Most exchanges are designed to fail from day one.
Exchanges don’t control their own liquidity. Instead, they outsource pricing to third-party market makers—firms with no loyalty to the exchange and every incentive to do what’s best for them: when volatility hits, they pull liquidity, widen spreads, and let traders eat the cost. Traders get liquidated by bullshit scam wicks, they leave, and the exchange slowly dies.
The only way to win is to be your own market maker.
FTX had Alameda.
Hyperliquid has Chameleon / HLP.
Binance had Merit Peak and Sigma Chain—firms secretly controlled by CZ, who got sued by the SEC for trading against Binance users.
This raises ethical concerns. If the exchange needs to trade against their users, how do traders know they’re getting fair execution? The exchange sets the prices, decides when liquidity is available, and who gets liquidated. If they want to tighten spreads to attract volume, they can. If they want to widen them to extract more from traders, they can.
Below is a SOL visualization of a very popular orderbook exchange that has an internal MM...
They are the judge, jury, and executioner. They are the house, and the house always win.
The future of exchanges will break this tradeoff - ones that combine cutting-edge market making with provable guarantees of fair pricing. Liquidity will be always be ensured for traders without reliance on parties who have conflicts of interest of them.
We're building this at Vest.