Behind The Scenes: Insights From The Secondary Market

Transcript

very happy to be here and with our very you know prestige panelist let me just take a quick moment to get to know them Darius line you choose yourself first sure my name is Darius I I'm the managing partner at a QP capital in charge of trading strategy we are primarily a prop trading firm and we also run an OTC desk focused on crypto derivatives stable coins and as well as local market transactions Chris thank you name is Christian girl I'm the co-founder of GSR sadly one of the oldest algorithmic market making firms in crypto started in 2013 provide liquidity to exchanges

dozens of all coins today we also leverage our infrastructure to provide liquidity in the OTC space and we're currently focused on developing our presence and the growing derivatives market thanks Chris wait hey guys I'm Wayne Wayne trench the CEO of OSL we're one of the largest digital asset brokers in in Asia we focus on providing an institutional suite of products to thankfully an increasingly sophisticated group of counterparts not only in Asia but but also around the world i my name is Steven huh so I'm from BG capital and

OTC director from the BG and so FBG funding in 2015 and we have been heavily investing ICO projects in last two years then we developed our ho TC deaths and the mmm so it's so over the past two years our OTC and DMM has continued to go in stronger and hope hope we can do all the business with our large boss also so yeah hopefully you've heard of all these names before they're obviously big players in the space and really you know

it's a new year first corner of nineteen what kind of flows are you seeing what was changing in the space right now there's yeah I think the most interesting thing for us that we've seen is like Krishna mentioned and growing derivatives market you know in 2018 we saw the speech go up to a trillion dollars in market cap and then back down to like a hundred billion very small spot market and and you know BBC iam as assets you know they don't have natural yield leverage is limited and I think you know you then leverage has something something that's the space needs to grow and it's time to see some solutions for that options for words are

being traded OPC the futures market getting more interesting as well so you know what we've seen and what we've been focusing on is growing the options market both OTC and on existing platforms trying to create clearing solutions and trying to create standardization and more you know institutional type of trading for options so it's interesting you just mentioned you know setting up these clearing platforms is that already in place is the demand there already or is it something that will come after the structure is in place um demand is definitely there you know you in the space you have long guys who are still holding balance sheet looking for you and the balance sheet you speculate is gonna come in with

leverage so that you manage that free there but the the the platform's right now I think the infrastructure is limited so the sponsors know in terms of central clearing but working on it so forums will probably touch more on that later in the panel maybe we'll go over to Chris I know Chris you know you have a big presence I guess outside of Asia so such as Europe maybe get to share some regional color on what's going on over there I think similarly to Asia latter part of last year was very difficult for all of us in the space we've seen a serious uptick in interest both on you know the more plain vanilla

type of inquiries and also in the options you know if I agree that there's the man they're certainly interested we've spent a lot of time pricing stuff on a lot trades and another thing that we've noticed in the last few weeks strangely enough is an uptick in increase from token issuers looking for our market maker that space dried up significantly in the second half of last year and we pivoted more towards providing liquidity to exchanges but in the last several weeks a lot of these token issues have started approaching us again that's interesting so you would

think that you know in a kind of bear market projects won't have as much capital lying around to you know pay for marking Magee same for exchanges I guess there's always these rebate programs that I'm sure you're very well aware of has this something has it's been something that's kind of growing where they reach out more for more liquidity you know unfortunately the market making space has become very crowded with firms who sell themselves as market makers and know how to put this in a positive light but I think a lot of these so-called market makers haven't developed the

necessary tech and infrastructure to really serve as a market make them provide liquidity the standards are really quite low still we still get approached by coke emissaries who ask us how much volume we can guarantee that's not my job right the only way you can guarantee volume is if you're creating it out of thin air it's called wash trading and that's a big no-no right so I you know I feel like it's important during this quiet period for for all of us who were in it for the long run to try and improve standards to focus on quality to try and stamp out the bad actors because at the

end of the day we want crypto to become a legitimate alternative asset class and all those institutional players who supposedly are waiting to come in they're not going to take the deep dive until we clean up our act so Wayne um probably sell you know obviously you're facing a lot of these institutional great clients and Kristin made a great point on kind of fake volume basically illegal activities going on in this space what's it like do they you know they must be concerned OS L as a I guess as a counterparty do they work with these kind of exchanges

that promote such activity or is that a big no-no a good question I think as I look around the room here today and compare it to what it was last year when it was a massive amount of hype the ICO craze was in full swing and I think the a lot of the questionable activity that we're referring to was really in full flight then and you know going back to your question originally which was how we see the flow is change and whatnot I think that the ICO you know redemption into Fiat flows have certainly been something that if that's tailed off and quite frankly we expected that and planned around it that you know the spaces has definitely matured and one

thing that we are seeing more of than ever is is interest is real interest and real commitment from actually household names and household brands in the traditional finance space are they fast to move no but I have there been very material decisions made at the most senior levels of some of these organizations to commit and actually develop not only a custody offering but also a trading offering that to me is super exciting right and I think a few things have really led to that actually part of the part of that crazy activity was actually good that had bought this asset class into

the public domain it was the subject of dinner party discussions it was it was thrust into the limelight so financial institutions were required to step up and look at it now they aren't getting a better understanding for the underlying technology what could be possible and in the same way that traditional FX traditional equities have become electronic and more digitized you know I think they're seeing now that the the potential to leverage this technology to do the same in the fabric of the traditional asset classes going forward it's a part of our part of our strategy is really as as a software the service provider to engage with these traditional financial institutions who really don't know how to execute their

strategy and provide them with the support to do that and when the brands like fidelity come to the space and commit to providing a custody product to me that that is what's going to drive sustainable and long-term adoption and I think even though the rooms like a quarter full and people are feeling pretty down in the dumps that to me is actually the most encouraging thing longer-term much more exciting than that the craziness of last year so just more than institutional interest it feels like you know you mentioned that they were kind of forced to look at it last year during a very hyped market now that things have calmed down they have some time to I guess you know take a breath and and really look at like fundamentals

first its restructure and the actual technology so in a way does that mean in terms of new money coming into the space it will be a very progressive gradual maybe over a few years rather than o institution heard is coming this year yeah I think it's going to be in a much more organized and less chaotic fashion however assuming we do get that real institutional adoption at some point the size and scale of the adoption is something we haven't seen before we won't be talking about a trillion dollar asset class like you know if you look at global FX sort of its hundred thirty trillion dollars of monetary supply or something with its huge Mac orders of

magnitude that we we we haven't seen yeah so but the people who are you know Chris's point people are really committed to this asset class and actually have built sustainable business models and are there I think our best days of well and truly ahead of us and you know look at JP Morgan's coin for a massive organization like that to tiptoe their way into that that space is a big step and even though that the technique the way they've used the technology is more to protect a current or an existing business that they have it's a real to me it's somewhat of a watershed moment

we're seeing it in Japan as well now like this is it's not if it's gonna happen this is happening in front of our eyes and you know as I said best days are ahead thanks Steven so you know I think SVG has a bit more of a unique flows it's a little different too I guess what OSL and Chris would be seeing sorry so maybe you know share a bit more about your region you know what areas you see a lot of flows coming from so okay sure so we we actually basting us so I think the advantage of being like us we have better regulatory environments we have strong capital and

certainly we have much better human resources to build those OTC and DMM teams but I'm more focused on the Asia Pacific area so when we trace back in the history like back in 2000 years ago blotching already exist in China so when the Chinese emperor has so many concubines I mean so many wives 3,000 wives so how do they like take notes or each bloodline has been passed down so when the emperor need a wife today so the servants were taken notes and the ties

on temple also take the notes and so it's all passed on you cannot like change the records but you can chase back so the history well ten months ago the Emperor like sleep was disc concubine so blockchain already exists this 200 years ago in China obviously this is old Asian market very good market since other exchange founders we can say it's a nation based maybe not from the - but also from the OTC side we see lots of Chinese companies focused on the con con

trading and high frequency trading and the mining not mentioned in mining companies which like that like big men and like Jang Yoon su as s9 so yeah from from my opinion that we with swimming more like in the supply side of the Bitcoin maybe any other fear any other out coins maybe in us with their more like swimming the demanding side of the Bitcoin so the beauty of this is like OTC connects to each other we can not narrow down all the price brats and during the trading world wide widely so actually you know you talked

about mining the quant funds in China I think just in general exchanges as well ot sees the competition is not it's a different level to what it was I guess a year to two years ago you know is what is FBG kind of thinking about how to you know differentiate themselves in the space anything that you can share on that so yeah so recently we are more conservative from the investment side I say oh we can't say which can be quickly has profitable mass ecology as approaches so we more conservative as a moment from the ODC and the EMA side we see a large demanding

has increased I so not so initially half of the clients come from the ICO projects but half of the my institutional bias well nowadays we see top 20% of the our clients are come from like combine the crypto war to traditional world take example of the like Libre they are doing great job with traditional mo9 and the crypto Wars so yeah I think OD societies increased directly because of those innovation

bridge line of the traditional I have the same question or I guess Wayne as well there's big test out there that I think they're tightening all the threads trying to get as many as much clothes as they can you know how does OS elf and a different resource yeah there's certainly been because he was speaking earlier there's been a lot more competition come to the space we certainly anticipated that and and spreads compressing and whatnot but it's probably happened it's probably happened faster and more severely then I think anyone contemplated at this time last year but for us we we just stick to what

we know how to do we are an agency focused business we don't we don't run principal trading activities that is we leave that to the experts but what we do is we serve customers and we do that in a very unbiased fashion we're all about providing products services and tools to allow our clients expressive you and and you know it probably comes as no surprise that we we are heavily focused on positioning ourselves for the emerging regulatory environment not only across Asia but but around the rest of the world but we we have bet that this in this space is going to become institutionalized that's a very clear bet we've made and and as such the

way we try to differentiate is by having PwC as our auditor across a firm we are you know in licensing discussions in various jurisdictions we have complete transparency when it comes to execution and so on so that's what we don't try to do things we're not good at right so I mean more on the institution like it's the tool ization of it I want to go back to what Chris mentioned about you know market makers manipulation walks trading Darius you get the same request - I'm sure I'll just come to you and ask for these you know shady activities yeah what can you do about this I think completely agree with Chris on this

right what we've been trying to and you keep poking projects is that you know there is a fundamental flaw in the structure and the way tokens are treated right you you are releasing a token and you know these guys have ping ping tons of money into exchanges and and to market makers for price discovery essentially because you know when you're really - token you don't have you don't have a sense of intrinsic value you don't have a sense of fair value or token right they just don't release it and then you know the the they depend on exchanges to sort of price it and create hype and marketing I mean that's not how

a mature market approaches price discovery and you know what we trying to educate these guys is you know instead of just focusing on on exchange volatility what do you think about issues like you know establishing fair value establishing a physic value making sure that that there's ODG liquidity making sure that the type of liquidity exists in OTC as well rather than just having it create on an audible exchange you know why don't you use your balance sheet that you have to try and establish a more robust pricing model and then you know the project can work with mark and make these issues of Christ as well instead of just letting it run walls right I

think the educational process I'm sure for you Chris you know and trying to move them to this just pure small exchange mindset to a more more holistic approach to writing the tokens and liquidity on exchanges the general behavior of the exchanges you know I looked at my phone this morning and not to cuckoo the title sponsor we all love koi market cap um but I was looking at exchanges ranked by volume adjusted volume yes the top 25 exchanges today by volume each trade for report trading

volume higher than the aggregate of all the us script exchanges how is that even possible you know crypto crypto total market cap is around 130 billion dollars coin market cap is telling us it's thirty two billion dollars traded in the last 24 hours really twenty-five percent of crypto changed hands the last 24 hours and I think globally and in stock markets it's inside of one percent gold trades around one and a half percent it's really it's a really ugly fact it's something that the institutional players

will look at and scoff at I mean what do you there's a lot of reports out there so-called like third party neutral organizations I've done research you know yesterday at drinks you mentioned that you probably don't even agree with a lot of what they're saying look I think it's a great start I think the blockchain transparency report guys Institute guys came up with with a better way to measure real exchange the quiddity in recent weeks different companies have issued other reports you know it's a step in the right direction but when you've been in the trenches for six years like we have we see it in our data and you know even that the largest crypto exchange in the world

are just all coin exchange in the world we all know about nobody calls them out on fake trades you see it we've been seeing it for years I hope to publish something in the next week or two on our blog we'll just put out the data and let people make what they will but I think it look short term pain for a long-term gain we're better than this they just add the Christians pointer and exactly what we see as well that I think project me to understand that the role of exchanges is Charlie for price discovery

you know it shouldn't be a case of the be-all-end-all project success right there needs to be other strategies considered in order for this patient it's not a token training itself to mature and become more institutional so I mean you know I guess it's a controversial kind of statement there's lots of rumors that exchanges they have so much power everything any number on their platform is just it doesn't mean the coins are there they can manipulate then whatever they way they want they can load your account up with so called us DT or BTC it doesn't actually mean they have those amount of coins at the same time you know they're able to I

mean essentially they could trade against you I know certain companies have publicly said that they have a prop desk within the firm but it's pretty safe to say that these smaller exchanges especially with low listing fees these days low volume they'll do anything to make money and I think you know this is a really important point that you know we should all be concerned of how to solve that you know I don't know if you guys have ideas you speak to regulators especially OSL maybe you can talk a little bit about you know the regulation coming up at least for Hong Kong this year yeah like this all this sort of stuff gets stamped out once it's regulated properly right people go to jail very quickly for that sort of

behavior so I kind of think of it like again cast our mind back to like 12 months ago hear a lot of that Spivey activity there's probably less than 10% of the people that were here last year here this year and and these scrupulous practices that on their kid yeah that may or may not go on look I'm not here to be judge and jury right but this market is becoming regulated and regulators are pretty smart they've been looking at this sort of stamping this sort of stuff out in traditional asset classes for a long long time and I think for participants in the marketplace they need to prepare prepare properly and you

know it'll be much healthier regulators will arrive but that doesn't mean that those of us who are here for the long run can't self-regulate correct we you know we're founding members of the atom which is founded in the US but isn't just for the US of we've gone galaxy and Cumberland and Genesis on board that is just promote fair and orderly markets identify bad actors share that information and you know what you're doing is you're creating a road map so that when the regulator's arrive you say well you know we may have done it perfectly or not but

you know at least we followed these steps this seems to be working and this didn't and and you make their job a little easier that way it'll come sooner yeah so you know it's very unfortunate I think we had a lot more to share fortunately time's up so please feel free to reach out and speak to these gentlemen you know they're right at the front of what's happening in terms of trading and volume so they'll be very valuable to talk to you thank you everyone for listening and yeah it's pleasure thanks guys you