Evgeny Gaevoy: Wintermute’s unique liquidity model drives market making, retail investors struggle with late entries, and the rise of derivatives enhances institutional safety

Key takeaways

• Wintermute’s business model is distinct due to its comprehensive liquidity services across various platforms.
• Successful market making now requires integrating multiple strategies and signals.
• Altcoins underperformed last year, with most trading activity focused on Bitcoin and Ethereum.
• Retail investors often miss early gains that venture capitalists capitalize on.
• A flight to quality is expected, with investors favoring stable assets like Bitcoin and Ethereum.
• The influx of digital asset treasury has diluted the market, affecting asset valuation.
• The market may take time to regain excitement about non-major crypto.
• The growth of derivatives, especially options, is maturing markets and making them safer for institutions.
• Retail traders in crypto prefer perpetual contracts over options.
• There is a higher sophistication in derivatives trading in the West compared to Asia.
• Increased interest in commodities and equity perpetuals, especially in tech stocks, is anticipated.
• Insider trading poses challenges for market makers in providing liquidity in prediction markets.
• Tokenized equities present unique challenges due to trading outside traditional market hours.
• Weekend trading can lead to liquidity issues and increased risk due to information asymmetry.
• Crypto markets have been range-bound, affecting Bitcoin’s perception as a volatile asset.

Guest intro

Evgeny Gaevoy is the Founder and CEO of Wintermute, a global algorithmic trading firm and leading liquidity provider for digital assets. Prior to founding Wintermute in 2017, he built and led Optiver’s European ETF trading desk. Wintermute now provides liquidity across over 60 centralized and decentralized exchanges for more than 250 crypto assets.

Wintermute’s unique business model

• “Our business model differentiates us from competitors by providing comprehensive liquidity services across various platforms.” – Evgeny Gaevoy
• Wintermute integrates multiple strategies and signals for successful market making.
• “In order to run successful market making strategies you need to well run a bunch of strategies all inside it.” – Evgeny Gaevoy
• The firm is the only crypto trade firm that does everything in the space.
• “Those three core like parts of the business is what really differentiates us from competition.” – Evgeny Gaevoy
• Understanding liquidity provision is crucial for navigating the competitive landscape.
• The business model highlights a unique aspect that sets Wintermute apart.
• Wintermute’s approach is crucial for its success in a competitive market.

Market trends and retail investor challenges

• Altcoins did not perform well last year, with trading activity concentrated in Bitcoin and Ethereum.
• “Everything that happened last year in crypto…alts did not have a good year.” – Evgeny Gaevoy
• Retail investors often enter tokens too late, missing out on early gains.
• “Retail side of things…getting into tokens at a much later stage.” – Evgeny Gaevoy
• Venture capitalists capitalize on early-stage investments, leaving little for retail.
• The market is likely to continue seeing a flight to quality.
• “People just decided to park their money either in stable coin or bitcoin or ethereum.” – Evgeny Gaevoy
• Understanding market dynamics is crucial for navigating investment opportunities.

Impact of digital asset treasury and market dilution

• The influx of digital asset treasury has diluted the market.
• “Digital asset treasury is definitely also contributed to like this…space being like too diluted.” – Evgeny Gaevoy
• Many assets are trading below their net asset value.
• “A lot of them are trading basically way below net asset value which is only natural.” – Evgeny Gaevoy
• It will take time for the market to regain excitement about non-major crypto.
• “It will take quite some time for the market to get back to…excited about those dots.” – Evgeny Gaevoy
• Understanding the impact of investment vehicles is crucial for market analysis.
• Market dilution affects asset pricing and investor sentiment.

Growth of derivatives and institutional safety

• The growth of derivatives, particularly options, is maturing markets.
• “We also saw a big explosion in derivatives in particular options.” – Evgeny Gaevoy
• Derivatives make markets safer for institutions to participate.
• “It creates more mature markets it makes things safer for institutions to come in.” – Evgeny Gaevoy
• There will be continued interest in trading options and enhancing yield parameters.
• “People continuing expressing interest in trading options and enhancing yield parameters.” – Evgeny Gaevoy
• Retail traders in crypto prefer perpetual contracts over options.
• “It’s still perpetual so it’ll be the product of choice for retail and crypto.” – Evgeny Gaevoy

Regional differences in derivatives trading

• The sophistication of derivatives trading is higher in the West compared to Asia.
• “In Asia it’s primarily focused on basically your generation while in the West it’s a lot more complex.” – Evgeny Gaevoy
• Understanding regional differences is important for global trading dynamics.
• Increased interest in commodities and equity perpetuals is anticipated.
• “There’s gonna be a lot more interest on those primarily because it can just get leveraged that way.” – Evgeny Gaevoy
• More competitors are expected to emerge in the prediction markets space.
• “We will see a lot of other sort of like smaller competitors popping up more and more.” – Evgeny Gaevoy
• Awareness of geographical differences is crucial for market analysis.

Challenges in prediction markets

• Insider trading creates an unfair advantage in prediction markets.
• “As a market maker it’s basically very challenging…insider can trade even more and make even more money.” – Evgeny Gaevoy
• Providing liquidity in markets with potential insider information is risky.
• “We definitely would be a lot more careful providing liquidity on markets with high chance of insider information.” – Evgeny Gaevoy
• Understanding the dynamics of prediction markets is crucial for market makers.
• Market makers face risks in environments where insider information can skew fairness.
• Careful consideration is required for providing liquidity in such markets.
• Awareness of insider trading implications is important for market integrity.

Tokenized equities and trading challenges

• Tokenized equities can be traded outside traditional market hours.
• “The biggest challenge was…equity related on chain is basically trained when the key market is not open.” – Evgeny Gaevoy
• Market movements can be influenced by news events during weekends.
• “A lot of news typically are now happening over the weekend…those things tend to move the markets.” – Evgeny Gaevoy
• Understanding operational differences is crucial for trading tokenized equities.
• Trading outside standard market hours presents unique challenges.
• News events can significantly impact market behavior for tokenized assets.
• Awareness of trading dynamics is important for strategic planning.

Weekend trading and liquidity risks

• Weekend trading can lead to liquidity issues and increased risk.
• “I wouldn’t expect there to be a lot of liquidity during the weekend in those tickers.” – Evgeny Gaevoy
• Information asymmetry can be exploited during weekend trading.
• “You have asymmetry of information that you can get exploited.” – Evgeny Gaevoy
• Traders should be cautious with leveraged positions during weekends.
• “I would be very careful positioning myself over the weekend not to be too well leveraged.” – Evgeny Gaevoy
• Understanding weekend trading dynamics is crucial for risk management.
• Liquidity issues and information asymmetry are key concerns for traders.

Current market dynamics and gold investment

• Crypto has been range-bound, affecting Bitcoin’s perception as a volatile asset.
• “Crypto has been very range bound…it just doesn’t look like a volatile asset anymore.” – Evgeny Gaevoy
• The demand for gold is driven by retail and sovereign governments.
• “It’s been driven by strong demand from retail…sovereign governments selling treasuries to buy gold.” – Evgeny Gaevoy
• The current surge in gold prices seems detached from fundamentals.
• “Gold going up seems to be completely detached from any sort of fundamentals.” – Evgeny Gaevoy
• Selling covered calls on gold can generate extra yield.
• “People looking to sell covered calls on gold…if gold goes up another $500 I will definitely sell.” – Evgeny Gaevoy

Prediction markets and tokenized credit

• The availability of prediction markets has increased access for traders.
• “Now we have a lot more instruments on prediction markets to bet on outcomes or hedge.” – Evgeny Gaevoy
• More experimentation in the tokenized credit space is expected.
• “I wouldn’t be surprised if you see more experimentation from web two space trickling down into crypto.” – Evgeny Gaevoy
• Understanding prediction markets’ role is crucial for financial trading.
• Increased access influences trading strategies and market dynamics.
• Tokenized credit represents a potential growth area in the crypto market.
• Awareness of market accessibility is important for strategic planning.

Crypto market recovery and regulatory landscape

• The crypto bear market is unlikely to last too long.
• “I don’t think that the crypto bear market will last too long…optimistic it will start to recapture mindshare.” – Evgeny Gaevoy
• The main catalyst for ending the bear market will be a shift in mindshare.
• “It’s honestly all about mindshare…people will switch back and say enough is enough.” – Evgeny Gaevoy
• The regulatory landscape for crypto could change drastically with the next presidential election.
• “If this admin changes…not having this framework to back you up can be potentially devastating.” – Evgeny Gaevoy
• New protocols like x402 can enhance the role of stablecoins in the digital economy.
• “It’s definitely like a pretty interesting development…importance of stablecoins in the digital economy.” – Evgeny Gaevoy