What is a market maker loan agreement?

How the deal works

The market maker borrows tokens from the project and uses them to keep the market liquid for a set period, typically one to two years.¹ Its payment is a call option over those tokens.¹

A call option is the right to buy something at a fixed price in the future.² Here, it lets the market maker buy the borrowed tokens at a price agreed at the start, when the loan matures.¹

Why pay with an option? Because many token projects have little cash, so an option is offered instead.¹ Some deals mix both: a token loan plus a retainer fee.¹

A real example from a court case

In a 2024 lawsuit, the token project FractureLabs said it lent 30 million DIO tokens to a trading firm, in three parts of 10 million each.³ The firm could repay in DIO tokens or in US dollars, at $0.05, $0.20 and $0.40 per token for the three parts.³

FractureLabs alleged that the firm sold the borrowed tokens when DIO reached about $0.90, and that the price then fell to about $0.005.³ These were only allegations: the court dismissed the case in June 2025 for lack of jurisdiction, without ruling on the facts.⁴

The arguments about this deal

Presto argues that because the option's value rises with the token price, it protects against early pump-and-dump schemes.¹ A Berkeley course lecture argues the opposite, using a simple model: with the option capping its losses when prices rise, a market maker can lean towards selling.²

Cointelegraph reported in 2025 that in many loan and option deals, the targets the market maker must hit are missing or vague.⁵ Binance's guidance says a token loan agreement should spell out exactly what the market maker may do with the tokens.⁶