One year after the FTX crash, have the once badly affected market makers in the crypto world recovered?

One Year After the FTX Crash Have Market Makers in the Crypto World Fully Recovered from the Impact?

Authors: Suvashree Ghosh, Olga Kharif

Translated by: Luffy, Foresight News

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

Although Bitcoin rose nearly 16% last week, boosting trading volumes, there is still a long way to go to recover to the levels before the crypto winter. According to CCData, trading volume in October increased for the first time since June, but still declined by 50% compared to before the FTX collapse in November 2022.

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This means that the remaining liquidity providers (who profit from the difference between token buy and sell prices) face a daunting task of generating income in a market lacking volatility and trading volume, which used to be distinctive features of the crypto industry. Some have adjusted the focus of their trading activities, while others are seeking new sources of income outside market-making.

Richard Galvin, co-founder of Digital Asset Capital Management, said, “This year has been very challenging for market makers due to the decrease in trading volumes, regulatory uncertainties in multiple jurisdictions, and increased concerns about counterparty risks on exchanges.” He added that if the recent rebound continues, “it would be a welcome opportunity for market makers and traders who are still active in the market.”

Since the collapse of FTX a year ago, trading volumes on various exchanges have halved.

Here are some recent developments from market makers who are still active in the cryptocurrency field:

Wintermute

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

As part of their efforts to generate revenue beyond market-making, Wintermute has become a major participant in the Ethereum network, helping to confirm transactions and add blocks to the blockchain. Gaevoy stated that the purpose of this is to gain a competitive advantage in adding transactions to blocks, which helps them make more money from arbitrage and other opportunities.

Gaevoy also mentioned that Wintermute is supporting an upcoming lending project, considering launching a cryptocurrency derivatives exchange, and working on launching a cryptocurrency-related index. Gaevoy mentioned that the timeline for some of these projects is still uncertain but declined to provide more specific information for each project. Since 2020, the company’s venture capital division has supported over 80 projects.

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

Cumberland DRW

Cumberland is a cryptocurrency subsidiary of DRW based in Chicago, founded in 2014, focusing on over-the-counter trading and proprietary trading. The company stated that its over-the-counter 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 (acquired by Cboe Global Markets Inc.) and Digital Asset Holdings. Cumberland Labs is a blockchain project incubator that has supported companies like Hashnote and ExLianGuaind.network.

GSR Markets

GSR, headquartered in London, is one of the oldest market makers in the cryptocurrency field, founded by former Goldman Sachs traders in 2013. It has evolved into one of the leading market makers in the cryptocurrency field. It recently obtained 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.

The company is also a prolific venture investor, with its investment division being GSR Investments. According to a company spokesperson citing Messari data, GSR Investments is one of the most active investors in the industry, holding shares in EDX Markets, Ethena, and LayerN. The spokesperson stated that the company’s venture investment activity has rebounded this quarter after a “calm summer.”

GSR has downsized this year, becoming one of many cryptocurrency companies seeking to adapt to a more challenging market environment. The spokesperson stated that the downsizing was done 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, law, and finance.

Jump Crypto

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

Jump Crypto is another prolific venture investor, with recent investments including Outdid and Coinflow Labs. A Jump spokesperson declined to comment on details related to the company.

Flow Traders

Flow Traders, headquartered in Amsterdam, is a long-established market maker spanning various traditional asset classes. It has been active in the cryptocurrency field since 2017. Its cryptocurrency business has 60 employees mainly located in Europe, and the company takes a conservative approach to expanding its team.

Flow’s risk exposure on FTX is “negligible” and they are “committed to building a digital asset ecosystem as market makers and strategic investors,” according to the company’s semi-annual earnings report. As of the end of June, they held 89.2 million euros ($94.1 million) in digital assets for trading, up from 58.3 million euros at the end of December.

Flow Traders stated in the report that they expect regulatory uncertainty to continue until 2023 and beyond, and added that the company is working with regulatory authorities 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 taking directional bets. In July 2022, the company invested 50 million euros ($52.7 million) to establish the venture capital arm, Flow Traders Capital, and invested in companies like Blockdaemon, Elwood, Sei Network, and Ondo.

Auros Global

This market maker, with offices in New York and Hong Kong, had approximately $20 million in assets frozen during the collapse of FTX, ultimately leading the company to apply for temporary liquidation and debt restructuring 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 alumni from market-making giant Optiver, which helped the company to some extent in overcoming the crisis.

The company spokesperson stated that since then, Auros has “optimized investments in some cryptocurrency exchanges and strengthened risk management” and requested increased transparency from exchanges with whom they have business dealings. According to their website, the company collaborates with over 50 exchanges and currently focuses on tokens with high liquidity.

Auros reported that in October, they processed daily trading volumes of $1.3 million, lower than the peak of $2.5 million per day in May 2021.

Portofino Technologies

Based in Switzerland, Portofino was founded in April 2021 by former Citadel securities employees, making them a relatively young player in the digital asset market. In 2021, Portofino raised $50 million from investors including Coatue Management, Valar Ventures, and Global Founders Capital.

A spokesperson for Portofino, in an email response to Bloomberg, stated that the company typically focuses on high-market-cap tokens traded on the largest cryptocurrency exchanges. The spokesperson added that the company has been more active on FTX in 2022 but has limited assets on that exchange. Despite significant declines in market-making profits for certain asset types globally, Portofino expects “cryptocurrency market trading volumes to continue to grow in the coming months as we see some important catalysts bringing institutional and retail investors back to the crypto market.”

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