Decoding the Institutional Trading Landscape in the Crypto Sphere | KBW2023

[Music] good afternoon welcome to Korea and um my name is aong and I am head of Partnerships at switchboard switchboard is a permissionless and fully customizable Oracle and we offer full Suite of web 3 services from data feeds functions Randomness VF um and so on oracles play a really crucial role in crypto trading by bridging offchain World offchain data into blockchain and very similarly institutional players also Bridge the real world into blockchain and today I'm very thrilled to lead the discussion on how these institutional players are shaping the crypto trading space and we'll kick it off so let's start with round of introductions please let us know more about your company and what you're cating and who you'rea catering to hi there very happy to be here uh everyone is practicing the the Korean um my name is Yan I co-founded winterm in 2017 we've grown to be the the largest essentially spot Market maker in the world uh we do some OTC we do some Investments uh my role is is specifically around overlapping Ventures and and BD so you know come to me if you need Investments or come to me you know if you need a bit bit of help own liquidity cool uh hi very good afternoon say uh my name is CJ I run the sales team for Asia and emia at GSR GSR is function within the marketplace very similar to Winter mutes actually it's uh we're one of the largest altcoin market makers around uh Market making more than 150 projects uh by way of background I used to be from traditional Finance so most of my career was at Morgan Stanley and namura on the trading floor uh besides Market making we look on the OTC space as well as Ventures uh we're a global presence so we've got Guys across the globe uh and I look forward to the panel today thank you uh good afternoon my name is shalang Tang um was the founder and chief investment officer of Ledger Prime um which is a multistrategy hedge fund uh fortunately Ledger Prime was acquired by FTX Alam and so we're no longer existing um but my new firm is called AR Bellos markets uh and we're focused on uh we're a principal trading firm and we're focused on uh bilateral derivatives um and servicing institutions awesome so let's dive in so kicking off how would you guys assess the current crypto Market in more relation to institutional trading and compared to the past how would you say the volumes and scale of the trades have been we'll actually start with Shang and go down this way sure so I I can probably talk about this from maybe a couple of perspective one is um from allocator and and like limited partner LP perspective uh the the top five LPS of Ledger Prime previously for of them either no longer exist anymore or are completely out of crypto so it's it's definitely a lot smaller from institutional perspective at least from the US side um from like an OTC counterparty perspective given kind of the liquidity and volatility of the market these days um definitely less Capital being allocated and less trading um in general but I would say that um there there's a lot of positives right like if you speak to institutions and training Partners now uh what they're generally more focused on are kind of like operational due diligence um infrastructure like institutional infrastructure so we're getting asked a lot more about like tripod repo um sub manage accounts um they want more visibility and more control into the assets which has existed for a long time in traditional assets um and should have existed in crypto it just you know there wasn't the demand and the need necessarily uh but it's the right thing to do right so I think we're we're kind of transitioning to that period um with these institutions within crypto and all that infrastructure is now actually being valued and being built um so that that's kind of what we're seeing on our side I would like to point at him and say what he said uh it sort of makes sense across the board I think there are some nuances that we see which are slightly separate the market was heading in the right direction uh in terms of scale right of growth and and that happened pre FTX what FTX caused unfortunately was almost a reset and the reset was because the ones who got burned the most by the FTX collapse besides Singapore retail was actually the institutional guys the smaller scale ones from a trading point of view it's taken some time to build it up and I think a lot of the focus now has been on taking a step back and saying okay how do we become adults in the space and this is actually what crypto needs right if you talk about institutions you have your Crypt native institutions but you also have a lot of guys on the sideline who we have conversations with Regulators at financial institutions on the street and they're all still looking at the space but they're looking at it as a fishball methodology and the reason why is well yes volumes are lower but it also gives you time now to put in the right infrastructure be it security be it operational and Tech so from our point of view whilst it does seem slightly Doom and Gloom in the current climate with where bitcoin's trading where we see volumes we're very constructive on how we see it moving forward because we put the right pipes in rebuilding it from the B up sort of pushes it in the right direction for us yeah I think we uh I mean the eternal optimist in the in the team here uh so I think it's more of a spring than a than a winter if you're talking about sort of timing in the cycle uh I think we see some institutions I think I think we're taking some uh we seeing institutions still very much building in the space investing there's still a ton of money in these Venture funds that need to be deployed so don't don't forget about this uh and actually the seed rounds and actually a lot of teams hav raised a lot of money per se um I think I think crypto just stays with two very very different crowds I think you keep the crowd that's you know the institutional crowd that actually is is interested in in essentially the top Nam of BTC of things that they can sell into an investment committee and one know once a month and they could basically sell to pensioners and then there's the retail crowd that's probably more the Pepe crowd or the hamster crowd um uh that needs to be mentioned apparently uh and and and it's you know when you think of like the next summer it's basically you know where where's that money going to go um so we we monitoring this but to be honest it's like I mean btc's been ranging for for good reason it's probably probably there's some institutions just buying in if timey tips awesome appreciate that so sounds like what doesn't break us makes us definitely stronger and we're all building and getting ready for the next round um so speaking of changes um do you guys know notice any Trends or differences shifts from your audiences globally so are there any specific region that is more interested in crypto or less cry interested in crypto um this time we'll start we'll start with the middle well thanks for that uh I think we have we have seen a shift right uh and a lot of that shift and we'll probably go into it later on is it's cause regulatory above all else I kind of feel like what we're looking at from a builder's point of view and from a clientele point of view is there is a quite a big shift to the Europe and the Asia regions uh we always talk about the next 1 billion users well hey Asia's got more than a billion uh it's worth playing around over there but what Asia brings and this is something that I'm very constructive on being based out Singapore is Asia is one of the few regions where you have developing and developed but you have countries which are more or less politically stable you have people there who have access to phones the infrastructure is there and so it's a really good testing ground and from a volume point of VI you have people who have always been curious about how it works I think if you want to go down the pathway of the Exotic portion meaning the willingness to do interesting things when it comes to normal UTC trading you're also going to find that within this region so I mean look at the number of people who attending KBW and I'm pretty sure all of you are flying to token next week so Singapore's going to be crowded anyway but it's a sign right and this is where we think there's going to be a very strong area of growth awesome let's go down that's okay I was wondering how you would go about it um yeah it's it's I think let's avoid the US question and then on the on the on on on the point of like there's definitely been a shift towards Asia uh I've you know I'm officially moving to sing pool myself and then just it's just a big signal for as part of the company is it's not necessarily well it's an Agee of more like business opportunities it's it's the nature of like Asia being you know you know the way the way to build business here is is probably more uh more face to face as such uh more IRL um but very much I think it's also a sign that there's there's a bit more builders that we meet over here um to be quite honest there's a lot of activity in Dubai as well uh and there there are a few things that are quite OS syncratic to to our business which is we we're pretty visible and we have enough dealflow of things going on in Europe to need probably less Focus over there so there's a there's an internal bias from from from us very much um but overall we're getting more and more clarity in Hong Kong especially we're getting more and more clarity in Singapore um here here is a very interesting space to to uh so we don't have a business here we we can do we can do Venture Investments uh we can help Korean teams outside of Korea but it's um there there's a ton of potential here as well Japan is quite interesting um so yeah there's there's there's ton going in Asia I would say probably more than the rest of the world these days and I'll just quickly add that like um not really a region but more like I I think post FTX especially we we've kind of seen um a shift towards like decentralized like liquidity venues um as well as kind of like self- custodial venues right so there's a ton of projects these days that are being built uh exchanges like the next generation of exchanges that are kind of self- custodial um and a lot of liquidity has been migrating slowly over time but it has been um to like the ddxs and other kind of like decentralized venues um which you know eventually will come on kind of like Global regulation but for the time being is kind of a um isolated area where you know there's still a lot of innovation um and kind of like speed of uh of kind of ideas that are you know being created thank you guys for that so one thing that we can all agree on that drives the shift of interest from different regions is the regulations so globally and generally speaking do we think that the regulations are headed in the right direction or if not what needs to be um on our attention and this time we'll start with you so uh my my team always kills me when I need to discuss regulation as such but let's let's put it that way so the US landscape is you need to drive on the road but they don't tell you what the sple limit is um and then you sort of discover okay that something is wrong or not so we've we've always been let say historically we've always been quite conservative on the regulatory side um we split the business basically with London with spot basically with wefc registered with the uh local authorities in in London to trade spot and then we basically do uh all the derivatives and Def St on from Singapore so masas is is happy with that as well um that was more that was more a 2021 discussion to be honest it wasn't necessarily sort of anything that would guide you know the last few years and very much recently it's much more to be quite honest about business development opportunities and really regulatory sort of drivers that that drive the move to Asia so like to to spin it into something that's you know much more BD driven than regulatory driven but yeah the more any country that has more clarity I mean I think Hong Kong got a lot of traction through the FCC license and on with hash key and uh was it OSL um I mean Singapore it's been pretty safe place to do business in with with you know reasonable Clarity um so yeah it's always it's always helpful I think I think at the end of the day there's always some form of regulatory Arbitrage if people between you know economies the same way that the tax system works essentially and Chang yeah I'll just add that um to to you know his point um it's not really about like like being allowed like yes or no it's more about the clarity um and then that's what's been lacking in the space um like there can be jurisdictions that are very prohibitive and that's fine but but if you're going to enforce by like if it's regulation by enforcement that that's kind of like and you're going to like look back 3 five seven years that that's the issue right um as a firm or as a business or a project you can't plant your roots firmly and invest a lot comfortably um if you don't know what's going to happen and there's no Clarity um in the next six to 12 months right so I think that's what's kind of been lacking but I do think generally like everything's been going the right direction there's a lot of positively out of Dubai out of Hong Kong um um you know out of you know Singapore um so I think in general it is you know going the right direction um but there there's still a lot of progress to be made I think the way we look at it is uh is we're very constructive when you look at it on a global basis and the reason why is it's very easy for a regulator to come out and say crypto is illegal ban it right but they haven't done that what you have found is Regulators across the world have been trying to navigate and figure out what is the right way to put in place Frameworks and how do you operate Within These Frameworks right now it's almost like a race and the reason why is well Regulators themselves recognize they recognize that we are an economy on ourselves we bring with us everything from jobs GDP growth and because of that the regulator wants to put into place that right framework two years ago Singapore in Asia was probably ahead of the curve Hong Kong's caught up Japan recently are looking at changing their regulations Korea also has current suing currently with regards to the retail markets as well and I think as institutional ERS ourselves where we become and it's very different from traditional Finance where within crypto unfortunately or or fortunately actually how you look at it trading shops like ours market makers we are integral and it is up to us to set the gold standard be it Regulatory and compliance and the right way of doing business so because of that the way we approach it especially within firms such as GSR and how we do it is we engage Regulators we sit down at these round taes with the hkma we sit down talking to the Mas we talk to the guys in Dubai the guys in London and the reason reason why is well they don't claim to know it all anyway they want our input so putting together something like that you kind of feel there is light at the end of the tunnel and yes will there be a situation of whacka mall over the next couple of months for sure but it has you have to see where regulation is now compared to where it was 6 months ago compared to where it was 5 years ago and we are progressively much further ahead and it's only going to get faster from here you feel awesome so a little more on the regulations front I know we've been talking a lot especially about Apec but with the recent new updates on the ETFs do you think that this has a very positive impact or negative impact on the institutional trading um this time did we start with shalang okay shalang um yeah I mean that seems like an easy answer I think it's um you know the recent grayscale news and kind of the consensus that there's inevitability that there is going to be an ETF generally is is very positive right I think um there's a lot of lot of products that could be built on top of that once you approv it happens um it provides a lot more clarity um a lot more guidance um there's a headline just this morning saying that you know the Bitcoin ETF is going to bring $30 trillion do into the space uh so in general it's it's know pretty easy um I think like opinion that it's going to be positive I think uh I mean just to counter that slightly in a way uh we're very good at crypto of seeing Kumbaya packing our backs and saying go one way in terms of pricing action I think what we also have to realize this is though the ETF while it brings about that ability for funds to flow in it also offers exit liquidity on the other side of it and that's actually if you think about part of the r reason why you haven't seen markets get overexcited to Wine we're still pricing it we don't know what it means for years we've had things like gpdc for instance out there and no one had figured out how do you get out of something like that the ETFs represent something like but what it does bring to the table is it brings that for form of institutional acceptance It's a Sign it's a signal right it's the same concept of having a Futures Market yeah maybe the banks won't trade in our spot markets right now but they will be on CME they will be trading venues like that so an ETF is a gateway for them and not only that but it signals to the rest of the market that crypto digit currencies Bitcoin is being taken seriously and because of that it paves the way for the future in that regard yeah I think another way to phrase it is is that if you think of the institutionalization of the space I mean in a good way uh is uh is some people who who get some hate here and there is basically government saxs but they they are a good example in in the space so Goldman saxs essentially institutionalized the commodity space in the '90s and they did two things essentially they did research and they did indexing what's called basically they just put points of reference where fund manager or someone who manages someone else's money can just have can know if they're doing well or or badly uh and essentially all all this trfy money that we trying to transform and uh and and hopefully not turn into uh you know for them you know an ETF is a good point of reference to just say oh this is what we can use as a as a bar this is a standard that we need to achieve um and it's essentially speaking transfire language to just get them to to get new money to get into into into the crypto ecosystem essentially awesome we let's switch gears a little bit we've been talking about a lot of the Bitcoin big stuff but let's talk about defi so we've had defi summer about two years ago it was explosive and since then I would say there's been a very steady growth in defi but from institutional perspective has there been any growth would you say there has been a somewhat of a transition period between centralized exchanges to using more defi based projects or products and we'll start in the middle this time this is a loaded question uh D is interesting uh D5 if you take a step back and let's be theoretical about what it stands for what it's supposed to achieve that's a very positive thing right we're trying literally to one for the matters two transparency three minimize fees but we also have to take a step back and realize a few things one humans are not infallable uh unfortunately the nature of a human is human greed and and that's a bit of an issue the other issue as well for institutions per se is whilst we love what dii can bring to the space and as GSR we've invested in a number of different dii protocols different uh The Exchange side as well and seeing how it can develop we're also cognizant that when we deploy when we run strategies there is more to it than just the transparency the fees structure you have operational risk security risk Tech risk and these are things which need to be addressed for that wave of institutional money to come in do I think that there is a world where this happens in the future yes and the reason why is we speak to so many teams globally on a weekly basis and they get it now the average conversation when you talk to let's say a new deck coming onto the market it's no longer about can we get for instance GSR to trade up a storm on it it's more like a can we get your support because our target market are for instance the worlds they're the crypto native guys who are the more likely to use dexas from day one and that show show to me a growing up an understanding of what's required and yes what we're seeing is some protocols what they've done is they've even created two dexas that are bridge very slightly but one is K kyc AML driven because they understand this is what institutions look out for compared to the rest so I I think this understanding of what drives institutions is going to be important for the next wave for Defi and I kind of feel like a lot more people are getting it than we did back in the defi summer um I think I think let's split defy two between trading and Landing essentially or Landing borrowing and I think in the trading side it's still really not institutionalized I think it's still very much like this sort of falls into the one one and a half% of all crypto users being just you essentially defi users but I was surprised even so it was pre FTX as such I was surprised that so to give you context as winter mute we have X amount of equity and then we borrow from you know foundations we borrow from from o large large institutions and uh and we had this conversation with a Swiss private bank and discovered that they were actually lending to us through uh through a defund protocol and they were pretty happy to do it because they had more control on like when they would receive the money back they could just pull the money whenever they wanted and they would they had more control on collaterals and so on um and so so if you dig a bit you do find that actually institutions are pretty happy to to land through dexas um trading side is just this just really really less the case I think if you want a scale I think if you asked me two years ago I'm pretty sure I said on a similar panel that we'll have 20 permission polls with lots of Institutions there and it's still not the case uh I think I think permission polls are not you know it's not it's not really taking up yet um there are trials around sort of um r related tokens and so on and and protocols but um I think we need a bit more I think we've seen actually more CI reconquering the space with institutions especially for trading and with even more things like to shops like GSR us essentially on OTC and actually growing the percentage of trading that we do OTC actually uh shifting even this away from from centralized exchanges so sadly the answer of uh the point of failure of you know being centralized exchanges hasn't been yet to get people to embrace defi it's been to just you know trusting even more the counterparty and just trying to dig more about who the counterparty was and tring just very much bilaterally yeah I'll just add um completely agree with with both my panels said um it's definitely very much bifurcated um like there's been a huge kind of like buzz and boom in like the rwa world um bringing all that on chain um and that's great but if you look under the hood for a lot of that um behind the scenes it's basically just a series like spvs or um fund structures that have been set up which is great um that's fine that's regulated um but it perhaps doesn't regul like it's it's a first step towards kind of decentralization but there is a lot of benefits in terms of capital efficiency settlement efficienc and and everything else U but then as as you mentioned like on the trading side um I would say like a lot of the DI protocols and infrastructure and exchanges uh reminds me a lot of like the 2016 2018 era currently um on the defi side um there's a dozen like L1 L2 chains out there uh very fragmented liquidity which you know I think from an Institutional perspective it's not something necessarily going to feel comfortable and and touch but from a trading side I think there are a lot of just opportunities as existed back in you know 2017 18 on the you know centralized exchange days um so I think that there is a lot of opportunity but I think from an Institutional perspective we're still a bit away from um kind of kind of a purely defi World awesome so we've talked about the market trends we've talked about regulations we've talked about defi so wrapping up thinking of all of these things do you think analyzing the institutional Market trend is a good tool to make predictions in the future of what the crypto Market will look like um and would that be something helpful to make potential future bets on our next runs and this one yo we'll start with you so can you repeat that for me so the future what we see in CI and defi so wrapping everything overall together analyzing institutional market trends is that going to be a good tool to make predictions for the future yeah I mean so it's I like I like to give people the recipes but not the result what not the final cake essentially not the final not the final cook so um I I I used to for everyone's cont for the ones who who who don't know is I used to trade interest rates and listen to Central Bankers all day which sort of push me away from crypto until 2017 actually because uh I had sadly not read the the Bitcoin uh white paper yet and um essentially the way of thinking the way I think about this it's not necessar the way you win to mute things but essentially I just think of it as like is there new money coming in or new money coming you know money coming out of the system and you essentially need new money coming coming in to get a new summer and where would that money go so depending on who invest on the other side if it's institutions there probably people that you know they need to they have what's called fiduciary duty so they have other people's money to take care of they need to make sure they're investing in and some something they have researched and that's probably the BTC they probably the you know the ethereum of the world and there probably some of the Emerging Markets as such of of you know the Alo space like all the all the avalan salana and so on so all the names that that are sufficiently known and then if you think of the new money coming as more retail like if you think that China is generally reopening in and just going you know Full Tilt full full you know remortgage your house and your grandmother's you know uh house just to just to just to reinvest in you know and then I will be in a probably more in a in a in a Pepe or in some form of meme coin or any any other you know Blank Space sort of um uh you know mem coin as such so so I think I think if you if you have a good way to to see those Trends coming then then I think I think this is more where where the summer will come from awesome Shang um I would say like institutional but I think macro um as has played a huge role previously in the past few years the growth of the space will continue to play a tremendous role like more dollars were pred in that two to threee span US Dollars then in the history of the US dollar and I don't think people necessarily appreciate that um and that's completely gone right and that's not going to happen for again for a very long time so even if we see like regulatory Clarity if you're see you know continued growth institutionalization that amount of just loose Capital um that exists in the system is not the current condition so I think Contin to following the macro Trends is um still a huge huge determinant if you're just looking at from like a purely price action but if you're stepping away from the price action there's you know a ton of things to be like optimistic about right that from kind of you know the brightest bins are still entering the space uh from ccip to like decentralized sequencers to like new Financial Primitives on chain there there's a lot to be excited about um there's a ton of capital that are raised from the Venture side that needs to be deployed um so I'm still very excited about the space um yeah I think he's touched on something which I've been a firm believer of uh I think you need to bate uh this space the web three space you need to bipoc it into price action in the capital markets portion and the growth of the tech honestly speaking the growth of the tech has not slowed down if anything it's getting better and the reason why is 2021 and dare I say this shouldn't have happened the way it did uh 2021 we all got over excited uh if you think 2017 was the day of the white paper well 2021 was a bit like the day of MVPs and I kind of feel like we're growing right and I think whilst institutions coming to this space is great for Price action so to speak I am looking at it more from the space of Institutions are still investing they're still investing in blockchain projects and a lot more projects now are forget the concept of the next 1 billion users let's figure out how to get the next 1,000 users and then add on 1,000 thereafter therein and Asia presents a great breeding ground for that and I think once we've managed to prove that we can use the underlying tech for the mom and pops of Our Generation out there on the street it's much easier then to turn to your web 2 companies to turn to your conglomerates and say see they're using it there is a Marketplace and that's what's going to bring the next wave and that is what we're seeing there is a lot more focus on who are you using and to the Builders out there then the focus should be how do you target what is your niche market and have you actually sized the addressable Market correctly there's no point saying there's three billion gamers in the world that's great but if your game only appeals to 5,000 of them well technically you have not sized it correctly and I think that the people will actually be the ones to drive it more as indicators than actual institutions in this space awesome and our time is up and with ending note I will throw you guys one curve questions will there be another next Bull Run in the next say one to two years quick yes or no in your own opinions and we'll wrap it up yes I'm going to go yes as well yeah awesome so we're all bullish now thank you so much for joining us today [Applause] kamam