NewsFlash Articles Data Fundraising Skill&API

On the first anniversary of FTX’s thunderstorm, how are the crypto market makers doing?

Read this article in 13 Minutes

Some market makers are reducing their risk exposure, while others are diversifying their operations.

Original Title: "FTX's One-Year Anniversary of the Thunderbolt, How Are Cryptocurrency Market Makers Doing?"

Original Authors: Suvashree Ghosh, Olga Kharif

Original Translation: Luffy, Foresight News

Alameda Research is the core trading company of Sam Bankman-Fried's failed crypto empire. Despite the company's collapse nearly a year ago, the market-making business for crypto assets is still struggling to recover.

Despite Bitcoin's nearly 16% increase last week, which boosted trading volume, there is still a long way to go to recover to pre-cryptocurrency winter levels. According to CCData, trading volume in October increased for the first time since June, but it still decreased by 50% compared to before FTX's bankruptcy in November 2022.

This means that the remaining liquidity providers (who profit from the difference in token buy and sell prices) face a difficult task of generating income in a market lacking volatility and trading volume, which were once distinctive features of the cryptocurrency industry. Some have readjusted their focus on trading activities, while others are seeking new sources of income outside of market making.

Digital Asset Capital Management co-founder Richard Galvin said, "This year has been very difficult for market makers due to declining trading volumes, uncertain regulatory frameworks in multiple jurisdictions, and increasing concerns about counterparty risk on exchanges." He added that if the recent rebound continues, "it will be a welcome opportunity for market makers and traders still active in the market to make profits."

Since the collapse of FTX a year ago, trading volume on various exchanges has decreased by half.

Here are some latest updates on market makers who are still active in the cryptocurrency industry.

Wintermute

Wintermute Trading Ltd. co-founder Evgeny Gaevoy said in an interview that as one of the largest cryptocurrency market makers, Wintermute has always been profitable and is diversifying its business to prepare for another bull market cycle. Wintermute's Chief Operating Officer, Marina Gurevich, stated that the company's daily trading volume is currently between $2 billion and $3 billion, lower than the peak of $7.5 billion per day during the market high in 2021.

As part of its efforts to generate revenue outside of the market-making field, Wintermute has become a major participant in the Ethereum network, helping to package transaction blocks. Gaevoy stated that the purpose of this move is to gain a competitive advantage in adding transactions to blocks, which helps it earn more money from arbitrage and other opportunities.

Gaevoy said that Wintermute also supported a loan project that has not yet been launched, and is considering launching a cryptocurrency derivatives exchange and working to launch an index related to cryptocurrencies. Gaevoy said that the timeline for some of these projects has not been determined, but he refused to provide more specific information on each project. Since 2020, the company's venture capital department has supported more than 80 projects.

Gurevich stated in a written response to Bloomberg that Wintermute, located in London and Singapore, plans to increase its workforce by 10% or 10 employees in the next two to six months.

Cumberland DRW

Cumberland is the cryptocurrency subsidiary of DRW, headquartered in Chicago. It was established in 2014 and focuses on over-the-counter trading and proprietary account trading. The company has stated that its OTC derivatives business continues to grow. It offers bilateral cryptocurrency options on BTC, ETH, and SOL through ISDA.

Cumberland's parent company DRW also co-founded ErisX (which has been acquired by Cboe Global Markets Inc.) and Digital Asset Holdings. Cumberland Labs is a blockchain project incubator that supports companies such as Hashnote and Expand.network.

GSR Markets

GSR, headquartered in London, is one of the oldest market makers in the cryptocurrency industry. Founded by former Goldman Sachs traders in 2013, it has since grown to become one of the leading market makers in the cryptocurrency industry. It recently received approval from the Monetary Authority of Singapore to offer digital payment token services in Singapore.

GSR told Bloomberg that they have always been active in various token trading and now focus more on Bitcoin and Ethereum, the two largest cryptocurrencies.

This company is also a prolific venture capitalist, with its investment arm being GSR Investments. According to a company spokesperson citing data from Messari, GSR Investments is one of the most active investors in the industry, holding stakes in EDX Markets, Ethena, and LayerN. The spokesperson stated that the company's venture capital activity has picked up this quarter after a "quiet summer."

GSR has laid off employees this year, becoming one of many cryptocurrency companies seeking to adapt to a more challenging market environment. The spokesperson stated that the layoffs were made to "adjust and develop our business to fit the current direction of the cryptocurrency industry." The spokesperson added that the company is actively recruiting employees in trading, engineering, legal, and financial fields.

Jump Crypto

Jump Trading, headquartered in Chicago, is mainly engaged in traditional securities investment business. It established Jump Crypto at the end of 2015 to start investing in cryptocurrency assets. However, due to the uncertainty of the regulatory environment in the United States, the company has been working on exiting cryptocurrency trading in the country. Jump is a major supporter of the TerraUSD project and is one of the companies that US prosecutors have questioned during their investigation into TerraUSD. Jump Crypto also faced losses due to the collapse of FTX, which was a client of the market maker and compensated users of the protocol after Wormhole suffered a $320 million hack. According to Blockworks' research, Jump seems to have recovered the funds.

Jump Crypto is another prolific venture capitalist, whose recent investments include Outdid and Coinflow Labs. A spokesperson for Jump declined to comment on details related to the company.

Flow Traders

Flow Traders, headquartered in Amsterdam, is an established market maker across various traditional asset classes and has been active in the cryptocurrency space since 2017. Its cryptocurrency business has 60 employees mainly located in Europe, and the company is cautious about expanding its team.

Flow's risk exposure on FTX is "negligible" and is "committed to building a digital asset ecosystem as a market maker and strategic investor." According to the company's semi-annual earnings report, as of the end of June, they held €89.2 million ($94.1 million) in digital assets for trading, up from €58.3 million at the end of December.

Flow Traders stated in the report that it expects regulatory uncertainty to persist until 2023 and beyond, and added that the company is working with regulatory agencies to promote the establishment of a clear and fair regulatory framework.

According to Flow Traders' semi-annual report and website, they trade digital asset spot, futures, options, and exchange-traded products without directional bets. In July 2022, the company established a venture capital department, Flow Traders Capital, with an investment of 50 million euros (52.7 million US dollars), and invested in companies such as Blockdaemon, Elwood, Sei Network, and Ondo.

Auros Global

This market maker, which has offices in New York and Hong Kong, had assets worth about $20 million frozen when FTX collapsed, ultimately leading the company to apply for temporary liquidation to restructure its debt in the British Virgin Islands court.

Auros raised $17 million in March this year, with investors including Vivienne Court, Bit Digital, Trovio, Epoch Capital, Primal Capital, and a senior alumni consortium from market maker Optiver. This helped the company to some extent to overcome the crisis.

The company spokesperson stated that since then, Auros has "optimized investments in some cryptocurrency exchanges, strengthened risk management," and requested increased transparency from exchanges with whom they conduct business. According to the company's website, they currently partner with over 50 exchanges and focus on tokens with high liquidity.

Auros reports that the daily transaction volume in October was $1.3 million, which is lower than the daily volume of $2.5 million during the peak period in May 2021.

Portofino Technologies

Portofino, headquartered in Switzerland, was founded in April 2021 by former Citadel securities employees. It is a relatively young participant in the digital asset market. In 2021, Portofino raised $50 million from investors such as Coatue Management, Valar Ventures, and Global Founders Capital.

Portofino spokesperson said in an email reply to Bloomberg that the company typically focuses on trading high market value tokens on the largest cryptocurrency exchanges. The spokesperson added that the company has been more active on FTX in 2022, but has limited assets on the exchange. Despite significant declines in market maker profits for certain asset types globally, Portofino expects "cryptocurrency market trading volumes to continue to grow over the next few months as we see some important catalysts bringing institutional and retail investors back to the crypto market."