Why Crypto’s Market Structure Is Broken And What It Will Take To Fix It

In this episode of When Shift Happens, I sit down with Xin Song, Group CEO of GSR Markets, to discuss why crypto’s market structure is fundamentally broken, how misaligned incentives are holding the industry back, and what it would take to rebuild it into something closer to a real financial system. From his early days navigating illiquid crypto markets to his vision of turning GSR into the Goldman Sachs of Web3, Xin offers a perspective that is both deeply operational and unusually honest about the industry’s flaws.

Learning The Hard Way: Markets, Risk, And Scale

Before joining GSR, Xin was running one of the earliest crypto options market-making operations. It was a niche within a niche, in an asset class that was still barely understood. In his words, operating in early crypto derivatives felt like “picking up pennies in front of a steamroller.” Small, consistent gains could be wiped out overnight by volatility you simply couldn’t hedge in an illiquid market. When Bitcoin moved from $3,000 to $5,000 almost instantly, it exposed how fragile early crypto infrastructure really was.

The lesson that stuck with him was that scale and liquidity matter. And most importantly, you cannot build sustainable businesses in structurally incomplete markets.

What “Broken Market Structure” Actually Means

When Xin says crypto is broken, he’s referring to a fundamental misalignment problem. 

The first issue is short-termism. Despite being one of the most forward-looking industries in theory, crypto behaves with remarkably short memory. Even after events like FTX, sentiment swings wildly based on immediate price action rather than long-term progress.

The second issue is infrastructure. The trading venues themselves are still not where they need to be. Basic mechanisms that exist in traditional finance, like circuit breakers or more mature liquidity systems, are either missing or underdeveloped. This makes it harder for market makers to do their job properly and amplifies volatility across the system.

But the deeper problem lies in incentives.

Misaligned Incentives Are Quietly Killing Progress

One of the most important insights from the conversation is how every major player in crypto is incentivised in ways that conflict with long-term health. Projects need to sell tokens at listing to fund operations, market makers hedge by selling, which adds further pressure, VCs enter early and exit profitably regardless of long-term outcomes, and exchanges benefit from the quantity rather than the quality of listings. 

Everyone makes money in the short term. But collectively, it creates persistent selling pressure and weak alignment with actual users. Xin puts it simply: the system works for individuals, but not for the ecosystem.

This is where crypto diverges sharply from traditional finance. In public markets, companies typically reach a certain level of maturity before listing. There is underwriting, institutional distribution, and a structured transition from private to public capital. Crypto, by contrast, often lists assets before true product-market fit exists.

Another overlooked issue is how fragmented the industry remains. Instead of expanding the total market, crypto often ends up redistributing the same liquidity across competing ecosystems. Projects fight for attention, capital, and users, rather than growing the pie. As Xin points out, this behaviour is premature and limits progress. Crypto is at a stage where it should prioritize collective growth over competition.

Reframing Market Makers: Not Villains, But Infrastructure

Market makers often carry a negative reputation in crypto, but Xin offers a more nuanced view. The issue is not the role itself, but the environment it operates in.

In an underregulated system with limited enforcement, bad actors can exploit the same mechanisms that legitimate firms use. This leads to generalised distrust, even toward participants trying to operate responsibly.

His argument is straightforward: you can “do well and do good at the same time,” but only if the structure supports it. Fixing reputation, therefore, is not about better marketing. It is about better systems, stronger regulation, clearer roles, and fewer conflicts of interest.

Building The Goldman Sachs Of Crypto

This is where GSR’s strategy becomes interesting.

Rather than remaining a pure market maker, the firm is evolving into a full-service investment bank for crypto. The idea is to support projects across their entire lifecycle. That includes: advising before token launch, providing liquidity once listed, and assisting in the management of treasury and capital over time. 

Xin compares it to how traditional investment banks operate with companies like Facebook or Coca-Cola, guiding them from early capital raising through public markets and beyond. The underlying bet is that trust, continuity, and alignment will become competitive advantages in crypto.

The $30 Trillion Opportunity: Why Tokenization Matters

Perhaps the biggest theme in the conversation is tokenization. While it is widely discussed, Xin argues that the market is still early. The problem is not supply, since there are already plenty of tokenized assets. Instead, the problem is demand.

Like any two-sided marketplace, tokenization only works when both sides exist. Right now, the buyer side is still underdeveloped. But if it works, the upside is massive.

The global securities market is estimated at around $300 trillion. Even if 5 to 10 percent moves on-chain, that represents a $15 to $30 trillion opportunity. That is an order of magnitude larger than crypto today. The missing piece is real use cases and real buyers.

A Different Way To Think About Success

Beyond markets and strategy, Xin’s philosophy is radically different from the typical narrative in crypto. For him, success is not about outperforming others. It is about competing with yourself.

He frames life more like a single-player game. You set your own benchmarks, improve over time, and measure progress against your own standards. It is a mindset shaped by his upbringing, his parents’ resilience, and his own experience navigating uncertainty across cultures and industries.

And in many ways, it reflects the broader message of the episode.

Where Crypto Goes From Here

If there is one takeaway, it is this: crypto’s biggest problems are no longer technical. They are structural.

The industry does not need more tokens. It needs better incentives. It does not need more competition. It needs more coordination. And it does not need faster growth at any cost. It needs aligned, sustainable systems.

👉If you enjoyed reading the summary, head over to When Shift Happens on YouTube or your favorite podcast platform to access the full convo.

https://www.youtube.com/watch?v=SzTsoEqEL94