In a profit-share market-making deal, the market maker trades the project’s (and sometimes its own) inventory and keeps an agreed percentage of the net trading profit, often with a smaller fixed fee or none; in a revenue-share deal, the split is on gross trading revenue such as spread capture and rebates. Delta-neutral execution is a way of running the book (hedging the inventory so the position has little net exposure to the token’s price) that makes profit sharing safer for the project. Profit-share models align pay with performance, but they need tight definitions of profit, high-water marks, and limits on risk-taking.
Key takeaways
- Retainer: pay for service; firm earns fee plus spread.
- Profit share: firm keeps a percentage of net profit; needs clear accounting, high-water marks, and risk limits.
- Revenue share: split of gross trading revenue; simpler, but does not net off losses.
- Delta-neutral execution hedges price exposure so profit comes from spread and flow, not from betting on the token.
- Many real deals are hybrids: a small retainer plus a profit share, with KPIs.
Four models side by side
| Retainer | Revenue share | Profit share | Delta-neutral profit share | |
|---|---|---|---|---|
| Firm paid from | Fixed fee (+ spread) | % of gross trading revenue | % of net trading profit | % of net profit on a hedged book |
| Cash cost to project | Highest, predictable | Variable | Low or zero in bad months | Low or zero in bad months |
| Firm’s incentive | Meet KPIs | More volume and spread | More profit | Profit from spread and flow, not direction |
| Main risk | Paying for weak service | Churning volume | Excess risk-taking | Hedging costs, venue risk |
| Must define | KPIs | Revenue items | Profit, high-water mark, risk limits | Hedge venues, funding costs, limits |
From active trading to delta-neutral
Profit-share structures sit on a spectrum. At one end, active trading lets the firm take directional views with the inventory; potential profit is higher, and so is risk to your treasury. At the other end, delta-neutral execution hedges the inventory (for example with perpetual futures where they exist) so the book’s value barely changes with the token price, and profit comes from spread capture and order flow. Most projects should ask for the delta-neutral end, with any directional trading tightly capped.
Contract terms that matter most
- Profit definition: realised and unrealised, fees, funding, hedging costs, and how token inventory is valued.
- High-water mark and settlement period (monthly or quarterly).
- Risk limits: maximum net exposure, maximum drawdown, and pairs the firm may hedge on.
- KPIs still apply: spread, depth, uptime. A profit share is not a reason to stop quoting in quiet markets.
- Prohibitions: no wash trading, no trading against the project’s announcements, no front-running unlocks.
- Reporting: per-venue P&L and inventory, reconciled each period.
Which projects choose profit sharing
Teams that want to keep cash costs low without lending a large token allocation on option terms, teams that already have operational balances and want them to work, and listed projects unhappy with a retainer that pays regardless of outcome.
Frequently asked questions
What is profit sharing in crypto market making?
A structure where the market maker is paid a percentage of the net profit generated by trading an agreed pool of inventory, instead of, or in addition to, a fixed monthly fee. The contract defines how profit is calculated, how often it is settled, and what happens after losing periods.
What is delta-neutral market making?
Running a market-making book so that the combined position has close to zero exposure to the token’s price, usually by hedging inventory with perpetual futures or offsetting positions. The firm earns from spread and flow rather than from price moves. See delta-neutral market making explained.
Is profit sharing better than a retainer?
It aligns pay with results, which many teams like. The risks are aggressive trading to boost profit, disputes over accounting, and periods where the firm earns little and disengages. A small retainer plus a capped profit share with KPIs often works better than either extreme.
What is a high-water mark?
A rule that the market maker only earns a profit share on gains above the previous peak, so the project does not pay twice for recovering earlier losses.
Can a profit share include our treasury tokens?
Yes, if agreed. Be precise about which balances are in scope, whether the firm may sell tokens outright, and price-impact limits on any sales.