The Evolution of Crypto Market Structure | DAS London 2025 | Day 3 | Investor
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The Evolution of Crypto Market Structure Speakers: Melvin Deng, Michael Higgins, Evgeny Gaevoy, Jakob Palmstierna, Justin ...
Transcript
All right. Good afternoon, everyone. >> Yeah, I can hear. >> So, we're just uh having a laugh about how we're going to survive this one because we can't hear any feedback. We've only got to respond to each other here. But uh really very very honored. Uh my name is Melvin. I'm CEO of QCP. And uh today on our panel today, we're here to talk about the evolution of uh the markets. And what a time to talk about this topic. Uh given that on Friday night uh 400 pm New York Bitcoin was at 1:15. We don't want to discuss what happened in the weekend but um Monday market opens back at 115 again. Amazing. And I think uh if you talked about the the the depth of the liquidations or the depth of the market move, it actually exceeded uh what FTX was. And that is really demonstrating the depth uh the the the evolution of this this marketplace. So I'm I'm really honored uh to have all the four gentlemen here and I'm going to get them to introduce themselves very shortly. Uh and we're going to go and dive into this topic uh about where the market structure is going. If >> yeah hi everyone, CEO and founder of Intrammute. We are one of the largest market makers in the crypto space. uh being active on basically pretty much everything that's happening from D5 to C5 to OTC. Um yeah, very excited to be here. >> Uh Justin Bril, chief revenue officer at Anchorage Digital. We're a federally federally regulated crypto bank uh operating globally and uh prior to that was at uh market makers and then previously tradiall street background. Uh Mike Higgins international CEO of hidden road partners based here in London. Um we're a multi-asset prime and clearing firm that was set up and funded by the buy side. So a a sellside business funded with buyside capital. uh extended the platform to cover digital assets about five years ago and uh uh clear a material percentage of the the crypto market. Good to be here. >> Thank you. We're going to start very quickly. um you know the market remains very fragmented you know whether it's a centralized exchange OTC's onchain venues do you think consolidation is inevitable and who are the likely winners are we going to see exchanges market makers or prime brokers take up this space >> prime brokers of course I I'll give it a go I I think the question is a little bit nuanced I think you need to you know break that down by product um you know in digital assets It's broadly you have the spot market, you have derivatives, futures, options, and then you have securities like ETFs and and the digital asset treasury companies. I think the spot market will will actually see more fragmentation probably look more like foreign exchange where you're trading bilaterally with the uh the OTC market makers, but probably on a post trade give up to to a PB. Um the the key for a spot is that's a fungeible asset and so depending on where I trade, it's fungeible elsewhere to trade. um derivatives a different story. I think on those you'll see consolidation and I think you'll see derivatives generally move towards um venues that that lend themselves to regulation and transparency and so you're seeing lots of growth with venues like the CME especially as those markets move 24 uh 247 as they get enabled with uh with stable coins and digital collateral. Um, and then on the security side of things, you know, I I certainly think that it'll remain fragmented, meaning there's ETFs on local exchanges starting in Europe. Obviously, IBIT in the US is a big deal. I was in Korea two weeks ago. It looks like the FSC there uh will launch uh ETFs likely Marray and Samsung get those. Um, and then the digital asset treasury companies um obviously Micro Strategies, NASDAQ, MetaPlanet, Tokyo Stock Exchange, I think those will remain fragmented. So I think it's nuance and I'll wrap with this that fragmentation is not a bad thing. Um it's large trading firms thrive off fragmentation and global pricing and and prime brokers tend to do very well as we extend credit across the whole ecosystem. So I think it's a nuance question if >> yeah I would say I don't necessarily see a reason why it should not basically mirror what happens in dreadf. So on the market maker side I don't think we'll see massive consolidation. I think we'll see a lot of generalist players, a lot of niche players focus on different things. Um, I think the most interesting part of the exchanges, whether we'll see more consolidation on that side, whether we'll continue seeing for example Binance having well over 50% market share, especially after the events of last Friday, whether we see Coinbase continuing consolidating US or actually facing some yeah big uh competition there. So to me that's that's actually the most interesting question. >> Um yeah I think I agree the the um um um across sort of centralized trading I think many of these um um exchanges um they exist because of the users not because of their deep liquidity. So if they have a lot of users they will do well. If they don't have a lot of users they will probably either get bought up or or or slowly fade away. Um so they act more like um um you know sort of like retail vendors but we have price discovery often centralized um centralized limit order book liquidity um does lead the price from for for DeFi right now in DeFi on the other hand I do think we have a fragmentation problem so uh there's many uh many pools of liquidity but with very little liquidity in each of them and the solution so far is most to augment that liquidity um which which actually cause you not to be able to move institutionalized capital uh onchain and it creates a lot of market impact. So I think we'll see some level of natural consolidation there. Um um but generally I I think we want as many access points for crypto as possible and those might come from um you know these these these um decentralized centralized venues. It might come from RFQS. It might comes from sort of uh streaming pricing. It might come from OTC trading. Um you know for market maker that's a very good thing because we can sort of um sit in the middle uh between between the buyers and and and sellers and facilitate that liquidity around and and and you know that's a good thing for us. >> I think I think those are a lot of I agree with most of what was just said. I do just continue to find myself. I grew up in the foreign exchange space and just continue to see so many parallels to that arena 10 to 15 years ago. There's been a prediction of all this consolidation going on in that space since before my time. And certainly there's been some there's been, you know, anytime a new venue or product achieved some sort of critical mass, there was this anonymous trading on ECN's that really took off and and spurred FX global volumes quite a bit. every exchange or bank bought one of these platforms to try to integrate it to make sure they weren't missing out on the next uh big thing. Then some of them were sold at lower valuations. You know, there's still so many venues out there. I think what's more likely to change is the the compression of spreads, right? I I think I've just seen FX, you know, choice pricing in things like the euro um for most big counterparties. We're nowhere near that in the crypto space, but it's certainly happening uh that they are getting tighter as more trady players come in, as more uh market makers get better. And yeah, I think it really is the interesting gap to bridge between the centralized exchanges and the dexes. That's not really a problem. Maybe dark pools would be the closest approximation, but that's the thing that we're struggling with the most about thinking about where it's going to go from here. >> Yeah. And I think you you're right on point when we're talking about trying to connect the liquidity and and trying to improve price discovery across so many fragmented portions and we thinking of I mean from my from my perspective when I look at uh liquidity provision we do a lot of options we we're really looking for someone to solve this gap and prime brokers this has been a a big thing that we've been talking about for for a while now prime brokers in traditional finance are really just you know risk nodes right if you think about it crypto prime brokerage is really growing I think that's that's really coming forward are we replicating the same model or are we hoping to see some innovation here >> I I'll jump in on that given I think you know post the Ripple transaction in road will be the largest non-bank prime broker globally from a balance sheet perspective Ripple's balance sheet and treasury is over hundred billion which is important. I'm not sure I fully understand the question. They're their systemic risk nodes. Um if you're talking about a um a a participant in the market that's predicated on rehypothecating client collateral, then I completely agree those businesses um and and the likely run on the bank for those businesses is very high. So let me take a stab at what we built as a modern prime broker because the banks have exactly that problem. Um so we built it based on a three-pillar approach. One was rewrite the tech. two was get it regulated by all the market regulators and third was fund it with its own balance sheet from buyside private uh capital. So to quickly unpick those, um, if you look at banks, they're very vertical. They have a clearing platform for each business. Clearing for equities, clearing for foreign exchange, clearing for fixed income. There's two problems with that. Number one, they're cost centers for each of those businesses. So decisions are made based on cost. And number two, none of those platforms communicate with each other. And in the world where you have macro, you know, firms that are trading crosset product, you don't know the risk. Alla Archos, Credit Swiss. Um, and so we built a horizontal clearing infrastructure using modern technologies and techniques. Think of high frequency trading and bolted that into a clearing business that allows me to have a a holistic view of a counterparty's risk cross asset cross product. Second, market regulators uh don't fall under Baselin credentials. So I don't get the punitive uh RW risk weighted assets not real world assets. Um and then third was funded with byside capital which is because of this I don't care if a client posts their assets to me under usually English law title transfer or they post their assets in trip party set another way it's the separation of IM versus VM and so at that point the counterparty credit risk the hidden road is zero we use our balance sheet to fund those trades um so I'm not in the business of rehyping assets and I would say that's not just a PB question it's market makers taking client collateral rehyping it. That's I think the the the broader issue. >> And yeah, just to add on that, I think what I've learned, so we launched Anchorage Digital Prime earlier this year, and I learned relatively quickly after that that Prime means something slightly different to everybody depending on kind of where you came from, right? Um because I don't think we're a competitor to Hidden Road. You know, we do we do business together. Um and and I'm very happy now to not be at a market maker and not be competing with GSR and Winter Mutant being able to collaborate with them instead for sure. Uh but I think yeah if you if you're from the equity space it means financing margin some of those more traditional things where you have all the assets in house and if there is a some sort of blow up hopefully you have a billion dollars multi-billion dollars your risks are somewhat mitigated if it's more of a credit style model which we're seeing an increasing amount of interest someone to do uh something more akin to that FX model where you're the you're intermediating the trades you're the credit counterparty you're going to have a percentage of margin up front certainly a lot of risk um in that arena if you don't do it properly um And then there's kind of the synthetic CFD space. I don't know as much about that since it's not uh US- ccentric biz. That's the third thing that I've heard. So I think it's really important to just define what it means because you go out there. I've been hearing, you know, small startups saying we have a full stack prime brokerage offering in like 2019 for crypto and they're they're not around anymore, you know. So so I feel like um it dep it depends on on who's asking the question and important to understand uh what problem they're trying to solve. And to me, it's really just having everything in one hopefully walled garden, real-time access, instantaneous settlement. There's still too many lags between when margin uh calcs are being done. Uh that's probably the biggest gap right now that Prime needs to get right. >> Yeah, I I guess you guys going to have a chance to see what a real life uh client meetings is going to look like. So we've got users of primes here and primes and I'm going to ask the users of prime what is your on your wish list that you would love to see you know the two gentlemen on our right uh solve for >> well so there so in you used to worry quite a lot about market risk you still should worry about your risk in the markets in crypto historically um you know over the last sort of decade or so we worried a lot about um counterparty risk in terms of like we we have we have to have assets on uh exchanges. Um it's also not super capital efficient. So you in in in crypto just generally you have instant settlement which is a good idea but it makes it less capital um efficient. So we actually use quite a lot of capital to do what what what we are doing. Um I guess our you know one of our asks very early was you know with um um with with with one of the other custodians we asked them to build um something which was that we could hold money in one place we actually don't have to place them on on an on an exchange which essentially was a website somewhere where we didn't know where it was. uh and it's the same conversations that we're having with um um you know uh Mike to some to to to to a big extent and and and you know with Anchorage as well which is um can we find a way to one use our capital u more effectively uh but also to sort of uh in in in some way not have to put a lot of capital uh onto exchanges um that that's really capital efficiency is really what Prime Broker can help us with. Yeah, I mean I agree more or less with that. I think the biggest case for prime brokers and maybe clearing houses or like generally having like the same infra that that we have in what we call Trefy uh came this Friday where effectively pretty much all market makers as the market was crashing went out of the market and they went out of the market not because they were afraid to go back in the market. they went out of the market because the inventory was stuck on all the exchanges on Coinbases, Binancees of the world. We I don't know sold our all our Bitcoin on Coinbase. We bought all the Bitcoin and Binance and then we asked Binance to send stuff around and we asked Coinbase to send stuff around and we waited and pretty much all market makers were in the same situation and if we had this prime broker set up, we could just offset it and we could just continue proing liquidity. But uh yeah we didn't and so not only it affected our ability to make money it affected basically global liquidity on all those exchanges as a whole which was yeah pretty best scenario in general especially for the in the yeah especially in the assets which are like traditionally low liquidity as well. Um would prime brokers help that? I would say yes. uh as a potential client I would p primarily be looking at uh cost effectively like basically how much we pay uh from my experience in dreadf which comes I don't know 10 years ago like prime brokerage is generally pretty commoditized business like it's not like okay you pay quite some money during the well during the year but like you end up negotiating every year a lot on costs a lot on like how much you pay them and you expect a wide range of services like I don't think we are there yet. I think like well I think my my counterpart here like they're definitely ahead of the pack when it comes to u crypto prime brokerage u and I think they have like a pretty good offering when it comes to that. If you look at if you look at prime brokers and dreadf they just like nowhere near ready to start servicing crypto exchanges. So there is this pretty big gap between like what we need on the cost side and what we like basically on the offer side on the prime brokerage side which yeah should at some point evaporate. So I'm quite looking forward to that. >> I I just think it's like worth double clicking on you know point because there have been a lot of conversations about sort of liquidity providers and market m just backing out of the market when it needs it the most. And I think your point there is exactly right. The system gets con uh congested. You actually can't move assets around. Uh it's actually a good time to provide to provide liquidity uh at these at these points in time, but it's physically point impossible. Like there was no circuit breakers that that came in. It doesn't really exist or any of of those things. Uh imagine that happening in traditional finance. It's it's it's like it's a pretty big deal. uh and and we sort of got to solve that for for for for crypto. >> Yeah, I think uh we should not forget that because uh there are no circuit breakers uh in this market and liquidity providers are required to constantly you know be present as much as they can and we've heard uh we've gotten really good insight on what happened on the weekend. Uh and that comes to the next question. Do you think balance sheet scale is going to be more important or latency tech kind of advantage is going to be the durable mode for the market structure going ahead. you are >> I think I'll start with a pretty important cave that you cannot have a significant latency tech advantage without a big balance sheet simply because I don't know if you need to invest into I don't know microwaves and this kind of stuff like you need tens of millions of dollars in general you need to afford to have this investment over the years as well and some of this investment will be completely lost some of this investment will pay out like a really really in short term so yeah it's those things are quite interconnected so like my bet would be that would be quite important but you will need to have a certain sort of like minimum balance sheet amounts which is pretty significant actually it should be like in hundreds of millions of dollars >> just to jump in a little bit I spent the beginning part of my career in the high frequency world and burning things on FPGA cards and tier one hibernia and McKay and we've moved off of microwave to radio and so that's clearly a you know arms race so but I do think that deterministic latency especially from modeling in trading is is crucial and I think you know with cloud-based u you know platforms that are not on hardware with that deterministic latency that that should improve over time. Um but certainly I think balance sheet or leveraging balance sheet of prime brokers and let me go back to the point of fragmentation digital assets like coffee comes in all different shapes and sizes. If you want to trade ETF basis against CME those right now there's not most of the banks are not cross margining that let alone native crypto against CME or any of these. And so my point being is that market is fragmented. Not just destinations to trade like crypto exchanges that are all preunded which should be reviewed anyway, but you have regulated derivatives, futures and options on those and that capital efficiency is crucial. And so on the on the on the base of that I would say balance sheet but latency is is super important. >> Well, I mean I I guess it depends on what you do. If you're if you're like a hightouch OTC uh player, um you'd probably want a big balance sheet. Um you know, if you're doing sort of complex derivatives, probably don't have to have sort of the most institutional grade latency across what you do. If you do what what we do um on you know the the the you know high frequency level if we can call anything that in crypto um it's all relative for for us it's more like we need to have we need to be as fast as the next guy if you know it's all relative because otherwise you have information disadvantage but this has actually moved quite far from you know 10 years ago I mean 10 years ago it was all about robustness actually being able to get into the order book and out of Before the book, we didn't talk so much about performance. Um, and over the time now we talk a bit about performance, but you know, the networking, um, you know, the feed latency and and and just the overall latency. What it what it isn't in crypto is it's not as fast as in Treadfi, and it's going to be very hard for it to to to become um um as fast, but it's also not uh as consistent. You know, it it gaps a lot. And then you have on that's on the centralized exchanges versus traditional um exchanges in trad and and then you go into DeFi. Um it's a step it's it's it's a step slightly um low um slower as well. >> Yeah. So I'm stealing this line from uh the chief scientist officer at jump trading, but he said the the problem with this space is that the speed of light is too slow. That's what he felt like they were limited by. And it's it's crazy to think about. So I I do agree. There was, you know, all this jockeying for who owned the real estate at the top of this mountain to place a microwave tower or who can get the absolute closest to the data center. Like I don't necessarily think we will duplicate those same issues uh in crypto. And to me, look, the what a what a market maker, an exchange needs from a bank or a prime broker is very different from many of the other hundreds and thousands of clients that we service in asset management, venture capital, other verticals. And to me, maybe this is a little cheesy, but I think trust really matters a lot. To me, that's that's a moat as well, right? So, of course, anyone, you know, there's a lot of hacks in crypto. We're all very v vigilant about uh ensuring that it doesn't happen to us. And, you know, Anchorage is focused mostly on being built on the best tech so that doesn't happen. Um, you know, for some counterparties who want to face us, the regulatory status really matters. If you're a startup protocol, especially not US-based, you might not care about a qualified custodian or certain, you know, charters and what have you, right? You you need to compete in other ways. So, I I would heir more on the side of having a balance sheet. Look, we have a you know, we think a lot about our runway and have great investors and making sure uh that we can be big enough where that's never a reason to say uh no to us. And publicly announced partnerships with folks like Black Rockck and Tether, I think, speak for themselves to a degree. uh but still you need to you need to continue to innovate and I think more than anything it's going to be the best product and who adds the most value who are the ultimate winners of this game. Yeah, I think um trust is indeed one of the most uh fundamental things uh to what it is whether you call it in in terms of a technological edge. you talk about balance sheet but I think uh you know I'm I'm very honored that the four gentlemen here they do represent trust in the market uh by the fact that they've been here they've they've always presented themselves in a forward-looking way and then when you think about market participants in who you're interacting with I think you know it is very important to consider the the very key element of of trust the regulatory environment has really been moving quite fast um some more than others But the there are some illlquid patches you know in in the markets that we trade in. How do we try to balance uh this topic of proprietary trading versus liquidity provision? Is this something that the market needs to think about? >> I'm happy to jump in. I think it's a perfectly contentious point, right? And uh if you look at banks, you know, traditionally like they have a trading desk that sits next to PB, but those are now really firewalled and regulators look at that, right? Because there's clients that are clearing through the bank on the PB side that have a lot of alpha and are very nervous around uh the trading desk having access to that. So if you were to redo it, what would a modern world look like? Would you put a trading deck next to a PB? It's hardressed to do that. I think the the bigger thing is to just clearly define uh the lines and when the lines get blurred Allah FTX you're running a matching engine you're custodying assets of a user you're running an internal market maker like that's where things go wrong um and so yeah it's a tough point to handle I I think separating you know church and state I've said that a number of times publicly um and you end up in a horizontal world where like you know there is an exchange running matching engines providing matching services there's There's custodians that hold assets. That's all they do. Market makers are there to efficiently transfer risk around and prime brokers eject capital to allow people to trade across this whole ecosystem in a capital and costefficient way. Um, and I think having clear, you know, defined lines is is important. Yeah, I would say like building on that, we do miss a lot of things in crypto which we take which we take for granted in Trefy like there are no exchange rule books to follow like there are no like we don't see any of the major exchanges okay like we've seen some actions from Binance but they were like very okay like we banned this market maker because he we banned this firm because they were doing some bad things but like there there is no like deep dive there is no anal analysis. There is no saying okay like you cannot do this stuff. Uh it just doesn't happen on any exchange. Like we know that exchanges are actually policing it but it's just not transparent enough. It's not clear enough what you can and cannot do. Uh and it ultimately results in yeah people not trusting the exchanges, people not trusting liquidity providers, people not trusting like the whole space quite often. So I think what we need is a lot of transparency and that basically comes from I would say exchanges. It should come from protocols in terms of potentially disclosing which market makers they work with which like are they selling some tokens from their treasury through this market maker or even if they do it like postfactum like nobody discloses kind of stuff. So I think generally having more transparency and having more like responsibility to disclose those things before hopefully before we actually are forced to do this uh by regulators globally. I think that would help a lot. >> Yeah, I agree. I I think there's something with like proprietary trading versus versus liquidity provision which I was think was the question. There's some obvious things. You have an OTC desk. um you know another trading desk should not be able to frontter on that flow or even see that flow. You know that should be clear policies in any firm of any size. Um we're an unregulated market. We at least was now now we aren't. There are still things that um you can't do as in fraud is still fraud. You know fraud is a criminal offense. So you can't commit fraud uh even if it's unregulated. Something like the payment is not regulated. you can't go up and punch somebody in the face. It's the same thing. But with um you know, we use our own capital to provide liquidity. Um um and when you're looking at sort of the three different aspects of of maybe what a gsr would be doing which would be what we call here like market making um systematic uh OTC or systematic trading which is sort of um um you know um streaming prices to RFQ and so on and so forth. And then you're looking at sort of uh uh more long-term strategies um which is um um you know I guess hedge fund strategies things like that in in in a sense if you're doing um market making you have three things that you you really look at you look at orderbook pressure lead lag effect volume momentum and so on and so forth. It's quite it's quite fast things. You do have some view of where the next tick is going. That's that's sort of what you need to do. and uh where you place your your your bids and offers is that proprietary trading and that's not you have a view you still you're still going out there to put your um um um your bids and offers in the market to facilitate liquidity just has to do that. If you go one step further and you're saying we're streaming liquidity to all of these platforms um the the current game is that it's slightly underserved. It's actually big spreads. As those spreads compresses, uh you might make some money just on backtobacking you know uh big blocks on majors and then um you you know uncompeted uh tokens in the top 50. Uh but really what you will make uh um provide liquidity on there is that you have a skew um you have a view um you have a mark out of the price and you have micro alphas that is helping you to to to to move in the right direction market and and and take that bid from another uh market maker. So you will hold on to that risk a little bit longer and then as you go into the other space you will hold on for you know days or weeks. So I I I think it's like I I don't really see and this is how it works in traditional finance. You actually use views into the market, but what you shouldn't do in property, you shouldn't frontr run any flow. You just can't do that. >> Yeah, agreed. Full stop. So yeah, definitely don't have a market making operation at Anchorage Digital, but we do have a big OTC desk and we have to say part and parcel to all of them off the bat. We never trade against our clients. We rely quite heavily on our partners from the market making side to ensure we can source uh and provide a bunch of liquidity and yeah all the things that our clients are asking for are the things again from my old world they want TCA analysis they want the benchmarking of the T-W order if you're doing derivatives they want to know ins and outs I mean you have an ISDA CSA governing that but they want to understand exactly yes where you're sourcing the liquidity from what the risk transfer price is um all those things that uh yeah I think are are really really crucial and I do believe you have to have a much different take for BTC E soul than all these small cap tokens. I mean we do try to support everything. We have like 550 coming up on 600 assets but that doesn't mean we can make a real-time OTC price in all them. It depends quite a bit if there's a per market. Um yeah that's that's really what it comes down to is if you're playing that role um where yeah you're relying on exchange and market maker uh liquidity you you you can only do so much right. We don't want to take risk in that business. We want to get our clients the best execution possible and uh we have to have the smarter faster people uh there to uh to make sure we can do that. >> Yeah. I just want everyone to to to understand that that question was a very prickly one and the whole intention is to really let everyone understand you know how the professionals are thinking about it and how deliberate they've been gone putting their processes through. I'm not sure the rest of the market are thinking about it this way and I think as you do your studies about the various market participants it's important to see if they deal with these questions the way the four gentlemen have have taken this on and I think what we're all trying to send here is that the model of trust is built on a lot of deliberate thought on very very very touchy issues uh like this I'm going to leave that very difficult topic and many people are always going to say when you talk about market structure in crypto, you've got to talk about debts and MNAV, but uh we're not going to go down that path because uh I think it's been over overtalked about, but tokenization of real world assets is really starting to see some pickup. Um how do you envisage the cryptonative liquidity venues, traditional market infrastructure, how are they going to interact? Are we going to drive liquidity or we going to fragment it? I I I think now I think separating crypto from tokenized finance I think tokenized finance has really outpaced the connectivity tissue that's really needed and so right now you're ending up with this fragmentation it's not easy to integrate you know modern blockchain technologies into these legacy platforms so we need careful coordination cooperation for deeper integrations and then beyond that you need to um you know work on standardization right this market lacks standardization and there's an example I've been using um you have the you know the beauty of blockchain for instant settlement but in in scale I'm not sure that's how you want to do it. Let me give you an example. On September 17th of this year CLS uh settled $20 trillion of foreign exchange that day because of their multilateral netting facility. The gross the net funding for that was only a hundred billion. That's 995 internalization. Could you imagine doing 20 trillion over blockchains times gas fees equals not efficient. And so you need to to build these standardizations. Um just more broadly on on you know tokenized finance, I'm sure folks have seen uh CFDC Commissioner Fam came out about two weeks ago uh to formally announced the digital asset collateral initiative and starting with the advancements of stable coins. To me that is a very clear indication of regulated derivatives markets starting to move 247. Um so you don't have to trade crypto but you do need a digital asset strategy because corporate finance uh corporate treasury is changing and moving 247 or different risks so you need to start building for that crypto different story. >> I think there's some amazing use cases for RWA. I also balance that by saying I don't think absolutely everything has to be on chain. There's some things that are working perfectly fine today. tokenized gold for example I think great use case seeing incredible uptick interests uh you know many me many uh folks are I've heard at this conference talking about it and and prior something like real estate on chain I think is much more difficult um but I've still seen dozens of startups trying to solve that problem some have gotten a bit of traction but I I think it really is just too broad just to speak about RWA's also just too broad a strokes uh to paint with without drilling down a And I do believe just like we've seen, you know, there there would be a risk of same thing as recycled liquidity if you had all these different venues and new products and things that may or may not be fungeable. Um yeah, I do I do think there's an actual risk of not knowing what the true supply is if real world um onchain versus off. Yeah, I would say my guess would be over the next like one or two years we'll basically see a lot of experimentation and not not a lot of volume or not a lot of activity necessarily. uh kind of also to build like okay the settlement fees it's one sign like another sign is how do we deal with transparency which is inherent to blockchain like how do we deal with all transactions being visible like we already see it in hyperlook for example where all positions are visible all liquidation points are visible like it's it's pretty clear who runs what and it's not necessarily like it's not 100% clear whether it's a good sign or not and I would say a lot of people would argue it's not a good saying um and similarly I I don't know if somebody starts executing big I don't know tokenized Tesla blocks over blockchain it will be seen by everyone while like in real life it would go via I don't know darkpool or some OTC desk where like not necessarily everyone needs to see it and have a possibility to frontr run it. Uh we have a lot of fun things to solve in terms of uh how do we trade on weekends? How do we like move liquidity on weekends? How do we extrapolate this price movements on weekends? And do we actually want to trade on weekends or do we want to have some resemblance of normal life? Uh especially for us traders. Um and how do we solve for all kinds of corporate actions? Uh if we are trading tokenized if we if we train perpetuals on equities for example, how do we deal with dividends? How we deal with token splits? how we deal with all kinds of V8 carp protections that crypto is not familiar with yet. So I think yeah it's going to be fun but I don't I don't expect a lot of uh solutions yet to to emerge like a lot of usage to emerge over the next like year or so. >> So when we have solved all that um we still won't have price discovery and lead price discovery on chain. So you won't get better price discovery on the Apple stock onchain than what it is on the uh on the centralized end. I think you will what you will have is like you will have uh more distribution channels which obviously it's great for for for for us. The other thing when you put something uh on chain we have tokenized um uh money market funds for example. It's not just that that lives offchain and then it comes onchain. It comes onchain on um Ethereum, on Salana, on Aptodos, on other L1s. Um to use the composibility that that provides uh there needs to be a rebalancing around those different uh protocols, which is also something you need a liquidity provider or someone to be able to do so you don't run out of capital on one hand and and where and you want it on the other side. similar to what happened this this this weekend. Um so all of that needs to be sold but um I I don't think that you you know I think there should be exchange decentralized exchanges very much so I just think that those are not the price discovery u uh uh places we're going to have the one of the biggest unlock I think with with RWA and bringing them on chain is really the uh composability which is that you have very opaque rehypo in the traditional markets today. you can't use, you know, your fund investments or so for different things. But I can take a private credit fund that currently yields, you know, that has a wall of three, um, it returns eight or so, um, over some time. I can do that. If that's on chain, um, I can actually post that on a on Morpho. Um, let's say, um, I pay some some yield for it and I can loop back into it again. I can create a little bit of higher um yield, higher risk, higher return if I so wish or I can just release that capital. The composability that this provides um um releases uh capital and and actually creates capital efficiency on chain by tokenizing assets. So I think that's a really interesting uh um evolution. A lot of products will come from that. I was told a few years ago that bridges were going to magically solve that problem, but it hasn't fully happened yet. >> No, I think uh what what Jacob was describing was what I think the the younger generation called looping, which I was scratching my head. I don't know what he was talking about, but oh, you mean repoing or and getting cash to to leverage again? Okay, that's what looping is. Um I think um I think firstly when I was asked to moderate this uh panel I was like I don't know how to do this. When I saw the four names on the panel I said I don't need to do anything. And I think uh you all would agree with me that uh the four gentlemen on my right have has really given us clarity uh on what trust really is about. The market structure will evolve, things will change, but there is one underlying theme that we must understand and it is the concept of trust. And without which anything can happen and that's the reason why if you look at all the disasters that we've experienced, it's always been like what Jacob said, fraud or a breach of trust. So with that, I want to say thank you to the to the four gentlemen and I bid you a good day. [Applause]
The Evolution of Crypto Market Structure | DAS London 2025 | Day 3 | Investor
Summary
The Evolution of Crypto Market Structure Speakers: Melvin Deng, Michael Higgins, Evgeny Gaevoy, Jakob Palmstierna, Justin ...Transcript
All right. Good afternoon, everyone. >> Yeah, I can hear. >> So, we're just uh having a laugh about how we're going to survive this one because we can't hear any feedback. We've only got to respond to each other here. But uh really very very honored. Uh my name is Melvin. I'm CEO of QCP. And uh today on our panel today, we're here to talk about the evolution of uh the markets. And what a time to talk about this topic. Uh given that on Friday night uh 400 pm New York Bitcoin was at 1:15. We don't want to discuss what happened in the weekend but um Monday market opens back at 115 again. Amazing. And I think uh if you talked about the the the depth of the liquidations or the depth of the market move, it actually exceeded uh what FTX was. And that is really demonstrating the depth uh the the the evolution of this this marketplace. So I'm I'm really honored uh to have all the four gentlemen here and I'm going to get them to introduce themselves very shortly. Uh and we're going to go and dive into this topic uh about where the market structure is going. If >> yeah hi everyone, CEO and founder of Intrammute. We are one of the largest market makers in the crypto space. uh being active on basically pretty much everything that's happening from D5 to C5 to OTC. Um yeah, very excited to be here. >> Uh Justin Bril, chief revenue officer at Anchorage Digital. We're a federally federally regulated crypto bank uh operating globally and uh prior to that was at uh market makers and then previously tradiall street background. Uh Mike Higgins international CEO of hidden road partners based here in London. Um we're a multi-asset prime and clearing firm that was set up and funded by the buy side. So a a sellside business funded with buyside capital. uh extended the platform to cover digital assets about five years ago and uh uh clear a material percentage of the the crypto market. Good to be here. >> Thank you. We're going to start very quickly. um you know the market remains very fragmented you know whether it's a centralized exchange OTC's onchain venues do you think consolidation is inevitable and who are the likely winners are we going to see exchanges market makers or prime brokers take up this space >> prime brokers of course I I'll give it a go I I think the question is a little bit nuanced I think you need to you know break that down by product um you know in digital assets It's broadly you have the spot market, you have derivatives, futures, options, and then you have securities like ETFs and and the digital asset treasury companies. I think the spot market will will actually see more fragmentation probably look more like foreign exchange where you're trading bilaterally with the uh the OTC market makers, but probably on a post trade give up to to a PB. Um the the key for a spot is that's a fungeible asset and so depending on where I trade, it's fungeible elsewhere to trade. um derivatives a different story. I think on those you'll see consolidation and I think you'll see derivatives generally move towards um venues that that lend themselves to regulation and transparency and so you're seeing lots of growth with venues like the CME especially as those markets move 24 uh 247 as they get enabled with uh with stable coins and digital collateral. Um, and then on the security side of things, you know, I I certainly think that it'll remain fragmented, meaning there's ETFs on local exchanges starting in Europe. Obviously, IBIT in the US is a big deal. I was in Korea two weeks ago. It looks like the FSC there uh will launch uh ETFs likely Marray and Samsung get those. Um, and then the digital asset treasury companies um obviously Micro Strategies, NASDAQ, MetaPlanet, Tokyo Stock Exchange, I think those will remain fragmented. So I think it's nuance and I'll wrap with this that fragmentation is not a bad thing. Um it's large trading firms thrive off fragmentation and global pricing and and prime brokers tend to do very well as we extend credit across the whole ecosystem. So I think it's a nuance question if >> yeah I would say I don't necessarily see a reason why it should not basically mirror what happens in dreadf. So on the market maker side I don't think we'll see massive consolidation. I think we'll see a lot of generalist players, a lot of niche players focus on different things. Um, I think the most interesting part of the exchanges, whether we'll see more consolidation on that side, whether we'll continue seeing for example Binance having well over 50% market share, especially after the events of last Friday, whether we see Coinbase continuing consolidating US or actually facing some yeah big uh competition there. So to me that's that's actually the most interesting question. >> Um yeah I think I agree the the um um um across sort of centralized trading I think many of these um um exchanges um they exist because of the users not because of their deep liquidity. So if they have a lot of users they will do well. If they don't have a lot of users they will probably either get bought up or or or slowly fade away. Um so they act more like um um you know sort of like retail vendors but we have price discovery often centralized um centralized limit order book liquidity um does lead the price from for for DeFi right now in DeFi on the other hand I do think we have a fragmentation problem so uh there's many uh many pools of liquidity but with very little liquidity in each of them and the solution so far is most to augment that liquidity um which which actually cause you not to be able to move institutionalized capital uh onchain and it creates a lot of market impact. So I think we'll see some level of natural consolidation there. Um um but generally I I think we want as many access points for crypto as possible and those might come from um you know these these these um decentralized centralized venues. It might come from RFQS. It might comes from sort of uh streaming pricing. It might come from OTC trading. Um you know for market maker that's a very good thing because we can sort of um sit in the middle uh between between the buyers and and and sellers and facilitate that liquidity around and and and you know that's a good thing for us. >> I think I think those are a lot of I agree with most of what was just said. I do just continue to find myself. I grew up in the foreign exchange space and just continue to see so many parallels to that arena 10 to 15 years ago. There's been a prediction of all this consolidation going on in that space since before my time. And certainly there's been some there's been, you know, anytime a new venue or product achieved some sort of critical mass, there was this anonymous trading on ECN's that really took off and and spurred FX global volumes quite a bit. every exchange or bank bought one of these platforms to try to integrate it to make sure they weren't missing out on the next uh big thing. Then some of them were sold at lower valuations. You know, there's still so many venues out there. I think what's more likely to change is the the compression of spreads, right? I I think I've just seen FX, you know, choice pricing in things like the euro um for most big counterparties. We're nowhere near that in the crypto space, but it's certainly happening uh that they are getting tighter as more trady players come in, as more uh market makers get better. And yeah, I think it really is the interesting gap to bridge between the centralized exchanges and the dexes. That's not really a problem. Maybe dark pools would be the closest approximation, but that's the thing that we're struggling with the most about thinking about where it's going to go from here. >> Yeah. And I think you you're right on point when we're talking about trying to connect the liquidity and and trying to improve price discovery across so many fragmented portions and we thinking of I mean from my from my perspective when I look at uh liquidity provision we do a lot of options we we're really looking for someone to solve this gap and prime brokers this has been a a big thing that we've been talking about for for a while now prime brokers in traditional finance are really just you know risk nodes right if you think about it crypto prime brokerage is really growing I think that's that's really coming forward are we replicating the same model or are we hoping to see some innovation here >> I I'll jump in on that given I think you know post the Ripple transaction in road will be the largest non-bank prime broker globally from a balance sheet perspective Ripple's balance sheet and treasury is over hundred billion which is important. I'm not sure I fully understand the question. They're their systemic risk nodes. Um if you're talking about a um a a participant in the market that's predicated on rehypothecating client collateral, then I completely agree those businesses um and and the likely run on the bank for those businesses is very high. So let me take a stab at what we built as a modern prime broker because the banks have exactly that problem. Um so we built it based on a three-pillar approach. One was rewrite the tech. two was get it regulated by all the market regulators and third was fund it with its own balance sheet from buyside private uh capital. So to quickly unpick those, um, if you look at banks, they're very vertical. They have a clearing platform for each business. Clearing for equities, clearing for foreign exchange, clearing for fixed income. There's two problems with that. Number one, they're cost centers for each of those businesses. So decisions are made based on cost. And number two, none of those platforms communicate with each other. And in the world where you have macro, you know, firms that are trading crosset product, you don't know the risk. Alla Archos, Credit Swiss. Um, and so we built a horizontal clearing infrastructure using modern technologies and techniques. Think of high frequency trading and bolted that into a clearing business that allows me to have a a holistic view of a counterparty's risk cross asset cross product. Second, market regulators uh don't fall under Baselin credentials. So I don't get the punitive uh RW risk weighted assets not real world assets. Um and then third was funded with byside capital which is because of this I don't care if a client posts their assets to me under usually English law title transfer or they post their assets in trip party set another way it's the separation of IM versus VM and so at that point the counterparty credit risk the hidden road is zero we use our balance sheet to fund those trades um so I'm not in the business of rehyping assets and I would say that's not just a PB question it's market makers taking client collateral rehyping it. That's I think the the the broader issue. >> And yeah, just to add on that, I think what I've learned, so we launched Anchorage Digital Prime earlier this year, and I learned relatively quickly after that that Prime means something slightly different to everybody depending on kind of where you came from, right? Um because I don't think we're a competitor to Hidden Road. You know, we do we do business together. Um and and I'm very happy now to not be at a market maker and not be competing with GSR and Winter Mutant being able to collaborate with them instead for sure. Uh but I think yeah if you if you're from the equity space it means financing margin some of those more traditional things where you have all the assets in house and if there is a some sort of blow up hopefully you have a billion dollars multi-billion dollars your risks are somewhat mitigated if it's more of a credit style model which we're seeing an increasing amount of interest someone to do uh something more akin to that FX model where you're the you're intermediating the trades you're the credit counterparty you're going to have a percentage of margin up front certainly a lot of risk um in that arena if you don't do it properly um And then there's kind of the synthetic CFD space. I don't know as much about that since it's not uh US- ccentric biz. That's the third thing that I've heard. So I think it's really important to just define what it means because you go out there. I've been hearing, you know, small startups saying we have a full stack prime brokerage offering in like 2019 for crypto and they're they're not around anymore, you know. So so I feel like um it dep it depends on on who's asking the question and important to understand uh what problem they're trying to solve. And to me, it's really just having everything in one hopefully walled garden, real-time access, instantaneous settlement. There's still too many lags between when margin uh calcs are being done. Uh that's probably the biggest gap right now that Prime needs to get right. >> Yeah, I I guess you guys going to have a chance to see what a real life uh client meetings is going to look like. So we've got users of primes here and primes and I'm going to ask the users of prime what is your on your wish list that you would love to see you know the two gentlemen on our right uh solve for >> well so there so in you used to worry quite a lot about market risk you still should worry about your risk in the markets in crypto historically um you know over the last sort of decade or so we worried a lot about um counterparty risk in terms of like we we have we have to have assets on uh exchanges. Um it's also not super capital efficient. So you in in in crypto just generally you have instant settlement which is a good idea but it makes it less capital um efficient. So we actually use quite a lot of capital to do what what what we are doing. Um I guess our you know one of our asks very early was you know with um um with with with one of the other custodians we asked them to build um something which was that we could hold money in one place we actually don't have to place them on on an on an exchange which essentially was a website somewhere where we didn't know where it was. uh and it's the same conversations that we're having with um um you know uh Mike to some to to to to a big extent and and and you know with Anchorage as well which is um can we find a way to one use our capital u more effectively uh but also to sort of uh in in in some way not have to put a lot of capital uh onto exchanges um that that's really capital efficiency is really what Prime Broker can help us with. Yeah, I mean I agree more or less with that. I think the biggest case for prime brokers and maybe clearing houses or like generally having like the same infra that that we have in what we call Trefy uh came this Friday where effectively pretty much all market makers as the market was crashing went out of the market and they went out of the market not because they were afraid to go back in the market. they went out of the market because the inventory was stuck on all the exchanges on Coinbases, Binancees of the world. We I don't know sold our all our Bitcoin on Coinbase. We bought all the Bitcoin and Binance and then we asked Binance to send stuff around and we asked Coinbase to send stuff around and we waited and pretty much all market makers were in the same situation and if we had this prime broker set up, we could just offset it and we could just continue proing liquidity. But uh yeah we didn't and so not only it affected our ability to make money it affected basically global liquidity on all those exchanges as a whole which was yeah pretty best scenario in general especially for the in the yeah especially in the assets which are like traditionally low liquidity as well. Um would prime brokers help that? I would say yes. uh as a potential client I would p primarily be looking at uh cost effectively like basically how much we pay uh from my experience in dreadf which comes I don't know 10 years ago like prime brokerage is generally pretty commoditized business like it's not like okay you pay quite some money during the well during the year but like you end up negotiating every year a lot on costs a lot on like how much you pay them and you expect a wide range of services like I don't think we are there yet. I think like well I think my my counterpart here like they're definitely ahead of the pack when it comes to u crypto prime brokerage u and I think they have like a pretty good offering when it comes to that. If you look at if you look at prime brokers and dreadf they just like nowhere near ready to start servicing crypto exchanges. So there is this pretty big gap between like what we need on the cost side and what we like basically on the offer side on the prime brokerage side which yeah should at some point evaporate. So I'm quite looking forward to that. >> I I just think it's like worth double clicking on you know point because there have been a lot of conversations about sort of liquidity providers and market m just backing out of the market when it needs it the most. And I think your point there is exactly right. The system gets con uh congested. You actually can't move assets around. Uh it's actually a good time to provide to provide liquidity uh at these at these points in time, but it's physically point impossible. Like there was no circuit breakers that that came in. It doesn't really exist or any of of those things. Uh imagine that happening in traditional finance. It's it's it's like it's a pretty big deal. uh and and we sort of got to solve that for for for for crypto. >> Yeah, I think uh we should not forget that because uh there are no circuit breakers uh in this market and liquidity providers are required to constantly you know be present as much as they can and we've heard uh we've gotten really good insight on what happened on the weekend. Uh and that comes to the next question. Do you think balance sheet scale is going to be more important or latency tech kind of advantage is going to be the durable mode for the market structure going ahead. you are >> I think I'll start with a pretty important cave that you cannot have a significant latency tech advantage without a big balance sheet simply because I don't know if you need to invest into I don't know microwaves and this kind of stuff like you need tens of millions of dollars in general you need to afford to have this investment over the years as well and some of this investment will be completely lost some of this investment will pay out like a really really in short term so yeah it's those things are quite interconnected so like my bet would be that would be quite important but you will need to have a certain sort of like minimum balance sheet amounts which is pretty significant actually it should be like in hundreds of millions of dollars >> just to jump in a little bit I spent the beginning part of my career in the high frequency world and burning things on FPGA cards and tier one hibernia and McKay and we've moved off of microwave to radio and so that's clearly a you know arms race so but I do think that deterministic latency especially from modeling in trading is is crucial and I think you know with cloud-based u you know platforms that are not on hardware with that deterministic latency that that should improve over time. Um but certainly I think balance sheet or leveraging balance sheet of prime brokers and let me go back to the point of fragmentation digital assets like coffee comes in all different shapes and sizes. If you want to trade ETF basis against CME those right now there's not most of the banks are not cross margining that let alone native crypto against CME or any of these. And so my point being is that market is fragmented. Not just destinations to trade like crypto exchanges that are all preunded which should be reviewed anyway, but you have regulated derivatives, futures and options on those and that capital efficiency is crucial. And so on the on the on the base of that I would say balance sheet but latency is is super important. >> Well, I mean I I guess it depends on what you do. If you're if you're like a hightouch OTC uh player, um you'd probably want a big balance sheet. Um you know, if you're doing sort of complex derivatives, probably don't have to have sort of the most institutional grade latency across what you do. If you do what what we do um on you know the the the you know high frequency level if we can call anything that in crypto um it's all relative for for us it's more like we need to have we need to be as fast as the next guy if you know it's all relative because otherwise you have information disadvantage but this has actually moved quite far from you know 10 years ago I mean 10 years ago it was all about robustness actually being able to get into the order book and out of Before the book, we didn't talk so much about performance. Um, and over the time now we talk a bit about performance, but you know, the networking, um, you know, the feed latency and and and just the overall latency. What it what it isn't in crypto is it's not as fast as in Treadfi, and it's going to be very hard for it to to to become um um as fast, but it's also not uh as consistent. You know, it it gaps a lot. And then you have on that's on the centralized exchanges versus traditional um exchanges in trad and and then you go into DeFi. Um it's a step it's it's it's a step slightly um low um slower as well. >> Yeah. So I'm stealing this line from uh the chief scientist officer at jump trading, but he said the the problem with this space is that the speed of light is too slow. That's what he felt like they were limited by. And it's it's crazy to think about. So I I do agree. There was, you know, all this jockeying for who owned the real estate at the top of this mountain to place a microwave tower or who can get the absolute closest to the data center. Like I don't necessarily think we will duplicate those same issues uh in crypto. And to me, look, the what a what a market maker, an exchange needs from a bank or a prime broker is very different from many of the other hundreds and thousands of clients that we service in asset management, venture capital, other verticals. And to me, maybe this is a little cheesy, but I think trust really matters a lot. To me, that's that's a moat as well, right? So, of course, anyone, you know, there's a lot of hacks in crypto. We're all very v vigilant about uh ensuring that it doesn't happen to us. And, you know, Anchorage is focused mostly on being built on the best tech so that doesn't happen. Um, you know, for some counterparties who want to face us, the regulatory status really matters. If you're a startup protocol, especially not US-based, you might not care about a qualified custodian or certain, you know, charters and what have you, right? You you need to compete in other ways. So, I I would heir more on the side of having a balance sheet. Look, we have a you know, we think a lot about our runway and have great investors and making sure uh that we can be big enough where that's never a reason to say uh no to us. And publicly announced partnerships with folks like Black Rockck and Tether, I think, speak for themselves to a degree. uh but still you need to you need to continue to innovate and I think more than anything it's going to be the best product and who adds the most value who are the ultimate winners of this game. Yeah, I think um trust is indeed one of the most uh fundamental things uh to what it is whether you call it in in terms of a technological edge. you talk about balance sheet but I think uh you know I'm I'm very honored that the four gentlemen here they do represent trust in the market uh by the fact that they've been here they've they've always presented themselves in a forward-looking way and then when you think about market participants in who you're interacting with I think you know it is very important to consider the the very key element of of trust the regulatory environment has really been moving quite fast um some more than others But the there are some illlquid patches you know in in the markets that we trade in. How do we try to balance uh this topic of proprietary trading versus liquidity provision? Is this something that the market needs to think about? >> I'm happy to jump in. I think it's a perfectly contentious point, right? And uh if you look at banks, you know, traditionally like they have a trading desk that sits next to PB, but those are now really firewalled and regulators look at that, right? Because there's clients that are clearing through the bank on the PB side that have a lot of alpha and are very nervous around uh the trading desk having access to that. So if you were to redo it, what would a modern world look like? Would you put a trading deck next to a PB? It's hardressed to do that. I think the the bigger thing is to just clearly define uh the lines and when the lines get blurred Allah FTX you're running a matching engine you're custodying assets of a user you're running an internal market maker like that's where things go wrong um and so yeah it's a tough point to handle I I think separating you know church and state I've said that a number of times publicly um and you end up in a horizontal world where like you know there is an exchange running matching engines providing matching services there's There's custodians that hold assets. That's all they do. Market makers are there to efficiently transfer risk around and prime brokers eject capital to allow people to trade across this whole ecosystem in a capital and costefficient way. Um, and I think having clear, you know, defined lines is is important. Yeah, I would say like building on that, we do miss a lot of things in crypto which we take which we take for granted in Trefy like there are no exchange rule books to follow like there are no like we don't see any of the major exchanges okay like we've seen some actions from Binance but they were like very okay like we banned this market maker because he we banned this firm because they were doing some bad things but like there there is no like deep dive there is no anal analysis. There is no saying okay like you cannot do this stuff. Uh it just doesn't happen on any exchange. Like we know that exchanges are actually policing it but it's just not transparent enough. It's not clear enough what you can and cannot do. Uh and it ultimately results in yeah people not trusting the exchanges, people not trusting liquidity providers, people not trusting like the whole space quite often. So I think what we need is a lot of transparency and that basically comes from I would say exchanges. It should come from protocols in terms of potentially disclosing which market makers they work with which like are they selling some tokens from their treasury through this market maker or even if they do it like postfactum like nobody discloses kind of stuff. So I think generally having more transparency and having more like responsibility to disclose those things before hopefully before we actually are forced to do this uh by regulators globally. I think that would help a lot. >> Yeah, I agree. I I think there's something with like proprietary trading versus versus liquidity provision which I was think was the question. There's some obvious things. You have an OTC desk. um you know another trading desk should not be able to frontter on that flow or even see that flow. You know that should be clear policies in any firm of any size. Um we're an unregulated market. We at least was now now we aren't. There are still things that um you can't do as in fraud is still fraud. You know fraud is a criminal offense. So you can't commit fraud uh even if it's unregulated. Something like the payment is not regulated. you can't go up and punch somebody in the face. It's the same thing. But with um you know, we use our own capital to provide liquidity. Um um and when you're looking at sort of the three different aspects of of maybe what a gsr would be doing which would be what we call here like market making um systematic uh OTC or systematic trading which is sort of um um you know um streaming prices to RFQ and so on and so forth. And then you're looking at sort of uh uh more long-term strategies um which is um um you know I guess hedge fund strategies things like that in in in a sense if you're doing um market making you have three things that you you really look at you look at orderbook pressure lead lag effect volume momentum and so on and so forth. It's quite it's quite fast things. You do have some view of where the next tick is going. That's that's sort of what you need to do. and uh where you place your your your bids and offers is that proprietary trading and that's not you have a view you still you're still going out there to put your um um um your bids and offers in the market to facilitate liquidity just has to do that. If you go one step further and you're saying we're streaming liquidity to all of these platforms um the the current game is that it's slightly underserved. It's actually big spreads. As those spreads compresses, uh you might make some money just on backtobacking you know uh big blocks on majors and then um you you know uncompeted uh tokens in the top 50. Uh but really what you will make uh um provide liquidity on there is that you have a skew um you have a view um you have a mark out of the price and you have micro alphas that is helping you to to to to move in the right direction market and and and take that bid from another uh market maker. So you will hold on to that risk a little bit longer and then as you go into the other space you will hold on for you know days or weeks. So I I I think it's like I I don't really see and this is how it works in traditional finance. You actually use views into the market, but what you shouldn't do in property, you shouldn't frontr run any flow. You just can't do that. >> Yeah, agreed. Full stop. So yeah, definitely don't have a market making operation at Anchorage Digital, but we do have a big OTC desk and we have to say part and parcel to all of them off the bat. We never trade against our clients. We rely quite heavily on our partners from the market making side to ensure we can source uh and provide a bunch of liquidity and yeah all the things that our clients are asking for are the things again from my old world they want TCA analysis they want the benchmarking of the T-W order if you're doing derivatives they want to know ins and outs I mean you have an ISDA CSA governing that but they want to understand exactly yes where you're sourcing the liquidity from what the risk transfer price is um all those things that uh yeah I think are are really really crucial and I do believe you have to have a much different take for BTC E soul than all these small cap tokens. I mean we do try to support everything. We have like 550 coming up on 600 assets but that doesn't mean we can make a real-time OTC price in all them. It depends quite a bit if there's a per market. Um yeah that's that's really what it comes down to is if you're playing that role um where yeah you're relying on exchange and market maker uh liquidity you you you can only do so much right. We don't want to take risk in that business. We want to get our clients the best execution possible and uh we have to have the smarter faster people uh there to uh to make sure we can do that. >> Yeah. I just want everyone to to to understand that that question was a very prickly one and the whole intention is to really let everyone understand you know how the professionals are thinking about it and how deliberate they've been gone putting their processes through. I'm not sure the rest of the market are thinking about it this way and I think as you do your studies about the various market participants it's important to see if they deal with these questions the way the four gentlemen have have taken this on and I think what we're all trying to send here is that the model of trust is built on a lot of deliberate thought on very very very touchy issues uh like this I'm going to leave that very difficult topic and many people are always going to say when you talk about market structure in crypto, you've got to talk about debts and MNAV, but uh we're not going to go down that path because uh I think it's been over overtalked about, but tokenization of real world assets is really starting to see some pickup. Um how do you envisage the cryptonative liquidity venues, traditional market infrastructure, how are they going to interact? Are we going to drive liquidity or we going to fragment it? I I I think now I think separating crypto from tokenized finance I think tokenized finance has really outpaced the connectivity tissue that's really needed and so right now you're ending up with this fragmentation it's not easy to integrate you know modern blockchain technologies into these legacy platforms so we need careful coordination cooperation for deeper integrations and then beyond that you need to um you know work on standardization right this market lacks standardization and there's an example I've been using um you have the you know the beauty of blockchain for instant settlement but in in scale I'm not sure that's how you want to do it. Let me give you an example. On September 17th of this year CLS uh settled $20 trillion of foreign exchange that day because of their multilateral netting facility. The gross the net funding for that was only a hundred billion. That's 995 internalization. Could you imagine doing 20 trillion over blockchains times gas fees equals not efficient. And so you need to to build these standardizations. Um just more broadly on on you know tokenized finance, I'm sure folks have seen uh CFDC Commissioner Fam came out about two weeks ago uh to formally announced the digital asset collateral initiative and starting with the advancements of stable coins. To me that is a very clear indication of regulated derivatives markets starting to move 247. Um so you don't have to trade crypto but you do need a digital asset strategy because corporate finance uh corporate treasury is changing and moving 247 or different risks so you need to start building for that crypto different story. >> I think there's some amazing use cases for RWA. I also balance that by saying I don't think absolutely everything has to be on chain. There's some things that are working perfectly fine today. tokenized gold for example I think great use case seeing incredible uptick interests uh you know many me many uh folks are I've heard at this conference talking about it and and prior something like real estate on chain I think is much more difficult um but I've still seen dozens of startups trying to solve that problem some have gotten a bit of traction but I I think it really is just too broad just to speak about RWA's also just too broad a strokes uh to paint with without drilling down a And I do believe just like we've seen, you know, there there would be a risk of same thing as recycled liquidity if you had all these different venues and new products and things that may or may not be fungeable. Um yeah, I do I do think there's an actual risk of not knowing what the true supply is if real world um onchain versus off. Yeah, I would say my guess would be over the next like one or two years we'll basically see a lot of experimentation and not not a lot of volume or not a lot of activity necessarily. uh kind of also to build like okay the settlement fees it's one sign like another sign is how do we deal with transparency which is inherent to blockchain like how do we deal with all transactions being visible like we already see it in hyperlook for example where all positions are visible all liquidation points are visible like it's it's pretty clear who runs what and it's not necessarily like it's not 100% clear whether it's a good sign or not and I would say a lot of people would argue it's not a good saying um and similarly I I don't know if somebody starts executing big I don't know tokenized Tesla blocks over blockchain it will be seen by everyone while like in real life it would go via I don't know darkpool or some OTC desk where like not necessarily everyone needs to see it and have a possibility to frontr run it. Uh we have a lot of fun things to solve in terms of uh how do we trade on weekends? How do we like move liquidity on weekends? How do we extrapolate this price movements on weekends? And do we actually want to trade on weekends or do we want to have some resemblance of normal life? Uh especially for us traders. Um and how do we solve for all kinds of corporate actions? Uh if we are trading tokenized if we if we train perpetuals on equities for example, how do we deal with dividends? How we deal with token splits? how we deal with all kinds of V8 carp protections that crypto is not familiar with yet. So I think yeah it's going to be fun but I don't I don't expect a lot of uh solutions yet to to emerge like a lot of usage to emerge over the next like year or so. >> So when we have solved all that um we still won't have price discovery and lead price discovery on chain. So you won't get better price discovery on the Apple stock onchain than what it is on the uh on the centralized end. I think you will what you will have is like you will have uh more distribution channels which obviously it's great for for for for us. The other thing when you put something uh on chain we have tokenized um uh money market funds for example. It's not just that that lives offchain and then it comes onchain. It comes onchain on um Ethereum, on Salana, on Aptodos, on other L1s. Um to use the composibility that that provides uh there needs to be a rebalancing around those different uh protocols, which is also something you need a liquidity provider or someone to be able to do so you don't run out of capital on one hand and and where and you want it on the other side. similar to what happened this this this weekend. Um so all of that needs to be sold but um I I don't think that you you know I think there should be exchange decentralized exchanges very much so I just think that those are not the price discovery u uh uh places we're going to have the one of the biggest unlock I think with with RWA and bringing them on chain is really the uh composability which is that you have very opaque rehypo in the traditional markets today. you can't use, you know, your fund investments or so for different things. But I can take a private credit fund that currently yields, you know, that has a wall of three, um, it returns eight or so, um, over some time. I can do that. If that's on chain, um, I can actually post that on a on Morpho. Um, let's say, um, I pay some some yield for it and I can loop back into it again. I can create a little bit of higher um yield, higher risk, higher return if I so wish or I can just release that capital. The composability that this provides um um releases uh capital and and actually creates capital efficiency on chain by tokenizing assets. So I think that's a really interesting uh um evolution. A lot of products will come from that. I was told a few years ago that bridges were going to magically solve that problem, but it hasn't fully happened yet. >> No, I think uh what what Jacob was describing was what I think the the younger generation called looping, which I was scratching my head. I don't know what he was talking about, but oh, you mean repoing or and getting cash to to leverage again? Okay, that's what looping is. Um I think um I think firstly when I was asked to moderate this uh panel I was like I don't know how to do this. When I saw the four names on the panel I said I don't need to do anything. And I think uh you all would agree with me that uh the four gentlemen on my right have has really given us clarity uh on what trust really is about. The market structure will evolve, things will change, but there is one underlying theme that we must understand and it is the concept of trust. And without which anything can happen and that's the reason why if you look at all the disasters that we've experienced, it's always been like what Jacob said, fraud or a breach of trust. So with that, I want to say thank you to the to the four gentlemen and I bid you a good day. [Applause]