[lukeqsee]

If market makers are getting liquidated with any consistency frequent enough to require exceptions, they are in deep trouble.

Market makers almost universally remain delta-neutral (that is, their goal is to be hedged against almost any market movement). Sure they sometimes get off balance and lose some money, but the margins for makers are typically so thin that liquidation is basically equivalent to total failure.

[amluto]

Hypothetically, if a market maker had the ability to create lots of little accounts, trade as those accounts, let some go negative, and continue to do this, some very positive expected value strategies should be available based on allowing some accounts to go negative, keeping the average profit only slightly negative over time, and walking away from the negative balances.

Making money on average requires actual competence. Creating a large profit variance with a small expected loss is much more straightforward and is normally a losing proposition.

[anonymoushn]

This plan ends up being a more complicated version of just stealing customer funds though. And they just stole customer funds.

[qeternity]

Exactly, this only works if the clearing venue is a third party. In this case, Alameda === FTX