 to 20 million dollars in a couple of days. In a couple of days."