Crypto Market Structure: A Framework for Digital Asset Markets

Crypto market structure refers to the framework that governs digital asset markets. This includes participants such as crypto exchanges, brokers, custodians, market makers, token issuers, investors, and regulators. The collapse of FTX in 2022 highlighted the importance of clear rules regarding disclosure, custody, and conflicts of interest to protect retail investors.

The key players in crypto markets are retail investors, who trade through consumer apps or self-custody wallets, and institutional investors, which include hedge funds and pension funds. Market makers provide liquidity by continuously posting buy and sell quotes on exchanges. Custodians safely store digital assets on behalf of clients, while token issuers create and distribute digital assets.

Crypto exchanges sit at the center of market structure as most trading volume passes through them. Centralized exchanges operate a private order book and hold customer assets, while decentralized exchanges use smart contracts to match orders without holding custody. The mix of centralized and decentralized exchanges raises questions about who is regulated when a protocol runs autonomously on a blockchain.