[PanelDiscussion] CryptoMarketMaker's Paneldiscussion #koreablockchainweek2019

hey take it away good evening everyone thank you all for being here I think we are the last panel of the day there is one more presentation after us but we'll let you go on your way after you know we drop our two cents my name is sang Lee and I'm the CEO of constellation which is a financial services blockchain company developing tools to make interoperability between services real world services as well as the blockchain and creating financial assets and tools to actually make it more robust for institutional investors I will let my steam panelists introduce themselves before we kind of deep dive into what we're talking about today my name is Andy Croghan CEO of Alameda research and FCX background in both liquidity provision market making as well as the exchange business now in crypto hi my name is Darius the managing partner I used to be capital we are a team and team based in Singapore we do you know we run a trading desk OTC trading we focus on Asia you know Korea Jakarta Malaysia Thailand a lot of Southeast Asian countries focus a lot on the Fiat markets Fiat - coin coin - Fiat markets as well as the derivative markets in crypto so options and forwards okay great I mean we'll talk about some interesting stuff before we do that Darris why don't we go to you for those that are less well-versed of us in the in the audience what is market making supposed to be because to be honest sometimes we've seen in the industry that the reputation Ford has taken a weird turn as crypto crypto currencies have grown exponentially over the last couple of years but we know that they serve a very important role writing creating a market that people can actually trust so what is marking making and its most fundamental level you know like like sangs is a market making has become Edouard in the space but sono want to clarify that market-making is actually just liquidity provision the reason why it's become a bad word in the space is it's become associated a lot with market manipulation which happens very often in small and thin markets but in the traditional market space you see the maka make it an essential part of the whole ecosystem by providing liquidity between exchanges which is obviously an exchange between derivative products and spot products you know actually the the main rule of the market makers to provide liquidity as well as to make the markets efficient so that's what market making is supposed to be me and you can ya know examiner great I mean it's there's no project in any particular market that can function properly without liquid markets it's it's what allows any small project to enter the space you know the it gives the customers the best price it keeps competition you know in line it's it's a necessary function for any functional marketplace right so it's something that needs to happen and unfortunately in crypto sometimes it gets a bad name because of a few bad actors so yeah I think the key takeaway here is that you know as the cryptocurrency market is evolving and things are changing new products are coming out new companies are coming out we've seen this evolution in traditional financial services but in actuality the kind of the orderly nature of financial services exist because market making actually exists that somebody's putting a buy in a cell ordering and making sure that there's integrity in the system what are the kind of the next steps that you see and let's start with you first Andrew in market making like what are the firms need to do what our companies need to be more aware of as they're looking for a market making partner or they're looking for other kind of trading counterparties and what what's the next evolution of that yeah so there's there's a there's a lot of education needs to happen on a lot of levels one on the exchange level there's a lot of regulations that exists in traditional markets that stop manipulation in particular ways and I think that we've seen a lot of exchanges move towards at least ways that they've stopped that those things happening you also see projects where you know in traditional markets a project doesn't need to actually find its own liquidity provider right like these are things that are kind of mandated and rolled out as particular regulations before it wants to get listed on a stock exchange you get the whole swath of things protecting your product and encrypted that's just not the case you could be listed on an exchange that is completely idiosyncratic compared to a different set of rules for another exchange so as things homogenized and as things you know mature and exchanges get better at realizing who's doing what and what might not be an honest procedure or honestly as projects realize they're like oh my gosh I didn't even know what I was getting into when when I when I approach these people for this I think we've seen a lot of that maturity come out over the last few years there was a there was a surplus of projects for for needing liquidity in 2017 and 2018 and now we're kind of seeing the better projects that people who are making better decisions surviving longer right there is anything you want yeah I mean this is a huge topic right crudos in a very unique space where projects I essentially venture businesses forced to treat in the kind of liquidity that big conglomerate stop you know company stock treats and then you have a very big liquidated dislocation because of the very few the small smaller market as well as the fact that while traditional markets the liquid is centralized here you have pockets of liquidity pockets of solidity all over the place so huge dislocation between what it should be and and and alacrity that the the projects have and as a result that you get a lot of inefficiencies like you know the project might and these inefficiencies in pricing has nothing to do the project it's just purely people not knowing how to trade and the markets being really thin so I think what is needed in the market for development and maturity is two things right one is guys who are building balance sheet so you have guys well instead of just purely speculating buy sell buy sell and abusing market liquidity you have guys were accumulating and holding you don't see it you don't have that much in crypto and there's good reason for that as well because you know again like a nice education as well as getting time to pick up a lot of these basic technology technological requirements another thing is also the amount of leverage in the space that this in the space is too leveraged in the wrong places and under leverage in some right so you know you need to have proper derivatives where where you are able to treat with leverage as well as Avenue to hope and achieve I mean STX is one Avenue where you can you know tokenize put your tokens as futures that actually deepens liquidity quite a bit allows for leverage and also more a bigger market you know so I think again so building balance sheet and the development of derivatives like futures options on the various tokens they retreat and I guess before we kind of go on to that that field that direction of derivatives what we see the future of liquidity looking like you know I was just looking at this the other day but there's around 20 counterparties when you issue an ETF that needs to kind of plug in to each other and people trust that when it happens that the ETF is what it is do you think with the advent of new technology with the way we've been operating and growing in this industry that we can evolve that much faster but still create safety for investors in the long run oh absolutely and I think that's like kind of a lot of the value-add that we that we see when we're looking at you know someone like myself and dairies we have moved from traditional finance into the crypto space there's a lot of needless middlemen you can cut out with this with this technology and like you said there's there's dozens of people who frankly don't need to be involved in that transaction and that can be you know kind of whisked away with with some intelligent coding and and I think that that's inevitable when you're talking about such an efficient market space and a place that values you know making sure that you know you you operate at the highest capacity like it's just inevitable like it's something that you can't ignore so it's no shock that you see people like Darius and the folks over TCP mmm moving from those spaces and going well this is obvious really like this is gonna happen yeah absolutely Darius was kind of the like a very active participated reading market like you've seen I guess new counterparties kind of arise counterparties disappear blow up and what are you seeing is like best practices between the counterparties that actually makes sense and they're in it for the long haul well best practice is a tough woman well you know you know in the traditional markets you have a whole system of clearers and and you know many many layers before you can a key treat so you know as much as as the crypto space killed a lot of that away it also opens up a room for bad actors many times so you know it's actually as a new space you know there's a place emerge it's always been a lot of bilateral trading and there hasn't been any there hasn't been much offer coming together to sort of regulate the space self-regulate there's been some efforts and in these parties effort as well to get all the dealers together to put up put together best practices for the gather standards for the space but I think that's too very early so I think in the enison it's on it all is on the owner is the onus is on the current players who are know each other to cooperate and work together and I think that's coming together pretty well no no totally agree I think that like there's there's a it's a small enough space right now and the community is strong enough that a lot of people band together to try to find the best practices and again there's no mandate out there and it would kind of go against the the the feeling of how crypto should operate by having an official mandate but but I agree you know like we're all kind of in this together and it does feel a lot more like a community in the trishal finance world where a lot of people are trying to make sure that we're doing something healthy for for the growth of the entire industry as opposed to like what short-term best for yourself and as you guys are obviously leaders in the market I mean South Korea is one of the most active trading markets from retail investors in the world what what would you say do it don't do it maybe what would you say from individual investor perspective potentially here that's looking to traders already trading pitfalls or kind of warnings of words of advice oh yeah I mean so I can't give too much financial advice but this is not financial but uh but frankly I mean like nobody knows it better than like a lot of the fine people who are firm traditional finance who normally say I mean I trade apple stock I trade an option in a particular stock I don't it doesn't function any differently but when you get into crypto that's not true at all right like you actually have to know your product you have to know what you're doing you have to know that you have to you're probably literally doing those transactions manually in a lot of ways so you have to understand the products too so it does it does cultivate a community that needs to make sure that like you understand the products you appreciate the products in your and you're researching them right and you're involved in it so I wouldn't I wouldn't say that anyone should be involved in something that they don't they're not passionate about I mean that's something that also drives crypto right now people are very passionate about it and almost everybody who I know who has gotten involved there's almost like there's a there's always a story right there's always like how did you get into crypto you're like oh this crazy thing happened and I would just recommend like people do their do their research like know their products but and that just that's not even necessarily on a coin level - it's also an exchange level like speaking from an exchange perspective and an OTC counterparty perspective know here dealing with know who you're doing these transactions with because there's there's a lot of nuance to the space and one of the good and bad sides of decentralization is like it is on you to know who you're dealing with as as the other side so yeah just add to what Andy said South Korea is famous leaving the most speculative markets ever and and everyone knows about the whole kospi options and the blow ups as well so I don't think this is a clear-cut though specific question you know in the end it's up to you to really the onus of the investor - I didn't know why they're trying to control their own racing leverage and the control space this can go really crazy because of the the players were offering leverage that might not be responsible right now so in the end like like Andy said no know who you're dealing with know your product know your downside up citing a risks in theirs I think you set us up well for kind of a neck point I wanted to bring up which is liquidity market making these are all also byproducts of financial tools that actually come into creation right and in traditional assets derivatives is obviously much larger than the underlying notionally it's absolutely critical for risk mitigation from risk management but what we've seen in the industry is the kind of the fast and loose model really explode much much faster because they're offering kind of egregious amounts of liquidity and people want to kind of take home that big win really really fast what would you guys say about the state of the industry as it currently stands and what are the evolutions are the responsible evolutions that you see occurring that you guys may actively also use that and that you think would support the underlying foundation for crypto let me try this one first um well we absolutely right right the crypto space is a little crazy in this respect like I said extremely speculative one example is you know let's say you know we talked about big - Bitcoin miners you'd expect them to mitigate their risk by by you know selling calls or hedging that the directional risk right but these guys actually tend to be tend to double up the positions by buying options and become extremely speculative and that's why you see the kind of movements in Bitcoin you know like 20% moved in a day these are not these are due to this very very speculative nature of the space right but at the same time it's very necessary for these products do to solve develop the the interesting thing about the time we're in now is the the profit opportunity I mean the the the guys in traditional markets bond traders and stock traders they made the most money in the eight 90s 80s when the markets were inefficient and right now we're in a phase where the market is inefficient so you know there are a lot of inefficiencies that you can exploit for alpha for profit and and you know we should you should go for it treat them more but at the same time you know the market needs to grow right it is grow so so while we we see these inefficiencies and trade on them it's good to have more participants in as well so you know I think the rising tide sort of benefits everyone and and I think that that is what we're looking for most of all getting more participants in getting guys with bigger balance sheets into it to participate as well I think there's the most important for the growth yeah I mean he said he said it great I mean it's it's catching this lightning in a bottle yeah right you don't want it to be so reckless that everyone blows out and no one has anything left and it's a disaster but you also want it to be an advantageous market that makes people want to use their money and put their money where their mouth is and actually invest in this product and frankly like we kind of saw this in 2017 right like markets start to move people start to be more interested in other products people start to be more interested in new projects and and that's what enables other projects to even exist there's a lot of projects that wouldn't exist if there wasn't a bull market and so it's it's it's this kind of tug-of-war between you know full steam ahead you know nobody can tell us what the rules are because we get to do whatever we want now which is part of the you know ethos of of crypto but also making sure that it's not reckless and frankly that's kind of where liquidity provision comes because that's that's that's what that's what your job is your job is to be the person that says okay well like this is where I'm gonna put my whole balance sheet on right here to draw this line on this particular place and you know I think that actually kryptos the crypto space has done a pretty great job given the fact that if you're talking about it comparing asset classes over the last you know 30 to 40 years this one has you know remarkably less regulation and oversight and and way more globalization than in the other market that has had anything close to this level of explosive growth and it's just been very interesting to watch me a part of and it's an interesting point you just brought up around kind of the less regulation and the rising tides concept that you brought up Darris because one of the things that governs most industries and allows it to really really grow is a certain level or absolute transparency that occurs right across markets we know how many dollars are moving into Korean one like that's that's very clear at a giving point we know how many options are being sold and how many options are being bought and that allows you to say well I trust that a US dollar is one dollar right and that's not something that we can do today so what are your guys thoughts on like should the industry evolved to a point where all information is being shared through similar data feeds do we create more opportunity in that transparent and that transparency in the short run it's a really good question sometimes a market maker you're like but but at the same time like I think that conceptually it makes a lot of sense and it's it's almost certainly where things are gonna go in my opinion it's something that it's again it goes back to the ethos of what Kryptos about it's about transparency it's about it's about trust in a trustless system that you don't have to actually you know have a relationship with the other person to know what's going on so ya know I think so well I think the the the crypto space is naturally more transparent than the neutral market space the fact that everything's on chain you can you can see everything that the the trick then is to read out what what's what information is false or not right I mean an exchange is right now you know it'll be fast and loose like you said the data might not be real so you know I think it's a it's it's almost like too much transparency way baby but abusing it a little bit um but you know if you look at the stable coin space for example the way it's being being executed in Asia the transparency is very useful I mean I think the transparency is one reason why sovereigns and corporates might use it as well and and and I think that's one key difference from carbon carbon fiat and that they should definitely be encouraged and one of the things that we're working on a constellation also are structured products so kind of automatic risk mitigation we know that the vast majority of people are not day traders right and so most of the movements that actually occur are supposed to be institutions that are you know risk managing positions for investors that go into pensions or 401ks etc etc and I think the evolution of the mark it will occur in that manner where we have what we're working on is something like an ETF like product but that creates massive liquidity and actually it's that passive liquidity that we were talking about before which is safe and it also allows people to create new profit opportunities right like if I'm a professional trader I can use options and create enhanced positions but as an individual that's very very hard I'd rather just buy one token and say oh it's gonna give me a 3 3 percent clip month right yeah so what are you guys seeing in the evolution of that market do you see that exploding in the short run do you see that as something that takes longer to evolve first of all I do agree I think the structured product angle is is something that's really important for crypto only because there's this really big difference between people who have access to products in the traditional finance sense they're already going through all these filters of you know you have you probably have a 401k or a Roth IRA or some sort of broker that you're dealing with whereas like in crypto you have all this exposure to everything just as an individual a lot of ways so there is like this this like weird discrepancy between the products you have access to you can get a hundred x leverage as an individual just just like that the idea of having you know these structured products is actually something advantageous and I'd to talk about like what FTX offers you know we offer these products which kind of do this as leverage tokens which are something that is instead of managing a margin position you you can buy an e or C 20 token that trades at a 3 X or a minus 3 X position to the particular product whether it be Bitcoin ether or whatever and we're exploring this we're seeing you know growth in those areas we're also having people reach out to us about particular products in general I think in the in the near term we're gonna see this happen yeah short term hard to say but and also long term hard to say too because you know it really depends on on how you know larger institutions kind of build this path for people but I think in the mid term you're gonna you're gonna see a lot of these products kind of grow all right just because you know like you said it's hard to be it's hard to manage all this liquidation sometimes you want to go away for a weekend and maybe Bitcoin goes down Ari Katie no 18 our flights you're like oh geez you're checking your phone as soon as you get off right no I definitely proved that right and I think it's extremely important because it will shift crypto from a speculation speculative asset to an investment asset that's right we're speculative but no one whose balance sheet everyone just trades it to something that people put the money in for a long term right now is that's really missing the space and the short term we've seen a lot of growth in this especially with derivatives because traditional guys don't want to deal with the physical product of like Bitcoin or ether yeah they don't want to deal with it don't know how to deal with it they'd rather deal with something they're familiar with so an option or a future on on Bitcoin is something they understand you know it's it's it's only they can handle they've done before so we've seen a lot of interest actually in a short time you seen a lot interests and growth in structured products where the volatility is managed by by the reduction of leverage or by certain structures where you sell option against against a physical or something like that right like a couple core product these are more investment like products with with very strong profit opportunities because of the way the market is structured now crypto is the only market where where you can see volatility implied volatility of like hundred fifty percent right this kind of volatility doesn't exist this kind of opportunity doesn't exist in any other market it exists in crypto and probably not for long right and it is a extremely good investment opportunity I think you in the short term you will see more and more Fanny officers high-net-worth guys coming to these kind of products and this goes kind of back to what we were saying about before right which is you know rising tides maturity of the industry but that starts closing our gap in volatility right as the market gets bigger and more money comes in actually it starts shrinking so that that opportunities start shrinking so you know if you are believer in cryptocurrency it definitely sounds like you know now is a very interesting time and I think we've had the unique change over whereby we like a lot of financial services like all three of us came over knowing what we know and then you bring it into cryptocurrency so it just is like lightning strike from nothing to like an infrastructure right and now we need a lot of the players to start working together to make that even you know kind of grow to the next step when you guys are I think we have time for like two more things and if anybody has any questions for Darius or Andy please just raise your hand because we've just been kind of talking what are some market trends that you guys are seeing right now right and we were talking about Korea is like a big trading market but what are some like immediate tangibles that you guys are seeing either change good or bad that you know the regular layperson may not be aware of I think that the the most interesting thing over the last like few months I mean at least for us as it's interesting to see the ebbs and flows and stable coins no I think it often times shows how particular geographic regions are feeling about crypto and when you see people selling stable coins for Bitcoin or vice versa or even flows between geographical regions it's always like a very particularly interesting piece of information about a global economy that frankly again can't be stopped right like these are things that might only be privy to people at banks who happen to see a subset of wires but if you're running an OTC desk you see these ebbs and flows and frankly I mean most people have been trying to survive by crypto right now like lots of lots of people want to buy crypto over the last few months it's been it's been a very interesting market move and something that you know is always a very important thing to be on the lookout for you just add to at this point right this is a welcomed phenomenon I think most people don't don't realize how big it is it's huge Asia is stable fine land if you look at any OTC desk base in Asia the flow so stable coin I'm a political eighty ninety percent of the total volume if you go to a country like Hong Kong you go to the money changes on the street you can treat either physically you don't have the kind of adoption and any other I mean this real deep adoption like people are using stable coin to fall for the very fundamental purpose of monitoring mobility in Asia and the floors are very institutional so I know anybody who thinks that crypto is to a small emerging market in v.points we it is a shadow banking layer that's already formed deposits interest rates borrowing lending whatnot it's quite it's beginning quite mature and we've got that right one other thing that I think it's low-lying fruit in the crypto space is probably the interest rates yeah you're talking about a space that is when you look at traditional markets interest rates are very governed by central banks many central banks many layers of regulation in crypto space you are talking about a interest rate market that has no governance right not yet at least so you have speculators expect maybe each other and what you have is a huge dislocation in rates you have rates a goal can be a thousand half hundred percent return the kind of rates you only see doing war times in international markets and these rates can stay there for four to three weeks right and people don't even realize what's happening it's insane so you know like like sang said you know that there's there is going to be this period where there's adjustments but because there is no regulation here the interest rate market is a particularly interesting market for all of us yeah I think that is one one market that the institutional traders you know that the retail guys don't see and it's very very low like because a lot of the love it is Chrissie's yeah let's talk about that a little bit because that's definitely something that financial services professionals love right as it's kind of a topic it it's almost a predictor for everything right when you look at an interest rate and there's like a 10 bit change something really bad is happening in the world that needs to be checked like what are we seeing in terms of like a standardized yield or debt products that can be traded freely you can actually swap on in terms of interest rates is that stuff that exists in the market right now so those didn't exist I think that the big thing I've noticed over the last year is just a general increase in competition in the lending market you've seen a lot of you've seen a lot of very sophisticated players come in whereas before frankly a lot of times it was maybe a group of people who owned a particular subset of coins and didn't know what to do with them and you wanted to make some money on it and just kind of put their finger in the air and said maybe I charged this and now there's like a lot more market data out there and it's become a lot more sophisticated a lot more competitive it's been pretty fascinating to watch and frankly it kind of lends itself just the maturity of the space because it's also how you know the traditional finance space works with with the ebbs and flow of funds and who who wants what asset right now and what's the demand for a particular thing so uh it's been it's been unbelievably fascinating to watch and frankly gives you a good indication of like where things are moving in the future just after that I think you know I'm actually a crypto person proud of the perpetual swap product right yeah it's a unique product of the space yeah it's it increases I mean it's it's so innovative right exactly it's become the heart of the quality in the space effectively right it's a pie between spot of a role and a future and it's a product that has centralized a lot of liquidity suckle of the liquidy in the genius product the traditional market doesn't have this product yeah it only exists in crypto and and I think you know these kind of innovations are gonna be coming up more and more and I think it would it would make the crypto asset class a unique X a class among you know as it moves towards being a more mainstream asset class as well right right I think we have time for probably one more comment and let's go back to that point that I was saying like for people that are interested in trading for people that are interested in investing right there's a big problem with crypto for a lot of people because it runs 24 hours right and the blockchain is running all the time stock markets closed it takes a couple of days to clear like everybody go you know have dinner with your family it's like a real thing you can go home on Fridays but you guys you know in being a market making it's even more intense right so that probably changes as the market gets bigger because certain things can get automated etc etc but for people that are in trading right now how would you say to mitigate that if at all possible I would say that if that's a sensitive topic for you then definitely lower your leverage there there are places that are getting that are offering new products I mean besides my own service of FDX with our own leverage tokens I mean like like Darius ed the professional swap does kind of this for you if you lower your leverage here it's a future that kind of redoes itself every day and I think that we're gonna see the market produce this like it's pretty obvious that while crypto is 24/7 that's one of the beautiful things about it people also do need to sleep and I think we're gonna we're gonna see a maturation of a lot of products that allow for such things whether it be hopefully you know I'm hoping that one of the things we're providing is our leverage token product on X Y X that that that gives people that peace of mind or whether it's a structured product that's going to be listed by a particular you know group or a partner with a couple exchanges I think it's it's pretty obviously that's what we're going yeah with this yeah I think I think for the traditional and normal retail investor an active leverage product is asking for trouble yeah even we have difficulty this right I would say you know a couple of things one way is diversify your risk for indexes I think FTX offering some current index product as well or give it to somebody who has already given their life to manage it for you something like us maybe yeah oh you know just do something more passive I think you know leverage is dangerous make sure you control your leverage so I think we times up but to quickly summarize you know all the excellent points that my panel is brought up for us you know the industry it is in a time of change right I think we saw 2016/17 happening but it was almost like a rocket ship you know straight up so you can't even see changed when things are moving back quickly but I think we've gotten to the point where we're getting the pieces in place right to turn it into a real financial asset into an investment asset that we can responsibly invest in and then to the second point I think it'll be important that unless you are doing this professionally and even if you are doing this professionally it's a very drastic place to be if you are over levered so be careful be responsible thank you guys so much and for everyone who's visiting Seoul I hope you have a great rest of your trip thank you thank you thank you thank you thank you all right