Helen is Marketing Team Lead at Motion Trade with 4+ years in Web3 and crypto marketing. Before joining Motion Trade, she built and led the marketing function at CLS Global and managed social media campaigns for a portfolio of crypto clients at Ninja Promo. She specializes in turning complex trading products into clear stories.
A market maker, a proprietary trading desk and a liquidity provider can all place orders on your token's order book, but they work for different people. A contracted market maker works for the project: it is paid to quote both sides continuously and is bound by written targets for spread, depth and uptime. A proprietary trading desk works for itself: it trades its own capital for its own profit, has no obligation to your token, and may buy, sell or leave whenever its models say so. A liquidity provider is the broadest term, covering anyone who supplies resting liquidity, from passive deposits in an automated pool to exchange incentive programmes. Many firms do more than one of these things, which is why the useful question is not what a firm calls itself but what it has agreed to do for you in writing.
Founders often meet all three in the same week. A desk offers market making, an exchange mentions its liquidity programme, and a trading firm shows up in the book without being asked. The labels overlap in everyday use, and some firms deliberately keep them vague. This article separates the three roles, explains where they collide, and sets out how to tell which one you are actually dealing with. The two-way comparison between market makers and liquidity providers is covered in more depth in market maker vs liquidity provider; this piece adds the third party that most comparisons leave out.
The market maker: paid to be there
A contracted market maker is a service provider. The project pays a retainer, shares profits or lends tokens under an option agreement, and in return the desk commits to keep two-sided quotes on named venues and pairs. The commitment is measurable: a maximum spread, a minimum depth within defined bands around the mid price, and a share of time during which both have to hold. The structures are compared in retainer vs profit-sharing vs loan model, and the contract terms in what belongs in a market making agreement.
The defining feature is obligation. A market maker has to keep quoting when it would rather not, during a sell-off, through an unlock, or on a quiet Sunday when nobody is trading. It manages the inventory risk that comes with that, but it cannot simply step away because the trade has become unattractive. That obligation is what the project is paying for.
The proprietary trading desk: there when it pays
A proprietary trading desk trades its own capital to make money for itself. Some prop desks run strategies that look very similar to market making from the outside: they post bids and offers, capture the spread, and arbitrage between venues. On a liquid token that activity is genuinely helpful, and many large tokens rely on it.
The difference is that a prop desk owes the token nothing. It quotes when the expected profit is positive and withdraws when it is not, which tends to be exactly when liquidity is most needed. It may also take directional positions, including short positions, and it has no reason to tell anyone what it is doing. On a small token with a thin book, a prop desk is less likely to provide liquidity at all and more likely to trade against the flows it can predict, such as scheduled unlocks or airdrop claims.
None of this is improper. Prop trading is a normal part of every market. It becomes a problem only when a project believes it has hired a market maker and has in fact invited a prop desk into its book on terms that do not bind it.
The liquidity provider: a broad and often passive label
Liquidity provider describes a function rather than a type of firm. It includes retail and institutional users depositing tokens into automated market maker pools, exchanges' own liquidity incentive programmes, designated market maker schemes that some venues run, and, loosely, market makers and prop desks themselves. Most liquidity providers in decentralised finance are passive: they deposit two assets into a pool and let the pricing curve do the work. They do not manage spread, react to news or keep prices aligned across venues. The trade-offs between pools and order books are discussed in CEX vs DEX market making.
Because the term is so wide, a proposal that offers liquidity provision without specifying what that means is not yet a proposal. It may describe a serviced order book, a pool deposit or simply the fact that the firm will sometimes trade the token.
| Market maker | Prop trading desk | Liquidity provider | |
|---|---|---|---|
| Works for | The project, under contract | Itself | Itself, or an incentive programme |
| Obligation to quote | Yes, with written spread, depth and uptime targets | None | None, unless in a designated programme |
| How it earns | Retainer, profit share or token options, plus spread | Trading profit, including directional bets | Pool fees, rebates or incentive rewards |
| Behaviour in a sell-off | Keeps quoting within agreed volatility rules | Withdraws or trades the move | Pool absorbs the trade along its curve; programmes may pause |
| Reporting to the project | Required and auditable | None | None, beyond on-chain pool data |
| Can the project enforce anything? | Yes, through KPIs and exit terms | No | Only programme rules set by the exchange |
Where the roles collide
The cleanest firms run one business. Many do not. A single company may run contracted market making for projects, a proprietary book, a venture fund holding project tokens and an OTC desk, all at once. That is not automatically a problem, but it creates conflicts the project needs to see.
- Information. The market making team knows your unlock calendar, treasury plans and announcement dates. A proprietary team at the same firm could profit from that knowledge. Ask what separates them, in writing.
- Inventory. Under a loan structure, the desk holds your tokens. Ask whether loaned tokens can be used for anything other than quoting your pairs, and whether they can be lent onwards or used as collateral.
- Options. Call options give the desk an economic interest in the price rising above the strike, which is helpful, but they can also make a desk indifferent to a falling price once the options are worthless. The structure of the options shapes behaviour more than the marketing does.
- Positions. A firm with a venture stake in your token, or a proprietary short, has interests that may differ from yours. Ask for a written declaration of any position the firm or its affiliates hold.
These questions also appear in market maker red flags, because the firms that refuse to answer them are the ones whose roles are most blurred.
How to tell which one you are hiring
The label on the website does not decide it. The contract does. A firm is acting as your market maker if, and only if, the agreement names the venues and pairs, sets numerical spread and depth targets with an uptime percentage, describes how those numbers are measured, gives you access to data that lets you check them, and states what happens to inventory at the end. Everything else is a firm that may or may not choose to trade your token. The end of an engagement is described in what happens when a market making contract ends.
A practical test is to ask the desk what it will do during a twenty percent drop in an hour. A market maker answers with its volatility policy: how far the spread may widen, for how long and how quickly it returns to target. A prop desk answers with what it expects the market to do. Both answers can be intelligent, but only one of them is a commitment.
Which one does a token need?
A newly listed or small token needs a contracted market maker, because nobody else has a reason to keep its book populated through quiet periods. Exchanges monitor spread, depth and price consistency daily, and the thresholds are set out in why tokens get delisted. Prop desks and passive liquidity providers will arrive once the token has enough organic flow to make trading it worthwhile, and at that point their activity complements the contracted desk rather than replacing it. A large, liquid token may eventually need little contracted support at all, but that is a destination rather than a starting point. What happens to a book with nobody under contract is traced in what happens without a market maker, and Motion Trade's own service is described on our market making page.
FAQ
What is the difference between a market maker and a prop trading desk?
A market maker is contracted by the project and must keep quoting both sides of the book to written spread, depth and uptime targets. A proprietary trading desk trades its own capital for its own profit, has no obligation to the token, and can withdraw or take directional positions at any time.
Is a liquidity provider the same as a market maker?
No. Liquidity provider is a broad term for anyone who supplies resting liquidity, including passive deposits in automated pools and exchange incentive programmes. A market maker is a specific kind of liquidity provider that actively quotes an order book under contractual obligations.
Can a market maker also run a proprietary trading book?
Many firms do both. It is not automatically improper, but the project should ask how information is separated between the teams, whether loaned tokens can be used outside the engagement, and whether the firm or its affiliates hold any position in the token.
Do prop trading firms help a token's liquidity?
On liquid tokens they often do, by quoting and arbitraging between venues. On small tokens they are less reliable, because they withdraw when quoting is unprofitable and may trade against predictable flows such as unlocks. Their activity complements a contracted market maker but does not replace one.
How do I know whether I am hiring a market maker or a prop desk?
Read the agreement. If it names venues and pairs, sets numerical spread, depth and uptime targets, explains how they are measured, gives you verifiable reporting and defines what happens to inventory at termination, you are hiring a market maker. If it does not, you are not.
What is a designated market maker programme?
Some exchanges run programmes in which approved firms receive fee rebates or other benefits in exchange for meeting quoting obligations set by the exchange. The obligations are owed to the exchange rather than to the project, so they do not replace a project's own market making agreement.
