Lifting the Lid on Liquidity - TOKEN2049 Singapore 2023

how you all doing today see if you saw heads out there from last night yeah a little bit a little bit of nodding in the crown it's a long week people take take your time okay so the topic of today is lifting the lid on liquidity so at oros um for those of you that don't know who we are we're a market maker and high frequency trading firm in crypto and we've we found that liquidity is the number one reason why good projects tend to fail so people tend to focus on team and and culture and technology and go to market strategy and all those things are great but if you don't have a bona fide concise liquidity strategy for your token then you are doomed to failure before we get into it um just a bit of background on myself I started my career at a company called optiva which is a large high frequency trading firm based in Amsterdam with offices around the world spent spent time trading uh derivatives spot uh FX uh found found myself then um about halfway through my career on the buy side so I worked for a couple of hedge funds in New York uh first New York and Hudson Bay and what I found was I found a new appreciation for the difference between good liquidity and bad liquidity so coming as a liquidity provider I was I was I was on the maker side of a lot of these transactions moving to the take a side in my three or four years in New York I went from using about 12 market makers for my trades to using just two there were only two people on the street that I thought could offer the the consistency of liquidity and the and the the spread and the depth and and we're gonna stand by their their quotes at all times um um fast forward I went to I joined kinetic which is a crypto firm in Hong Kong in 2017 and then co-founded oros in uh January of 2019. a little a few little facts about about our firm um fast forward to today we've transacted two trillion dollars of notional value across spot Futures perpetuals uh options and Exotics we consistently rank in the top five of all market makers across all major uh centralized exchanges and we account for between three and four percent of uh Global crypto volume um just just rewinding back to back to a few of the Milestones of the firm as I mentioned founded founded in 2019 there were six of us there uh with a with a focus predominantly on uh high frequency trading and then fully systematic transacting um we've we reached one billion dollars for the first time in a Day in 2020 and just to put that in perspective we were trading several times that every day by 2021 so we saw an exponential growth in our in our transactions our revenues and our head count throughout 2020 and 2021 around this time uh I'd been speaking to a number of folks in uh in the industry and they were fairly underwhelmed uh by some of some of the service quality of some of the token market-making providers in the space we kind of got together at the firm and we thought we could we could leverage the technology and the experience at our firm to provide a better level of service uh to token projects so in 2022 we established our strategic Market making business and fast forward to today we we served dozens of different uh token projects with more coming on every week every month and the head count of the firm is now between 60 and 65 with a lot of that growth coming in that strategic market-making business now before we dive into all the meat if there's one thing that I want you all to remember to kind of come out of this with it's that liquidity can make or break your project going back to what I mentioned at the beginning you know a lot of people focus on the team and the and the technology and the go to market strategy and all of these things are important but if you don't have a clear and concise liquidity strategy for your token then your chances of success are significantly diminished so when we when we're before we before we talk about liquidity just just in general token the token economy is a little different to say equities right inequities um and and traditional asset classes you tend not to have too much of a reflexive uh relationship you have fundamentals that then tend to drive asset prices um there's a little bit in Reverse but but not too much it's typically a one-way street from fundamentals to asset prices crypto is a little bit different the in a token economy the token itself and the health of that token is fundamental to the value of the ecosystem so you get this reflexive environment where if you have a healthy secondary market for the token you get more adoption in the ecosystem which leads to a further increase in liquidity in the secondary market and so on and and the opposite of that is when you have a dearth of liquidity it drives people away from the economy which creates a further dearth and liquidity and and you know the the Doom cycle down to zero um a good liquidity can protect Market Market participants as well so what you want to see out of a liquidity provider is um continued liquidity in Good Times in bad in up markets in down markets and what that leads to is is increased confidence and and it will attract long-term kind of sticky users and capital and that's that's what you want that's what you can build on as a as an ecosystem and as a token project you need to build and leverage on the sticky Capital that comes in because fast Capital if it's fast to come in will be fast to leave as well so how do we Define plotting quite good liquidity so there's three metrics that we use they're fairly well well discussed but but not particularly well understood so they're spread there's depth and there's up time so what we mean by spread is the difference between the the best bid and the best ask in the market what you want to see in uh in in any secondary trading market and especially in crypto you want to see a consistently tight spread so if you want to transact if a if a if an investor or a user or or somebody entering the ecosystem wants to transact you want a tight spread you want to be able to transact with minimal slippage depth is is how you kind of measure the amount of slippage for a large order in the market so let's say I wanted to transact fifty dollars the spread might be very tight but let's say I wanted to transact fifty thousand dollars the spread is going to be a lot a lot wider it's what you when you when you look at um decentralized exchanges it's it's essentially an algorithmic formula that determines the slippage based on the tvl in a pool in um that's for decentralized exchanges for centralized exchanges it's the the job of the market maker to provide that depth and ensure that slippage is minimized for large large quantity of orders and then uptime is kind of a reliability metric how long uh how much of the time uh is the market maker there providing a tight spread and deep liquidity it's all well and good if um if times are good volatility is low and the ma if the market maker says okay now I'm gonna go in but that's not much good if when the market gets super busy um volatility increases if the market maker then pulls away so uptime is kind of a reliability metric for spread and depth in terms of in terms of um what we see as kind of the Three core pillars of of what we Define as ethical Market making so number one is accountability and transparency accountability what we mean by that is and a liquidity provider shouldn't just be there when it's convenient for them a liquidity brighter needs to be there at all times through through you know volatile markets quiet markets up markets down markets and and that needs to be enforced via contract um one of the one of the reasons we got into the space in 2022 was because we'd been told by a lot of our uh partners and in and portfolio companies that the market makers that they use the incumbents in the space we're using a quote unquote best Endeavors model where they would provide targets for projects but where those targets weren't contractual where there was nothing binding or obligating that market maker to provide that so what tends to happen is it's there when it's convenient but when it's not convenient the market Maker's not there anymore so that is accountability uh we think that that's a key key tenant of good Market making is it should be contractual and there should be accountability um to the market maker and and remedies for the project if the market maker fails to deliver transparency is fairly self-explanatory daily or weekly reporting constant communication the market the liquidity provider needs to be the eyes and ears for a token project and for for an ecosystem they're the ones you know with their with their ear to the ground in the secondary Market they know what's going on they should be in constant communication so that token projects and Foundations can make wise decisions when it comes to their liquidity strategy uh the second Point focus on best-in-class liquidity so what I mean by that there's a lot of little uh tricks and gimmicks that some market makers use they say I will help you with listings we'll help you with getting investors will help build your your telegram Community that's all well and good and and most market makers can help with that I think what when you are selecting a liquidity provider the first thing you should look for is who is going to give me best-in-class liquidity everything else is a nice to have but the Best in Class liquidity is a must-have and that is something that that a token project needs to focus on first and foremost and lastly here long-term Partnerships not short-term transactions so what we mean by that is a a liquidity provider needs to be engaged and obligated to a token project for a long term period not just for a month or two months or for a period of time that it is convenient but token projects ought to be looking for long-term Partnerships with their Market maker and then obligating that liquidity provider to delivering a base level of service for the entire period of the mandate so that's what we think the the landscape kind of looks like now and where we where we think people should be should be focused on now in terms of looking towards the future as a as a market leader um we kind of see our role as as three-pronged here number one our our first and primary motivation is to put our customers and all of our partners first we are looking to uh Drive project success Drive their sustainability through our role as a liquidity provider and helping enhance that um that flywheel of adoption liquidity adoption liquidity uh the second the second is more as an as an industry kind of participant this is a nascent industry there are there have been a lot of Bad actors there still remain a lot of Bad actors what we want to do is raise the bar we want to raise the bar on performance we want to educate uh the industry on what what is good Market making what is good liquidity provision what should people look out for and what should people run away from uh that's number two and number three advocating for for legit legitimacy and adoption this is really in a sense a nascent industry the way that the participants succeed is not necessarily by by winning market share from other people the way that we're all going to win is by growing the pie right we can all keep our market share the same but if the pie Grows by an order of magnitude then everybody wins so what we've what we at oros we're very focused we are focused on winning market share but we're we're probably more focused on driving adoption advocating for kind of legitimacy um of digital assets and stewarding the industry to to a better and more sustained attainable future just in wrapping up um our mission at oros is to connect digital markets to Global liquidity and and the way that we do that is we we try to be transparent we try to focus on the product and on the deliverables and when we focus on building long-term sustainable relationships with our partners I can see a few of our team out here um they're all wearing loros t-shirts uh so if you if you want to speak to to us or if you want to speak to one of the team this week come come and find us we're around all week um good luck enjoy enjoy the week everyone and enjoy the Formula One for those people that are staying thanks