Some market makers are reducing risk exposure, while others are diversifying their businesses.
The market-making sector for crypto assets continues to struggle nearly a year after the collapse of Alameda Research, the core trading firm of Sam Bankman-Fried’s failed crypto empire. Despite a recent 16% surge in Bitcoin, trading volumes remain far below pre-crypto-winter levels. October saw the first increase in trading activity since June, yet volumes are still 50% lower than before FTX’s November 2022 bankruptcy.
This decline has forced liquidity providers—who profit from bid-ask spreads—to navigate a market with reduced volatility and trading volume. Many are pivoting their strategies or exploring new revenue streams beyond traditional market making.
Challenges Facing Market Makers
- Declining Volumes: Trading activity remains subdued compared to pre-FTX levels.
- Regulatory Uncertainty: Unclear frameworks across jurisdictions complicate operations.
- Counterparty Risks: Concerns over exchange solvency persist.
Richard Galvin of Digital Asset Capital Management notes, "It’s been a tough year for market makers due to lower volumes, regulatory ambiguity, and heightened counterparty risks. A sustained rally would be a welcome opportunity."
Key Players Adapting to the New Normal
Wintermute
- Daily Trading Volume: $2B–$3B (down from $7.5B in 2021).
Diversification Efforts:
- Expanding into Ethereum block production to enhance arbitrage opportunities.
- Exploring crypto derivatives exchanges and index products.
- Launching a lending project and supporting 80+ ventures via its VC arm.
- Hiring Plans: Adding 10 employees over the next 2–6 months.
Cumberland DRW
- Focus: OTC trading and proprietary accounts.
Growth Areas:
- Bilateral crypto options (BTC, ETH, SOL) via ISDA agreements.
- Blockchain incubation through Cumberland Labs (e.g., Hashnote, Expand.network).
GSR Markets
- Strategy Shift: Concentrating on Bitcoin and Ethereum.
- VC Activity: Active in funding projects like EDX Markets and LayerN.
- Recent Layoffs: Streamlining operations while hiring in trading and engineering.
Jump Crypto
Challenges:
- Exiting U.S. crypto trading due to regulatory pressures.
- Losses from TerraUSD and FTX exposures (now recovered).
- Investments: Backing startups such as Outdid and Coinflow Labs.
Flow Traders
- Holdings: €89.2M in digital assets (as of June 2023).
- Approach: Conservative expansion; prioritizing regulatory collaboration.
- VC Arm: Flow Traders Capital invests in Blockdaemon, Sei Network, and others.
Auros Global
- Recovery: Raised $17M post-FTX to restructure debt.
- Current Focus: High-liquidity tokens and enhanced risk management.
Portofino Technologies
- Optimism: Anticipates volume growth from institutional re-entry.
- Trading: Primarily high-cap tokens on major exchanges.
FAQs
Q: How has FTX’s collapse affected crypto market makers?
A: Trading volumes dropped 50%, forcing makers to diversify or reduce risk exposure.
Q: Which market makers are thriving?
A: Wintermute and Cumberland DRW remain profitable through strategic pivots.
Q: What’s the outlook for 2024?
A: Dependent on regulatory clarity and institutional adoption. 👉 Learn more about market trends.