In token loan market making, the project lends a fixed amount of its tokens to a market maker for a set term (commonly a year or more), the firm uses them with its own stablecoins to quote two-sided markets, and instead of (or alongside) a cash fee the firm receives call options to buy some or all of the loaned tokens at pre-agreed strike prices. At the end of the term the firm either pays the strike and keeps the tokens, or returns them. It saves cash, but it gives the firm exposure to your token price, so loan size, strikes, KPIs, and return terms decide whether it is a fair deal.
Key takeaways
- Saves cash; costs tokens through option value.
- Negotiate loan size (as a share of circulating supply), strike prices, tenor, and tranches.
- Put KPIs and no-sell or price-impact limits in the contract.
- Know your counterparty: the firm holds your tokens for the whole term.
How a loan deal runs
| Stage | What happens | What to check |
|---|---|---|
| Term sheet | Loan size, tenor, strikes, KPIs, venues | Strikes justified; loan sized to depth targets |
| Transfer | Tokens move to the firm’s named accounts | Addresses and exchange sub-accounts documented |
| Quoting | Firm quotes with your tokens and its stablecoins | Reports on spread, depth, uptime, and inventory |
| Unlocks and events | Firm adjusts to supply events | Advance notice both ways |
| Expiry | Firm exercises (pays strike) or returns tokens | Exercise windows, settlement, return addresses |
Terms that protect the project
- Tranches with rising strikes, rather than one low strike.
- Price-impact or sell limits so loaned tokens are not dumped into thin books.
- KPIs with remedies: if spread or depth targets are missed, the project can terminate and recall tokens.
- Recall and early termination rights, and what happens to the options if you terminate.
- Reporting of the loaned inventory, per venue, at least monthly.
- No wash trading and no trading on undisclosed project information.
Loan model or something else?
If your treasury has stablecoins, a retainer usually has cleaner incentives. If you want the firm’s own capital in the book, look at LP-side liquidity. If you want pay linked to results, see profit sharing. Our vetted partners can quote any of these, so you can compare like for like.
What a real token-loan proposal looks like
A 2025 TrueFi governance proposal (TFIP-25) is a rare public example. It proposed lending 9,000,000 TRU to a market maker for 24 months, with call options on 55% of the loan at a 5% premium and on 35% at a 15% premium. It also set KPIs: a 30 bps spread, at least USDT 40,000 of depth per 2% from mid across venues, and 95% uptime. Compare four other public proposals in public market-maker deal terms, and price the options with the cost calculator.
Frequently asked questions
What is a token loan in market making?
An agreement where the project lends tokens to a market maker to use as inventory for quoting. The loan is usually paired with call options that let the firm buy the tokens at set prices at the end of the term, or return them.
How big should a market-making token loan be?
There is no single answer, but think of it as a share of circulating supply and of the depth you need. Very large loans relative to float give the firm too much influence over price. Size the loan to the depth targets in the contract, not to a headline number. See token loan terms explained.
How are strike prices set?
Usually relative to a reference price at or after listing, often in tranches above it (for example a reference price plus several premium steps). Strikes set too low transfer value to the firm; ask how each strike was chosen.
What are the risks of lending tokens to a market maker?
Counterparty risk if the firm fails or does not return tokens, selling pressure if the firm sells loaned inventory, and misaligned incentives if the option terms reward volatility or a lower price. Contracts, named accounts, reporting, and reasonable sizes reduce these risks.
Can a token loan be combined with a retainer?
Yes. A smaller loan plus a modest retainer and firm KPIs is a common compromise. See retainer vs loan and option model.