It's been a year since the FTX collapse. How are the crypto market makers doing?

Original Title: A Year After FTX, Crypto Market Makers Adapt to Survive

Original Authors: Suvashree Ghosh, Olga Kharif

Translation: Luffy, Foresight News

Alameda Research, the core trading firm of Sam Bankman-Fried's failed crypto empire, is still struggling to recover its crypto asset market-making business nearly a year after its collapse.

Despite Bitcoin rising nearly 16% last week, boosting trading volumes, there is still a long way to go to return to the levels seen before the cryptocurrency winter. According to CCData, trading volumes in October saw an increase for the first time since June, but are still down 50% compared to before the FTX bankruptcy (November 2022).

This means that the remaining liquidity providers (who profit from the spread between buying and selling prices of tokens) face the daunting task of generating income in a market lacking volatility and trading volume, which were once hallmarks of the cryptocurrency industry. Some have shifted their focus in trading activities, while others are seeking new revenue sources outside of market making.

Richard Galvin, co-founder of Digital Asset Capital Management, stated, "This year has been very tough for market makers due to declining volumes, regulatory uncertainty across multiple jurisdictions, and heightened concerns about counterparty risk at exchanges." He added that if the recent rebound continues, "it will be a welcome profit opportunity for market makers and traders still active in the market."

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

Here are some updates on market makers still active in the cryptocurrency space.

Wintermute

Evgeny Gaevoy, co-founder of Wintermute Trading Ltd., stated in an interview that as one of the largest cryptocurrency market makers, Wintermute has remained profitable and is diversifying its business to prepare for another bull market cycle. Wintermute's COO, Marina Gurevich, mentioned that the company's daily trading volume currently ranges between $2 billion and $3 billion, down from $7.5 billion during the market peak in 2021.

As part of its efforts to generate revenue outside of market making, Wintermute has become a major player in the Ethereum network, helping to package transaction blocks. Gaevoy explained that the goal is to gain a competitive edge in adding transactions to blocks, which helps it earn more from arbitrage and other opportunities.

Gaevoy also mentioned that Wintermute has supported an upcoming lending project, is considering launching a cryptocurrency derivatives exchange, and is working on launching a cryptocurrency-related index. He noted that the timelines for some of these projects are yet to be determined but declined to provide more specific information on each project. Since 2020, the company's venture capital arm has supported over 80 projects.

In a written response to Bloomberg, Gurevich stated 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, the cryptocurrency subsidiary of Chicago-based DRW, was founded in 2014 and focuses on over-the-counter trading and proprietary trading. The company reported 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 has supported companies like Hashnote and Expand.network.

GSR Markets

Based in London, GSR is one of the oldest market makers in the cryptocurrency space, founded by former Goldman Sachs traders in 2013, and has since grown into one of the leading market makers in the cryptocurrency field. 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 the two largest cryptocurrencies, Bitcoin and Ethereum.

The company is also a prolific venture investor, 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 noted that after a "quiet summer," the company's venture capital activities have rebounded this quarter.

GSR laid off employees this year, becoming one of many cryptocurrency companies seeking to adapt to a harsher market environment. The spokesperson stated that the layoffs were aimed at "adjusting and evolving our business to align with the current direction of the cryptocurrency industry." The spokesperson added that the company is "actively hiring" in trading, engineering, legal, and finance.

Jump Crypto

Based in Chicago, Jump Trading primarily engages in traditional securities investment and established Jump Crypto at the end of 2015 to invest in crypto assets. However, due to uncertainties in the U.S. regulatory environment, the company has been working to exit cryptocurrency trading in the U.S. Jump was a major supporter of the TerraUSD project and was one of the companies questioned by U.S. prosecutors during the investigation into TerraUSD. Jump Crypto also faced losses due to the FTX collapse, as the market maker was a client of FTX and compensated users of the protocol after it suffered a $320 million hack on Wormhole. According to research from Blockworks, Jump appears to have recovered the 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

Amsterdam-based Flow Traders is a veteran market maker across various traditional asset classes and has been active in the cryptocurrency space since 2017. Its cryptocurrency business employs 60 people, primarily located in Europe, and the company takes a conservative approach to expanding its team.

Flow's risk exposure on FTX is "insignificant," and the company 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 they expect regulatory uncertainty to persist 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 Flow Traders' semi-annual report and website, they trade digital asset spot, futures, options, and exchange-traded products without making directional bets. The company established its venture capital arm, Flow Traders Capital, in July 2022 with an investment of €50 million ($52.7 million) and has invested in companies such as 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 at the time of the FTX collapse, ultimately leading the company to apply for temporary liquidation in the British Virgin Islands to restructure its debts.

Auros raised $17 million in March this year, with investors including Vivienne Court, Bit Digital, Trovio, Epoch Capital, Primal Capital, and a consortium of senior alumni from market-making giant Optiver, which helped the company somewhat escape the crisis.

A company spokesperson stated that since then, Auros has "optimized investments in some cryptocurrency exchanges and strengthened risk management," and has requested exchanges it does business with to increase transparency. According to the company's website, it collaborates with over 50 exchanges and is currently focused on high liquidity tokens.

Auros reported that its daily trading volume in October was $1.3 million, down from $2.5 million during the peak in May 2021.

Portofino Technologies

Based in Switzerland, Portofino was founded in April 2021 by former Citadel Securities employees and is a relatively young player among peers in the digital asset market. Portofino raised $50 million from investors such as Coatue Management, Valar Ventures, and Global Founders Capital in 2021.

A spokesperson for Portofino stated in an email response to Bloomberg that the company typically focuses on high market cap tokens traded on the largest cryptocurrency exchanges. The spokesperson added that the company was more active in trading on FTX in 2022, but had limited assets on that exchange. Despite a significant decline in market maker profits for certain asset types globally, Portofino expects that "trading volumes in the cryptocurrency market will continue to grow in the coming months, as we see some important catalysts that will bring institutional and retail investors back to the crypto market."