Token projects preparing for an exchange listing often receive market-making proposals that promise tighter spreads, deeper order books, and a smooth launch in exchange for a token loan and an option to purchase part of the allocation. According to a legal analysis published by Kelman Law, the problems tend to surface months later, when a project wants its tokens back and the market maker points to an option exercise provision, an extended repayment period, and authority to hold inventory on third-party exchanges.
The analysis, written by Michael Handelsman, advises projects to understand what a market maker may do with the tokens, how performance will be measured, and precisely what must be returned before transferring any inventory. Those terms, it argues, deserve as much attention as the headline fee.
Define the token loan and purchase rights
The analysis recommends starting with the legal entities involved: which party provides the tokens, which performs the services, and which owes repayment. If a foundation holds the treasury but a development company signs the agreement, the foundation's authorization and contractual rights should be established.
Documents should distinguish among a loan, an outright sale, and assets held for trading on the project's behalf. They should explain whether ownership transfers, whether inventory may be commingled, and whether the recipient must return equivalent tokens or account for specifically held assets.
Where a purchase option is granted, the project should negotiate the quantity, exercise price, expiration, notice procedure, settlement currency, and interaction with repayment. The analysis offers a hypothetical: a loan of one million tokens with an option to buy them at $0.50 each. If the token later trades at $2, exercise could let the market maker pay $500,000 instead of returning tokens with a quoted value of $2 million. That may be an intentional commercial bargain, but the project should model it before signing.
Projects should also address partial exercise, token migrations, supply changes, and early termination, and determine whether an option survives a service breach and whether repayment obligations are reduced only after valid exercise and payment.
Translate the proposal into a measurable trading mandate
"Maintain liquidity" leaves substantial room for disagreement, according to the analysis. Agreements should specify approved exchanges, trading pairs, inventory allocation, and the services expected on each venue.
Useful performance measures may include maximum quoted spreads, minimum order-book depth within defined price bands, and the percentage of time qualifying quotes remain available. The analysis advises defining the reference price, measurement intervals, data sources, and treatment of exchange outages, and treating these as negotiated service obligations with realistic exceptions. It cautions against language that treats a desired token price or artificial transaction volume as the service being purchased.
Trading authority also needs boundaries. The agreement should address whether the market maker may transfer inventory between venues, lend it onward, pledge it, use leverage, or hedge through derivatives. If hedging is permitted, the purpose, limits, and reporting requirements should be identified. For accounts controlled by the project, trading-only permissions and separate withdrawal authorization should be considered.
Require lawful activity and meaningful oversight
A promise of "volume support" warrants scrutiny of the actual trading strategy. The analysis cites the Department of Justice's August 6, 2026 announcement concerning MyTrade's founder, describing his sentencing following a guilty plea to conspiracy to commit market manipulation and wire fraud. MyTrade's service used bots to conduct wash trades that created misleading trading activity. The practical lesson for a project, according to the analysis, is to examine how promised results will be achieved.
Agreements should prohibit manipulative trading, deceptive orders, and coordinated transactions intended to create false market activity, and should require compliance with applicable law and venue rules. The analysis also recommends rights to investigate suspicious activity, obtain relevant records, and suspend trading when necessary, noting that a general compliance warranty provides little operational protection if the project cannot see what is happening.
Make reporting sufficient to reconcile the inventory
A dashboard showing aggregate volume does not explain where the project's assets are or how they have been used, the analysis notes. It recommends negotiating reporting that allows the project to reconcile opening and closing token and cash balances; trades, transfers, fees, rebates, and other charges; inventory held at each approved venue or wallet; outstanding loans, collateral commitments, and permitted hedges; and performance against agreed quoting obligations.
Reporting frequency, delivery format, record retention, and access after termination should be specified, along with prompt notice of withdrawal restrictions, security incidents, material trading errors, and regulatory inquiries affecting performance. The agreement should also distinguish trading gains and losses from service fees, and clarify who receives exchange rebates, who funds losses, and whether the market maker can deduct disputed charges from repayment.
Address conflicts, information use, and exclusivity
Market makers may have interests that differ from the project's. The analysis advises reviewing their ability to trade for their own account, serve competing projects, transact with affiliates, and receive compensation from exchanges or other counterparties, and requiring disclosure of material conflicts and how they will be managed.
Confidentiality provisions should address the use of nonpublic information about listings, token unlocks, treasury transactions, and commercial announcements. Exclusivity deserves particular attention: a broad restriction could prevent a project from appointing another provider even when performance deteriorates. The analysis suggests limiting exclusivity by venue, trading pair, duration, and satisfaction of measurable service standards, and retaining approval rights over public statements suggesting the market maker guarantees a token's price, listing, or commercial success.
Negotiate the exit before delivering the tokens
Termination and repayment are separate obligations. Ending the relationship should trigger a defined process for stopping new trades, closing permitted positions, reconciling balances, and returning inventory, with specified notice periods, cure rights, and circumstances permitting immediate suspension or termination.
For repayment, the agreement should identify the token, network, destination-verification procedure, deadline, and responsibility for transaction fees. If cash substitution is permitted, the documents should define who may elect it and how valuation works. The analysis advises addressing exchange withdrawal freezes expressly and deciding whether the market maker remains responsible for timely repayment and what evidence or mitigation steps it must provide, warning that an open-ended extension tied to a venue reopening can leave a project unable to recover its inventory when it needs it most.
Review liability limits and recovery prospects together
A liability cap based on a few months of service fees may be commercially inadequate where the market maker controls a substantial token allocation, according to the analysis. Projects should negotiate how the cap applies to repayment obligations, unauthorized transfers, fraud, willful misconduct, and confidentiality breaches, and review indemnities alongside exclusions of damages and defense-control provisions.
The analysis also recommends assessing the counterparty's financial capacity and whether collateral or a guarantee is appropriate. It notes that a contractual recall right does not ensure immediate recovery: in a U.S. bankruptcy, the automatic stay under 11 U.S.C. § 362 can restrict collection and enforcement, subject to statutory exceptions, and counsel should evaluate the arrangement's specific insolvency treatment before relying on contractual remedies. Governing law and a court or arbitration forum should be selected with enforcement in mind, including where the counterparty and its assets are located and access to urgent relief.
The analysis was published as an opinion editorial by Kelman Law and is identified as attorney advertising. It provides general information, not legal advice.
