Original author: Suvashree Ghosh, Olga Kharif
Original compilation: Luffy, Foresight News
Alameda Research was the trading firm at the heart of Sam Bankman-Fried’s failed crypto empire, and the market-making business in crypto assets is still struggling to recover nearly a year after the company collapsed.
Although Bitcoin rose nearly 16% last week, boosting trading volume, it still has a long way to go before returning to the levels before the cryptocurrency winter. According to CCData, trading volume increased in October for the first time since June, but was still down 50% compared to before FTX went bankrupt (November 2022).
This means that remaining liquidity providers (who profit from the difference between the buying and selling prices of tokens) face the difficult task of generating revenue in a market that lacks the volatility and trading volume that once dominated crypto Distinctive Characteristics of the Currency Industry. Some have refocused their trading activities, while others have sought new revenue streams outside of market making.
Richard Galvin, co-founder of Digital Asset Capital Management, said, This year has been very difficult for market makers due to lower trading volumes, uncertain regulatory frameworks in multiple jurisdictions, and heightened concerns about exchange counterparty risk. He Adding that if the recent rally continues, it will be a welcome profit opportunity for market makers and traders who are still active in the market.
Since FTX’s collapse a year ago, trading volumes across exchanges have halved.
Here are the latest updates from some of the market makers still active in the cryptocurrency space.
Wintermute
Wintermute Trading Ltd. co-founder Evgeny Gaevoy said in an interview that as one of the largest cryptocurrency market makers, Wintermute has remained profitable and is diversifying its business to cope with another bull market cycle. Wintermute Chief Operating Officer Marina Gurevich said the company is currently trading between $2 billion and $3 billion per day, down from $7.5 billion per day during the market peak in 2021.
As part of an effort to generate revenue beyond market making, Wintermute has become a major player on the Ethereum network, helping package blocks of transactions. Gaevoy said the move was aimed at gaining a competitive advantage in adding transactions to blocks, which would help it make more money from arbitrage and other opportunities.
Gaevoy said Wintermute has also backed a lending project that has yet to launch, is considering launching a cryptocurrency derivatives exchange and is working on launching a cryptocurrency-related index. Gaevoy said timelines for some of the projects have yet to be determined, but declined to provide more specific information on each project. The companys venture capital arm has backed more than 80 projects since 2020.
Wintermute, which is based in London and Singapore, plans to add 10%, or 10 employees, over the next two to six months, Gurevich said in a written response to a Bloomberg query.
Cumberland DRW
Cumberland, the cryptocurrency subsidiary of Chicago-based DRW, was founded in 2014 and focuses on over-the-counter and proprietary account trading. The company said its OTC derivatives business continues to grow. It offers bilateral cryptocurrency options on BTC, ETH and SOL through ISDA.
Cumberlands parent company DRW also co-founded ErisX (acquired by Cboe Global Markets Inc.) and Digital Asset Holdings. Cumberland Labs is a blockchain project incubation company that supports companies such as Hashnote and Expand.network.
GSR Markets
London-based GSR is one of the oldest market makers in the cryptocurrency space. Founded in 2013 by a former Goldman Sachs trader, it has grown to become one of the leading market makers in the cryptocurrency space. It recently received approval from the Central Bank of Singapore to offer digital payment token services in Singapore.
GSR told Bloomberg that they have historically been active in trading various tokens and are now focusing more on Bitcoin and Ethereum, the two largest cryptocurrencies.
The company is also a prolific venture investor, and its investment arm is GSR Investments. GSR Investments is one of the industrys most active investors, holding stakes in EDX Markets, Ethena and LayerN, according to a company spokesperson citing data from Messari. The companys venture capital activity picked up this quarter after a quiet summer, the spokesman said.
GSR has cut staff this year, becoming one of many cryptocurrency companies seeking to adapt to tougher market conditions. The spokesperson said the layoffs were an effort to adjust and grow our business to align with the current direction of the cryptocurrency industry. The spokesperson added that the company is actively recruiting staff in trading, engineering, legal and finance.
Jump Crypto
Chicago-based Jump Trading is mainly engaged in traditional securities investment business. It established Jump Crypto at the end of 2015 and began investing in crypto assets. However, the company has been working on exiting cryptocurrency trading in the United States due to the uncertainty of the U.S. regulatory environment. Jump is a major supporter of the TerraUSD project and one of the companies questioned by U.S. prosecutors in their investigation of TerraUSD. Jump Crypto is also facing losses from the collapse of FTX, of which the market maker was a client and which compensated users of the protocol following the $320 million Wormhole hack. According to research by Blockworks, Jump appears to have recouped its funds.
Jump Crypto is another prolific venture investor, with recent investments including Outdid and Coinflow Labs. A Jump spokesman declined to comment on details related to the company.
Flow Traders
Amsterdam-based Flow Traders 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, mostly in Europe, and the company is conservative about growing its team.
Flow has “minimal” exposure to FTX and is “committed to building the digital asset ecosystem as a market maker and strategic investor.” According to the companys semi-annual earnings report, they held 89.2 million euros ($94.1 million) in digital assets for trading as of the end of June, up from 58.3 million euros at the end of December.
Flow Traders said in the report that it expects regulatory uncertainty to continue into 2023 and beyond, adding that the company is working with regulators to promote the establishment of a clear and fair regulatory framework.
According to the Flow Traders semi-annual report and website, they trade digital asset spot, futures, options and exchange-traded products and do not make directional bets. The company spent 50 million euros ($52.7 million) to establish its venture capital arm Flow Traders Capital in July 2022 and has invested in companies such as Blockdaemon, Elwood, Sei Network and Ondo.
Auros Global
The market maker, which has offices in New York and Hong Kong, had about $20 million worth of assets frozen when FTX collapsed, ultimately leading to the company applying to a British Virgin Islands court for provisional liquidation to restructure its debts.
Auros raised $17 million in March from investors including Vivienne Court, Bit Digital, Trovio, Epoch Capital, Primal Capital and a consortium of veteran alumni of market-making giant Optiver, which helped the company emerge from the crisis to some extent.
Since then, Auros has optimized its investments in some cryptocurrency exchanges and strengthened risk management, and required greater transparency from exchanges it does business with, a company spokesperson said. The company works with more than 50 exchanges and is currently focusing on tokens with higher liquidity, according to its website.
Auros said it processed $1.3 million in transactions per day in October, down from $2.5 million per day during its peak in May 2021.
Portofino Technologies
Switzerland-based Portofino, founded in April 2021 by former Citadel Securities employees, is a relatively young player among its peers in the digital asset market. Portofino raised $50 million in 2021 from investors including Coatue Management, Valar Ventures, and Global Founders Capital.
A Portofino spokesperson said in an emailed response to Bloomberg that the company typically focuses on high-market-cap tokens that trade on the largest cryptocurrency exchanges. The spokesperson added that the company was actively trading on FTX in 2022 but had limited assets on the exchange. Although market maker profits for certain asset types have plummeted globally, Portofino expects “crypto market volumes to continue to grow in the coming months as we see some important catalysts that will enable both institutional and retail investors to Return to the crypto market.”
