Almost one year after the collapse of Alameda Research, the trading firm at the heart of Sam Bankman-Fried’s failed cryptocurrency empire, market making in digital assets is still struggling to make a significant comeback.
While trading volumes were boosted by a rally last week that saw Bitcoin jump nearly 16%, they still have a long way to go before recovering to their pre-crypto winter days. Volumes were up this month for the first time since June, but are down 50% from the days prior to the bankruptcy of Bankman-Fried’s exchange FTX in November 2022, according to CCData.
This environment has meant remaining liquidity providers — who profit from the difference between buying and selling prices of tokens — have faced the uphill task of generating revenues in a market which lacks volatility and volume, once the distinct features of the crypto sector. Some have refocused their trading activities, while others are seeking new revenue streams beyond market making.
“The year has been very tough for market makers given lower volumes, uncertain regulatory frameworks across a number of jurisdictions and enhanced concerns around exchange counterparty risk,” said Richard Galvin, co-founder at Digital Asset Capital Management. If sustained, the recent rally “would be a welcome increase in profit opportunity available to market makers and traders still active in the market,” he added.
Here are the latest developments at some of the market makers still active in crypto:
Wintermute
One of the largest crypto native market makers, Wintermute Trading Ltd. has remained profitable and is diversifying its business in anticipation of another bull cycle, co-founder Evgeny Gaevoy said in an interview. It currently trades between $2 billion and $3 billion in transactions a day, down from up to $7.5 billion a day during 2021 market peak, according to Marina Gurevich, chief operating officer at Wintermute.
As part of this push to generate revenue in areas beyond market making, Wintermute has become a major Ethereum network participant, helping package blocks of transactions. The move is aimed at gaining competitive advantage in adding transactions to blocks, which helps it to make more money off of arbitrage and other opportunities, Gaevoy said.
It has also backed a yet-to-launch lending project, is mulling starting a crypto derivatives exchange and is working on launching a crypto-related index, Gaevoy said. Timelines for some of these projects have not yet been laid out, Gaevoy said, declining to provide more specific information on each. The company’s venture arm has backed more than 80 projects since 2020.
Wintermute—which is based in London and Singapore—is planning to increase its workforce by 10% or 10 people over the next two to six months, Gurevich said in a written response to a Bloomberg query.
Read about Wintermute’s expansion plans
Cumberland DRW
The crypto subsidiary of the Chicago-based DRW, Cumberland was founded in 2014 and focuses on over-the-counter trading and trades for its own account. Its OTC derivative business continues to see growth, according to the company. It offers bilateral crypto options via ISDA on BTC, ETH and SOL focusing on portfolio margining for collateral optimization.
DRW, the parent company of Cumberland, was a co-founder of both ErisX—which was acquired by Cboe Global Markets Inc.—and Digital Asset Holdings. Cumberland Labs, the business which incubates blockchain projects, has backed companies including Hashnote and Expand.network.
GSR Markets
London-based GSR, one of crypto’s oldest market makers, was founded in 2013 by ex-Goldman Sachs traders and has since grown into one of crypto’s leading market makers. It recently won an in-principle approval from the Singapore central bank to provide digital payment token services in the city state.
GSR, which has historically been active in trading a wide range of tokens, is focusing now more on the two biggest tokens Bitcoin and Ether, it has told Bloomberg.
The company is also a prolific venture investor through GSR Investments, which remains one of the sector’s top 10 most active backers, according to a company spokesperson citing Messari data, with stakes in EDX Markets, Ethena and LayerN. The firm’s venture investment activity has picked up this quarter after a “market lull in summer,” the spokesperson said.
GSR laid off staff this year, joining the many crypto firms who have sought to adapt to the tougher market environment. The layoffs were part of “adapting and evolving our business to match with the current direction of the crypto sector,” the spokesperson said. It is “actively hiring” for positions across trading, engineering, legal and finance, the spokesperson added.
Jump Crypto
Chicago-based Jump Trading, which invests in traditional securities, carved out Jump Crypto in late 2015 to invest in digital assets. However, the firm has been pulling back from crypto trading in the US due to the country’s uncertain regulatory climate. Jump, a major backer of the TerraUSD project, was among the firms questioned by US prosecutors in a probe of the failed stablecoin. The market maker also faced losses from tokens stuck on collapsed FTX, of which it was a customer, and reimbursed users of the Wormhole bridge after the protocol suffered a $320 million hack. Jump appears to have recovered the funds, according to research by Blockworks.
Jump Crypto has been another prolific venture investor in crypto projects, with recent investments including Outdid and Coinflow Labs. A Jump spokesperson declined to comment on the details related to the firm.
Flow Traders
Amsterdam-based Flow Traders—an established market maker across various traditional asset classes—has been active in crypto since 2017. Its crypto business has 60 employees, mainly located in Europe, and the firm remains conservative about expanding the team.
Flow’s FTX exposure was “insignificant,” and it is “committed to building the digital-asset ecosystem as both a market maker and strategic investor,” it said in a November post on its website. The group held €89.2 million ($94.1 million) of digital assets for trading as of June-end, up from €58.3 million at end-December, according to its half-yearly earnings report.
Flow Traders expects regulatory uncertainty to continue into 2023 and beyond, it said in the report and added that the firm is engaging with regulators to push “for a clear and fair regulatory framework.”
Flow Traders trades digital assets spot, futures, options and exchange-traded products, and doesn’t make directional bets, according to the half-yearly report and website. The firm launched its venture capital unit, Flow Traders Capital, in July 2022 with €50 million ($52.7 million) and has invested in firms including Blockdaemon, Elwood, Sei Network and Ondo.
Auros Global
The market maker with offices in New York and Hong Kong had about $20 million worth of assets frozen on FTX at the time of its collapse, which ultimately led the company to file for provisional liquidation in a British Virgin Islands court to restructure debts.
Auros raised $17 million in March from investors including Vivienne Court, Bit Digital, Trovio, Epoch Capital, Primal Capital, and a consortium of senior alumni from market making giant Optiver that partly helped the company to come out of liquidation.
Since then Auros has “optimized its exposure to some crypto exchanges and strengthened its risk management,” and asks for greater transparency from exchanges they do business with, a company spokesperson said. It works with more than 50 trading venues, according to its website, and is now focused on large cap tokens with higher liquidity.
Auros handled $1.3 million of transactions a day in October, down from $2.5 million a day during a May 2021 peak, it said.
Portofino Technologies
Founded by ex-Citadel Securities employees in April 2021, Switzerland-based Portofino is a relatively new entrant among its peers in the digital-asset market. The liquidity provider raised $50 million from investors including Coatue Management, Valar Ventures and Global Founders Capital in 2021.
The firm typically focuses on large-cap coins traded on the largest crypto exchanges, a Portofino spokesperson said in an emailed response to Bloomberg. The firm was “actively trading” on FTX in 2022 but had limited assets on the exchange, the spokesperson added. While margins for market makers have collapsed globally for certain asset types, Portofino expects “crypto market volumes will continue to grow in the coming months, as we see some important catalysts that will bring institutional and retail investors back to the asset class.”
--With assistance from Sidhartha Shukla.