Market Making, Market Transparency And The Promises of an On-Chain World - TOKEN2049 Singapore 2022

good morning everyone my name is Kevin I'm the co-founder and CEO of key Rock we're a digital asset market makers based in Europe actually today what I'm going to speak about is whether we are building a fair market and to do that I will start by sharing some insight about what the market actually looked like when we started the company five years ago was it a fair market back then I will then look at the progress that we've made over the last five years we will discuss how D5 actually impacts the whole thing and then finally we'll share I will share a few thoughts about how I see things moving forward as it comes to building a fair market together if you've been in crypto for a while unfortunately you might be very familiar with that type of chart I wouldn't expect you guys to actually know this specific chart I recognized the instrument that was traded here but the type of chart is very telling right it's vintage crypto that's a typical pump and dump so you have some investors that have a preferred position preferred means preferred information that you spam the price of a security up until a certain point that they deem to be sufficient and then just dump on all other Market participants and basically pocket in their profits this is blatant price manipulation on the market of course that is quite odd with the narrative that you will have in the conference today and yesterday right about how web3 is working to build a more financially inclusive world this is very far from it clearly this is a type of Market behavior that we need to rule out of the market unfortunately there used to be quite prevalent and to be fairly still to some extent are to show to what extent actually I think it's interesting to to share this slide that is basically what used to be the first slide of our historical you know commercial presentation as a market making company and actually says a lot about the market expectations uh back in 2017. basically what this slide says right you can see just the screenshot here is that as a market making company we do not trade against ourselves we do not take price targets and we do not partake in Market manipulation you would think that's quite basic and I would tend to agree but the reality is is that we were asked those things so often in 2017 when we launched by multiple different Market participants that we actually had to make a slide out of it to tell everybody from the get-go that these are things that we do not take part in that would act as a filter for the counterparties that we were trading on so very clearly the expectations back then were quite different and when I say back then I'll share a bit of context about kirog so I created the company in 2017 and we've been active for more than five years now as you know digital asset Market maker today we actually make Market on venues for more than 100 Partners be it issuers or exchanges themselves we have integrated more than 85 venues everywhere in the world and on those we trade more than 400 individual instruments and therefore many more markets the reason I'm sharing this is just to illustrate that we are an integral part of the market infrastructure as a market maker right as such we've seen where the market was in terms of being fair or not we've seen how it evolves and be happy to share some insight about where I think it's going nowadays so how do we work towards the fair market basically we need two things we need transparency and we need accountability with transparency basically you are it's about being able to identify and detect as early and as openly as possible the problematic behaviors that you're going to see on the market such as the pump end up that was showing earlier we then need accountability it's nice to identify problematic behaviors but then of course you need to be able to pinpoint the perpetuals of those behaviors and make sure they are being held accountable you need both transparency and accountability to go towards a fair market so how much have we progressed since you know the days of that pump and dumps in the days of that first slide you know in actually building Fair markets on centralized digital markets when it comes to transparency first we see that very clearly our industry and we see many of them here today has attracted the wealth of you know Talent from the traditional financial sector this has tremendously increased the literacy around Market making what market makers do can do and cannot do and therefore definitely reduce the incentives to partake into problematic behaviors on the market moreover when it comes to the data we think that the data is a lot more available on the market now than it was back in 2017 right of course you have many participants that you share data openly and freely on the market but you also have whole companies such as the guys at kaiko or Missouri basically their entire product is making sure that market data is available to be analyzed and to be looked through so very clearly clearly sorry progress has been made on the transparency front when we look at accountability we see a better oversight you know market-wide mainly for all the largest trading venues that oversight is brought both externally you know with historical Regulators but also internally as an industry and all in all what we have now is a near ubiquitous kyc and AML processes in place on the markets to make sure that at all time you are able to know who you are trading with and the history of their transactions basically of course as market makers we have a very large responsibility to Foster that transparency and what I'm saying here sharing here sorry is just a basic kind of a reporting that we provide our clients that we provide our partners both live and historically to help them gain insight into their markets what you see here are different level of outstanding liquidity in a given in a given order book right we're able to see the outstanding liquidity on the buy the sell side how it evolves at different price targets how it evolves over times but more importantly what we are able is to use that information to actually create insight work with our partners work with our clients to detect problematic behaviors take it back to the venues and make sure that we work towards a limited eliminated eliminating them in the future sorry but that work that we do on transparency is only relevant if we are actually being held accountable as Market participants as market makers for us this means two things one of course is upholding the current regulatory requirements you know in all the relevant jurisdictions when it comes to kyc and AML compliance and therefore have a full kycml compliance but the second of course is going the extra mile and actually working towards you know a complete broker-dealer license in all the leading jurisdictions we think that kyc ml which is you know the current basic requirement is good enough right it's a good start you are able to know who you are trading with but just knowing who you're trading with does not mean that you're held accountable as to how you trade on those markets and this is why we believe it's important to go that extra mile you know in a crying more complete licenses as you know key part of of the market infrastructures now if we take a bit of a step back you know and we summarize what I've been saying for around seven or eight minutes now what you might have understood is that you know things were terrible back then things got a lot better now in centralized market and most of it is thanks to Market maker of course that would be a complete lie right we need to be honest with ourselves you know as an industry and be able to look at the types of markets we're building and recognize all the work and the Improvement that still has to be done but at the same time it's important to also be able to look at the progress being made so that we can learn from it and double down towards creating fair market fairer markets on centralized markets now how does defy coming to this has defy helped is D5 actually helping in making markets fairer when you talk about decentralized Finance you're going to have you're going to hear very different things so on one end of the spectrum some guys will tell you that we're going backwards with in decentralized finance you don't have kyc you don't have AML front running and other manipulations are very abundant on the market and you have a massive expertise of symmetry between all the market participants with very little safeguarding right so these guys will tell you that D5 is completely lost on the other hand you will hear the exact opposite they will tell you we are progressing tremendously thanks to decentralized finance the rules are clear you can read the smart contract the actions are transparent you can see all the transactions and there are no more proprietary databases so very clearly thanks to D5 we finally have a true Level Playing Field where we are all equal under the law of code how do you take those two perspectives and actually reconcile them in that more that small transparency accountability framework is D5 actually making either or better when you look at transparency I mean clearly we have amazing data that is available for all for free without silos whatsoever that sounds great but the problem is that the absolute composability of D5 which is clearly once if one of its main advantages you know the possibility to build one on top of the other means that the data is incredibly complex to decipher so you have loads of information yes but that does not mean you have more transparency on the market when you look at accountability you actually have two main changes one is that we don't have intermediaries anymore we cannot use those intermediaries as levers to hold the individual Market participants accountable for their actions you now need to directly regulate individual Market participants that of course comes you know with a lot of different questions that are you know beyond the scope of this talk today but how do you do that what technology do you use to actually regulate individual Market participants how do you do that in the scope of all the work being done towards unchain anonymity and who do you trust with such capabilities the second change that we see on accountability is actually the emergence of a much more you know bottom-up approach towards Market control and not of Social and peer accountability which is definitely in and out of itself a very net positive but then how do we conclude now if we look at where we were five years ago how we progressed on centralized on centralized markets what D5 has and has not brought Where Do We Stand now and how can we look forward towards building fairer markets I think that's we can say that there are great promises but there are also very clear challenges right and as we progress and we evolve from centralized to more decentralization markets I personally believe that not everything will be decentralized in the Futures I think that's a fallacy I do not believe that every single Market will be a decentralized one in five or ten years I think that we are going towards a mix right in the previous world everything was centralized you did not have a chance in the future world I think you're going to have a balance of the both of both paradigms where each brings its advantages to different part of the value chain right but if we go for something that was fully centralized to something that's going to be a mix of both very clearly you can see that momentum of growth in decentralized finance and when it comes to building Fair markets one could believe that it's going to be more and more decentralized it means that the data is going to be more and more open So eventually markets will get Fair simply because of decentralization so we can just sit back and relax I think that would be a tremendous mistake we must keep on building as an industry if we want decentralization to actually deliver on its promises and bring the next billion users I mean if you look at transparency right D5 has been going very aggressive cycles of innovation for the last four or five years what that creates is a mess it's a very positive mess it's a very productive mess it's a very Innovative mess but it's still a mess that means that you have an abundance of information but that information is so abundant and so complex that you you actually have no Insight whatsoever as Market participants we need to keep on building to go from Pure information to actual insights which will in turn give us transparency on the market behaviors if you look on accountability now I mean the word the decentralized world that is ahead of us is very different from the centralized world that historical Regulators were built and created to oversee and to structure this is a world that comes with different understandings that requires different tools and we as the company building these new worlds we are the best positioned to actually help historical Regulators get that understanding get those tools and ensure proper accountability on the market as I mentioned just before we are seeing on this market in terms of accountability you know a growth of bottom-up control and I think that the inside the trading Scandal that we saw on openc last year is a very good example of that that Scandal was not brought forward by the centralized historical regulator that Scandal was brought forward by users that detected problematic transactions on chain decided to call it out on Twitter and then only did Regulators step in this is a perfect example of bottom-up oversight right but this kind of trend which is in and out of itself very positive and very powerful has to be encouraged has to be supported has to be structured if we want to make it more than some and simple hayfire as market makers we at Key Rock we act as Bridges right we are bridging centralized and decentralized markets we are bridging institutionals and Retail participants and of course as anybody in this room I think that we want to be on boarding the next billion users to our digital assets markets of course to do this we need better tooling we need better interfaces we need less complexity but I think that above all what we need is to actually improve the value propositions of the markets we are building we want to go from those absolute Mine Fields where you're just about to be scamming and about to be manipulated to actual Fair places of exchanges and market makers as key part of the market infrastructure have an obligation to be positive Catalyst in this Evolution and this is something that we are very committed to do thank you very much for your attention