In the retainer model, a token project pays a market maker a recurring fee for a defined quoting service, so the firm is paid for service quality. In the loan and call option model, the project lends tokens (and sometimes stablecoins) and grants the market maker options to buy some of those tokens at pre-agreed strike prices at the end of the term, so the firm is paid mainly through the options’ value. Retainers cost cash upfront but keep incentives cleaner; loan and option deals save cash but give the firm economic exposure to the token and its price path.
Key takeaways
- Retainer: cash cost, cleaner incentives, firm’s profit not tied to your token price.
- Loan + options: lower cash cost, but the firm benefits if price rises above strikes, and the project carries counterparty risk on the loan.
- Hybrid: smaller retainer, smaller loan, tighter KPIs is a common compromise.
- Compare models by total expected cost over the term, under several price scenarios.
Side by side
| Retainer (service) model | Loan + call option model | |
|---|---|---|
| What the project provides | Cash fee; sometimes some inventory | Token loan (and sometimes stablecoins) |
| How the firm earns | Fee, plus spread capture | Option value, plus spread capture |
| Upfront cash | Higher | Lower |
| Firm’s exposure to token price | Low to moderate | High (via options and inventory) |
| Incentive alignment | Paid for quality of service | Paid more if price ends above strikes |
| Project’s counterparty risk | Fee paid | Tokens out on loan |
| Key terms to negotiate | KPIs, fee, reporting | Loan size, strikes, term, exercise, return, KPIs |
How a loan and option deal works, step by step
- The project lends a fixed number of tokens for a term.
- The market maker uses them, alongside its own stablecoins, to quote.
- The contract sets one or more strike prices.
- At the end of the term, for each tranche, the firm either exercises (pays the strike price for the tokens and keeps them) or returns the tokens.
More on strikes, tranches, and protections in token loan terms explained.
How to compare proposals fairly
Build a simple table for each proposal with three price scenarios at the end of the term (price falls, flat, rises) and calculate what you pay or give up in each: retainer paid, tokens sold at strike versus market value, and tokens returned. Add the KPIs each firm commits to. The cheapest-looking proposal often changes once you do this.
When a hybrid makes sense
If your treasury is mostly tokens but you want firm KPIs and less dependence on option economics, a smaller retainer plus a smaller loan with conservative strikes is a reasonable middle ground.
Frequently asked questions
Which is better, a retainer or a loan and option deal?
Neither is universally better. Retainers suit projects with cash and a preference for clean incentives. Loan and option deals suit projects with more tokens than cash, provided the loan size, strikes, and return terms are reasonable and well documented.
Why do market makers ask for call options?
Options compensate the firm for providing liquidity without a cash fee. If the token price rises above the strike, the firm can buy tokens below market and profit; if it does not, the options expire and the tokens are returned.
What are the risks of lending tokens to a market maker?
Counterparty risk (the firm fails or does not return tokens), selling pressure if the firm sells loaned tokens, and incentive misalignment if option terms reward the firm for price declines or volatility. Contracts, named accounts, reporting, and reasonable loan sizes reduce these risks.
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