E132: Wintermute CEO Solves Crypto’s Biggest Conspiracies

0:00Personally, I think it's not about having a billion dollars. I'm a very leaderboard kind of person. I have a leaderboard in mind where I'm not on top yet. And when I get on top, I basically just shift the leaderboard to include somebody else so that I can have other people to compete. I basically realized I really like winning. What does winning mean exactly? Evgeny Gavoy is the founder and CEO of Wintermute. A top algorithmic trading firm in crypto. He's built a major force behind token launches and daily market liquidity. Who are you? Most of the time I'm CEO. Besides that, I like to do computer games.

0:30How much do you gain? Not that much, but that part is fun. How fun is the CEO part? It's fun because it's... What's your view on money? I'm very low maintenance. I already have way more than enough to just live till the rest of my life. I wouldn't say I'm like grinding now just to get more money because I need to react to what I have. One of the things you guys do is help projects launch their tokens. A typical launch goes like this. Usually protocols would provide a loan to multiple market makers. Those market makers will deposit some parts of this loan to exchanges. Before that, they basically start showing offers and people just start buying.

1:02How can the normal retail know if the token they want to buy has real or fake volume? It kind of depends whether it's DeFi or CeFi. So in centralized exchanges, you just look at the best venues and you see if volume is real or not. You should always assume that Binance would have way bigger volume than it is now. And if there is some weird exchange that raised 10x of Binance volume, then it's almost guaranteed it's a worse trading thing. There's a lot of thought about Wintermute. How do you deal with FUD on a personal level?

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2:43sweet how are you doing Evgeny that's all right good ready first time in the studio or you've done something yeah I've never done something like this no how do you feel I did I usually do podcasts online yeah how do you feel about that how does it look I think it's looks fine I mean it feels pretty natural like I mean I did like a few like recordings for like CNBC or Bloomberg yeah those I didn't enjoy that much but but it's primarily because it's like chat for our audience, so it's like, doesn't feel very like, I don't know, genuine. Also, how does it work? It's like probably very short, right?

3:18It's very short. Yeah. Yeah. That's the big, that's the big difference we're trying to do. That's what we call old media. And then you have like the new media podcast live streams where the idea is the person can just talk and for as long as possible. I think, I think with Johan, we did like two hours 45. It's not going to happen today. He was very inspired. and you had this like absurdly insane like promo video. The trailer. Yeah, I remember I was like, fuck, we're never going to get Evgeny on because he didn't like the trailer. It's too crazy. But it's happening. Beautiful. Finally. Welcome to When Shift Happens.

3:55Thank you. If you had to describe what it is you do and why you do it, but would someone who thinks market making and crypto sounds like monopoly, money, what would you say?

4:09uh no jargon interesting i guess if you're talking about monopoly money yeah i think it would be uh yeah somebody like you know in monopoly other banker who is like hanging and hanging people things and like making sure that the game like works in place i think that's kind of what market neg is doing crypto to a big degree basically making sure that people can buy and sell what they want to buy and sell and making sure everything works properly. Who are you? That's a big question. Elaborate. You can choose however you want to answer. Some people say I'm a dad, some people say I'm a CEO, some people say I'm multiple things.

4:55Yeah, I think it's definitely multiple things. Most of the time, I think it's a CEO. Most of the time it's basically, yeah, very much on the intermute side, but yeah, besides that, like I have circuits, I have a nice home. I like to travel. I like to do all kinds of hobbies, like computer games, Warhammer, like. Interesting. Yeah. There is, there are like other aspects of me. I like, I want to dig deeper in the, in the gamer. How does your game? Not that much, but because I don't have enough time for this. But yeah, I do get some time during the weekends. I still play Dotto with my kids every night, like once or twice a month.

5:42Yeah, that part is fun. I like playing with other people. How fun is the CEO part? uh it's fun because it's i think like my perception of that or like how i get fun for from it changed over the years quite a bit and now i basically realized over the years that i really like well winning i guess and like you can basically see any activity in life as like a game to a big degree and like the aspects that i enjoy quite a lot past like i would say two three years is basically yeah winning this game of being a prop trend firm and basically expanding into all kinds of new areas like we started with yeah very simple arbitrage strategies centralized strategies on centralized exchanges and we expanded identify and basically got to winning positions there, then we expanded the OTC business and got a winning position there.

6:43So it's quite like growing and winning and competing. What does winning mean exactly? Is it, ah, we want to reach a certain target of profit or revenue? We want to be the best, we want to be the most recognized, we want to have the best brand? It's a very good question. Like I think for me, starting with me personally, I think it's not about, like I don't have an absolute target of, I don't know, having a billion dollars or like having this or this like it's all very relative i'm very uh leaderboard kind of person and so i basically continuously see have like a leaderboard in mind where i'm like not on top yet and when i get on top i basically just shift the leaderboard to include somebody else so that i can have other people to i don't know outcompete basically uh it's pretty similar for vintremute like it's to me it's always yeah leaderboard is just like the best example the leaderboard would have a kpi yeah that you want to be better at than other people what is this kpi and that shift as well so it can be like at some point it was just a balance sheet for example now it's uh it can be can be volume it can be proppy now it really really depends um but that being said it's yeah just being on the leaderboard and like it's basically it's not winning using like any methods possible like it's still like limiting yourself and having certain other values which is also quite important i would say equally important to a big degree and like it's always it's always a conflict especially in crypto like it's you can make money easy way or hard way and we more often than not chose like a harder long-term place than like short-term place if you look at professional athletes there is this doping thing right and so at some point you're thinking it's kind of game theory if one starts then the rest has to do it in order to at least even be able to compete is it possible in crypto to win bigly or to be the absolute best by doing everything the right way it really i don't think there is such a thing as like one right way like there are many like really clearly bad things you can do and there are there is like there are things that clearly like are good things and there is like so there are so many things in the middle and the challenge of crypto is like those things in the middle are not like regulated by anyone and if you ask like 10 different crypto people they will have different opinions of whether this is a good sign or a bad sign or a neutral sign.

9:29And so, like, I know what we, like, so for us, I guess, and for me personally, it's about things I don't want to do. And that's pretty clear. And then there are all other things that we could potentially do, for example, because our competitors are doing it anyway, which some people might consider bad, simply because, well, potentially because they don't understand how markets work or they don't think it's fair, for example. If you think about DeFi, for example, people did not enjoy that we, people, like on the Ethereum ecosystem at some point, they did not like that we were so dominant in DeFi trading, so that's unfair.

10:11Like, is it a good thing, is it a bad thing? Like, for me, it's totally fine. For a lot of people, it was like defeating the purpose of, I don't know, decentralization, for example. Dear When Shift Happens Family, the following message is probably the single most important thing you should take away from today's podcast. If you're serious about your crypto investing journey, please take some time to learn how to self-custody your assets to make sure that nobody can take your coins away, ever. If you don't learn how to be your own bank, it is very likely that one day you will lose all your hard-earned crypto.

10:42The safest way to hold your crypto is in a cold storage that we also call hardware wallet. Hardware wallets are not complicated and they give you peace of mind. I personally use a hardware wallet called Treasure. It is open source, very easy to use and the first hardware wallet created ever. As we like to say it in crypto, not your keys, not your coin. You can order your Treasure wallet with a 10 % discount by following the link in the description down below and by using the promo code WSH10. And now back to the episode. You're talking about long-term transparency. where does this philosophy come from to think something that these values right hey i don't want to do the bad things something from home parents good question um i think it's more like a long term i like playing long-term games more than short-term games like it's you're long-term greedy uh what do you call short-term long-term greedy i think you can win way bigger if you play long-term games.

11:43Basically that's the same. Like you can, yeah, you can definitely like, I don't know, max extract something in one year and then go and retire. But basically two aspects of it is, I think you can build something way bigger if you plan for long-term. And if you look at it long-term, you just have to operate in a like good and ethical way. Like sure, we have like still a bunch of pretty scammy people in crypto industries that survived over the years. But most of them ultimately I either retire or I get to jail or something like this. Yeah, so it's I think it's it's just a better way to like achieve more success basically to think one time.

12:23You spent a decade at Optiver before starting Wintermute, so that was not in crypto obviously. What was the moment or insight that made you go from traditional high frequency trading to betting your future on crypto? I think it's basically there was a moment in between where basically when I quit October I actually didn't want to do anything with trading like I was actually I guess I guess the general context is I got into trading I got to October because I read a bunch of like finance fiction books like Liars Parker for example and most of those books have a main character who goes into finance like into trading or investment banking or whatever spends some time there makes a lot of money uh and then gets disillusioned with it and quits because they were like yeah all this money is stupid and like it's all pointless and horrible and i got into finance i got to optua basically too i was like okay a challenge accepted let me try it let me see if i get this illusion and i kind of got disillusioned to a degree but it was not like finance it was not like money it was more i did not enjoy the like high frequency game as it was played back then and still being played currently which is basically just making huge huge infrastructure investments of like tens of millions of dollars into i don't know micro towers and high-speed networks and it just felt like a red phrase it doesn't really add anything and i just didn't enjoy it anymore and so when i quit in january 17 i was basically looking to do pretty much everything about trading and so i applied to a bunch of startups i actually had like a bunch of um i applied i applied even to consulting firms i was like i made it to whatever final round at mckinsey and uh got rejected luckily how do you feel about that rejection if you love to win so much yeah no it was it was kind of mixed because in order to apply to those uh it was a very interesting experience because in order to apply to those consulting jobs uh you basically need to do lots and lots and lots of case studies and you need to build like those perfect answers about yourself like what was your i don't know biggest challenge to put your work before like stuff like that and for most people like those answers are pretty boring so you need to like spice them up and i basically i found like a few examples of like whatever what was my biggest challenge to top to world like when was the times that you failed and basically i like built some fiction on top of it which is pretty much most people do because like you need to tell a good story at some point i caught myself understanding okay i actually like a lot of the fictions that i added on top and i did like spend like hours and hours preparing to like give this perfect answer at some point like you lose track of what you came up with like all this like fiction you came up with and what actually happened in the past um and that was kind of scary to a degree because it's just it's like i know oral basically yeah um so i was not like it sucked that i didn't make it but i also i think that that's what i didn't enjoy i didn't enjoy like lying and well not lying but like making things up like it's like it's not what i enjoy doing and it's hard also to just remember as you said right what did i say okay it still makes sense at some point you say something that doesn't make sense anymore and then you realize oh man like i should just not lie life is easier but that's that's kind of like part of cryptos that i really enjoyed because in threadfi you don't talk about things on like social media like all your employer would be like really mad about you like posting things and yeah crypto twitter is a great thing like you can just yeah post post and post I have a bunch of tweets that we want to talk about because they're too funny I laughed a lot actually preparing this interview you mentioned money before you said right these guys who go into high frequency trading and then make too much money and so on and so forth you made a ton of money the last three years probably you had good money already before with this HFC thing, but then you built Wintermute super successful.

16:48What's your view on money? I think it's also a leaderboard sign for sure. Like I'm very low maintenance in general. Like I don't have like fancy cars or watches like, I mean, I can like buy any game on Steam that I want easily. I can buy any whatever Warhammer set if I want to. I think most money I spent as a family is probably travel these days and everything else is pretty like okay we have a nice house but that's pretty much it so like I already have way more than enough to just live till the rest of my life basically yeah like I wouldn't like I wouldn't say I'm like grinding now just to get more money because I need like 3x of what I have currently was the moment you realized because probably I mean maybe you were not like that but like a younger man let's say early 20s we're thinking that's the thing i need right i want to make this number and i want to retire i want to it's part of like the competition but also like kind of pride ego right was the moment realized it's actually i mean having good money is important but it's actually not as i mean there's other things that are much more important than that uh like i guess it went in stages like i started basically yeah i grew up in russia in 90s and And it was like 90s were pretty interesting time.

18:12Like it was some, it was kind of like crypto in a way, because it was very free time. Like there was a lot of freedom to do what you want to do. But there was a lot of bad stuff happening. Like, well, people lost jobs. The government was like non-functional. Like literally like people getting killed because like they were like gang wars and stuff like that. So it was very free. And there was like a lot of possibility to like make yourself. but you could also die. Like, okay, in crypto, like, there are not so many deaths, I guess, but still, it's like, it's a lot of possibilities to make it, but also a lot of possibilities to get wrecked completely.

18:52And so initially, I think I remember like my goal in life, like in university or something was to make, like, I had this number of 10 ,000 euros per month, and I thought, okay, once I make it, that's like, I probably, yeah, I'm fine. like i'm gonna make it but then yeah when i got optima like i got to that level pretty quickly because of bonus and so i was like at some point i understood okay oh wow i actually got there so and then you i think like most people start upgrading their lifestyle upgrading like how they see money what they want to spend this money on but kind of like both me and my wife like we never like okay we got a bit into art collecting and we like we upgraded our house but we kind of like knew that we're not gonna go like all in and i don't know buy like five mansions uh across the world and cars and everything we just like we never got there so i think the biggest unlock for us about money was just the amount of freedom it gives you as long as you don't keep like as long as your lifestyle doesn't keep like increasing life lifestyle costs don't get increasing because like the best things that money can buy here is just i don't know not worrying about i don't know basic things like if i go and rent a car on vacation like i used to worry about like scratching a car and then at some point okay you buy insurance and you still worry about like maybe you scratch it in the wrong way but like if you make enough you don't really care okay you scratch your car like even if you crash it like and as long as everything's fine with you like you don't really care and this freedom not to worry about things going bad like i know if if you lose your wallet or even the phone like it like freedom of not worrying it's like the best thing that money can buy for most people i think let's get back to market making what is market making if you had to explain it to your mom to my mom i think like the easiest just the same way to explain is how I explain to my mom actually like if you go to some foreign country and uh at least well I think it's still the case like you need to exchange money let's say like you have no cards whatsoever like in Kiev you just have like dollars or pounds and you need to buy I don't know yeah Japanese yen because you go to Japan so you go to currency kiosk and you can exchange dollars for yen or yen for dollars and you see like there is a bid-ask spread basically you can like sell doors for that many yen then you can buy yen for that many dollars and the offer basically like the price for which you can buy yen is like quite a bit higher than the price you can sell uh dollars first again the enforcer um and that's basically the bidusk spread that this kiosk charges and that's how they make money because some people buy some people sell and their whole business is basically making money on the spread because if they do lots of those transactions during the day they basically make the spread sometimes there will be a lot more buyers of this currency than sellers and then they will like this kiosk will need to call their bank and ask for more yen or for more dollars for example um and so that's ultimately what we do but in a very like we don't have a kiosk we don't have a like an office where people can buy bitcoin coming from us, but instead we basically onboard every single cryptocurrency exchange or centralized, decentralized, whatever.

22:27And ultimately we just show bits and offers. The exchanges are the kiosks. Exchanges are kiosks where us and other market makers and really everyone, like you can program a very simple bot yourself and a lot of people actually doing it. Everyone can be a market maker in Syria. It just became a lot more competitive. So you can still make money if you're like really smart if you're Elgosar like fast enough and smart enough. But yeah, it's basically a programmatic way to run those kiosks inside of, well, infinite number of kiosks. And so you're doing that with exchanges, right? In C5, centralized finance, but you're also doing two other things um so we are doing it on centralized exchanges that's basically still the highest volume business for us and like some of it is market making so it's basically providing liquidity so showing those bits and offers so people can buy or sell cryptocurrencies against us some of it is basically arbitrage strategies so for example if a price on binance is above price on coin price on coinbase we basically sell on binance and buying coin the base um and some of it is yeah like basically is also like it's either for liquidity or like taking strategies effectively taking liquidity from the market when there are arbitrage opportunities um another thing we do is DeFi and basically on DeFi there is a pretty big range of things that we are doing like it's quite a bit wider than what we're doing on centralized exchanges so yeah there are things that we use that are exactly like this so like if you look at hyperliquid for example we are doing exactly that because it's a central order book exchange so similarly provides bits and offers programmatically um but then you have for example rfq platforms like uh one inch or uh jupiter um where effectively customers can well customers of those exchanges can request a quote and uh jupiter or one inch will basically show it to a bunch of market participants like solvers and market makers and what's not and basically give a best price to the user um we also trade actively against uh amm pools and that's and that's basically like union swaps of this world where and usually our activities we don't provide liquidity on Uniswap because it's not super capital efficient for us.

24:58But what we do if, for example, binance price goes up, we will basically buy this token on Uniswap pool before anyone else. And so that's a pretty significant part of our activity on DeFi. And finally, we do more niche things like liquidations on Ava, for example, stuff like that. and the third thing we do is otc business and that's basically like the third big activity for us and that's basically where we deal directly with counterparties so we can onboard a big venture fund like our family office or exchange or we can onboard like a foundation we can onboard you we can basically like trade with pretty much everyone uh we do have like minimum size requirements but ultimately it just fits really well into our like general strategy because I don't know if it's a foundation and they want to diversify the treasury like they only have their own token but they want to maybe buy some ethereum or salana or just sell sell it into usdc they can do it with us uh we deal with a lot of hand-in-first individuals who want who want to get access to DeFi and they don't want to deal with wallets, we help them with that as well.

26:13But also things like trading on Robinhood, for example, like we do a pretty significant chunk of Robinhood crypto volume. You tweeted all our activities are very much delta neutral. This means that if we sell on Binance, we will look to buy back at whatever price is best across all liquidity sources available to us. There's a strong focus on something called Delta Neutral Strategies at Wintermute. What does a Delta Neutral Strategy mean? So basically, if you go back to this analogy of this kiosk, like, let's say I'm, I basically sold, well, let's say I bought a bunch of Yen because people are just like really selling Yen all the time.

26:57Now I can sit on those Yen and wait for somebody to buy them back. but then I run the risk of like yeah I'm going down and me losing effectively um and basically trading if you do that yeah but basically directional trading well it's a lot it's effectively like the I guess like okay well let me actually approach it differently like if you as a trader effectively like let's say you just want to like you have a strong opinion about bitcoin or some other cryptocurrency you go on exchange and you basically cross the spread so you buy the offer because you think Bitcoin will go up. And so you start with a small negative, like you start with a very small negative, like loss.

27:41Well, you started with a small loss because it crosses spread. Like you need to go up to start making money. So you suffer a bit in the beginning to make a lot of money in the end, hopefully. And market makers are the way around. So we basically, we get the spread first and our job is like busy not to lose it. So if somebody buys and sells, like if one guy buys and another guy sells, okay, great. We made money. But if, if there are only sellers, we need to find like, we show a bid on Binance and our bid is hit. So basically somebody sold to us, we need to, now we are on Bitcoin. So now we can sit on it and hope it goes up and maybe somebody buys it from us at a high price.

28:28Or we can try what's basically called hedging. For example, if we see that there is another bid on, let's say, in red Bitcoin on Uniswap, which is higher than the price that we bought on Binance, we'll sell this bid. And that would make us delta neutral because there is no risk anymore. And this concept of being delta neutral, it basically, like idea of hedging, basically, it does cost you money, usually, like hedging is not free. But it does remove a lot of risk from your activity. So it basically means that you're not sitting on hundreds of millions of Bitcoin exposure. you usually sit on as a market making space you usually sit maybe like a few million at any given moment of different cryptocurrencies maybe more like really depends of like your risk tolerance but the idea is because like your your goal as a market maker is just to do a lot of those small trades during the day and to keep your exposure to the minimum because yeah that's that's literally your job and that's that's how you program the algorithms and the reason i'm asking that is because there's people who think that you guys manipulate price prices crash the prices to get people liquidated but that's actually not your core business at all right because you are doing all these delta initial strategies so it's a completely different concept that people don't understand and with i mean people i would say like the what you call uninformed flow or retarded retail that's mean that maybe was a bit too harsh but um i will talk about that It's too funny.

30:10It's too funny. I think, yeah, it's for those people, it's basically fundamental misunderstanding of how business or like ours work. And it's on multiple levels. Like on one level, ask, crash, and it's basically, especially short in things, and I said in my Twitter thread, it's like, it's very dangerous thing to do because if you sell something, okay, the best you can make is 100 % on it. because like it can go to zero, like it can go negative, but your losses are virtually unlimited. Okay, Bitcoin is not going to double in price tomorrow, but people are usually curious and asked for dumping some shit coins.

30:53Those shit coins can 10x in a day just like that. They can 100x in a day just like that. So you have, I don't know, you can make x and you could lose 100x and that's a pretty crazy risk exposure um and like the liquidity in those tokens is usually pretty low so it's it's a very risky thing to play that's i guess like one thing another aspect of it is we are actually basically retail on the phone flow is the best flow we can get you can get as a market maker you and that's also how like a lot of exchanges make most of the money as well from retail flow so the idea is that and like some of the conspiracy theories is that us basically conspiring with exchanges to destroy retail it's a very it would be a very short-sighted strategy for us both for us and for exchanges because it's literally the best flow we can get um ultimately there is a pretty big misconception it's a market makers against retail but in reality it's actually market makers against what we call informed flow so it's against like basically it's one type of sophisticated uh parties against another type of sophisticated parties like our real like i would say enemies but like i really like people who we are really compete in a way uh besides other market makers are basically people who have strong views they can move the market like it can be some liquid funds that decides to buy some altcoins that doesn't trade much and basically they start like for example they can they start buying our offer and they buy another offer and then buy another offer and suddenly we are short and we need to hatch somewhere but the price goes against us and we hate those guys because they move the market against us like not in a manipulative way they they just want to get position but we basically get run over and that's kind of a yeah challenging part about being a market maker because yeah you love retail flow but you really don't like the sophisticated informed flow yeah just on on that topic of uh informed flow it's possible that this trade will make some of you trenches worry or change your mind about what winter mute and lots of other less public prop trading firms do but my hopes are pretty low.

33:15Reality is so many people are retarded and prop trading firms make the best margins on what we charitably call uninformed flow. I should therefore not complain that much. So basically you're saying, Hey guys, our, we make, I mean, everyone is making money on uninformed flow. Therefore we don't have any incentive to destroy them and that they don't come back. Right. Pretty much doesn't make sense. It doesn't make business sense. And ultimately that's what happened to the last few months, because basically I think people entered like post-Trump election people went levered long a lot and then there had a series of crashes with I think a lot of people were exiting on primarily like on sophisticated side of things and like so much retail got liquidated that the volumes we see now significantly lower than in January for example and which lowers your revenue by fast off like you said two or three right it's basically like if the volume is i know 50 of what it was for example our revenues will be i don't know 10 or 20 of what it was like it's significantly a big impact it's not one-to-one relationship for sure because like the more people trade like the like the more informed flows there is like the better for us and what happens in this bear market is this flow is like more likely to be like a market moving.

34:43So like we are much more likely to be run over for the, by the price moves. When these prices crashes, like people look for scapegoats, obviously, it's always the case. They don't blame themselves. And there's this, uh, people who say, Hey, we can see your on-chain activity. You're sending, you're sending coins to Binance. And you're saying basically, Hey, this is just part of our Delta Ninja strategy. strategy I mean literally what happens is actually like I haven't checked like those particular chain ones because people it's kind of annoying like if one of those people here is me like please don't do snapshots please like show I don't know soul scan links or other scan links like do the link so that I can actually respond I don't know like type over those things it's like it's really and nobody can actually like click on those either from those people who read it like it's I can disprove things much easier by following the transactions.

35:36It's just really annoying. But most of the time, pretty much always what happens is price on Binance is, let's say, probably somebody is selling on Binance, let's say Solana. Somebody sells Solana in size on Binance because that's the most liquid venue. We buy Solana on Binance. Now we have a lot of Solana. We need to sell Solana, for example, on Coinbase because that's where we hedge or maybe on jupiter or something like then what we do we effectively yeah send the solana to coinbase and that's where like this big misinterpretation of our activity goes because we effectively sell usdc from coinbase to binance and we send solana from binance to coinbase which is just a very natural arbitrage way of doing things um but yeah somehow

36:32very very basic from this very very basic activity some people made up this very weird conspiracy theory that i honestly don't even understand how it works like binance giving us coins for free so we can like sell them somewhere and so that people get liquidated it's it's very yeah i mean i really want to use our word a lot in this because it's It's basically like our answer to Flatter's theory, I guess, like the crypto Twitter answer to Flatter's theory because it's like the same level of stupidity. One of the things you guys do also is help projects launch their tokens. Take me inside the engine room, what actually happens when Wintermute provides equity to a token on a launch day.

37:19Because that's also, you have these crazy pumps on Binance, for example. So I want people to understand better what happens so because there's also a lot of i would say third door people who are critical on what are these exchanges doing what are these market makers doing um i mean like a typical launch goes like this basically usually protocols would uh provide a loan to multiple market makes it's usually multiple it's very rare it's just one uh those market makers will deposit like some parts of this loan to a bunch of exchanges that are listed in this token not not the whole loan because quite often what happens like quite a few exchanges actually it's there is a delay between talking launch and when they allow for withdrawals to be open which yeah I can cover it a bit later but ultimately so we'll start we deposit those tokens on let's say Binance uh Binance is in charge with us saying okay like this thing is going to launch I don't know 1 pm and before that we basically start showing bits and offers uh so that people can they usually start pretty wide because it's really like we can make predictions where the price should be and like in our case we look at protocols that are similar or like if it's i don't know if it's an l2 we compare it to other l2s we compare we try to do like as much comparative analysis as possible uh we look at the previous funding rounds we look at basically bunch of different things that can tell us where the token should see the trading but ultimately we don't know and the challenge is if we like once we start providing liquidity people will start buying and selling um if we show really wide prices we might make some money because we buy and sell but if we are wrong and this estimation will again get run over like if a single protocol is worth one billion but it's worth 5 billion will show they'll start showing offers which at like i don't know 1.1 billion or something implied variation and people just start buying and then we start showing offers at i don't know one and a half billion and people still buy and then we just get run over so you really need to do your homework really well trying to anticipate where the public will or like informed people will price the token and that's usually the usually the most challenging bit.

39:44Nowadays it's a bit easier than like two, three years ago because there are, for example, pre-launch markets which are fairly efficient. So we can, a lot of times we can basically anchor on that. And then at some point basically token get launched on, I don't know, two or three exchanges and we can stop thinking, okay, where this token should theoretically be trading. We can just start pricing those tokens from those two or three venues and it becomes much much easier afterwards and basically our spreads go tighter because there is way less risk for us because we can actually start hedging those tokens somewhere else but it still can be pretty inefficient because yeah like i said before like a lot of exchanges they don't allow withdrawals until i don't know half a day or sometimes a day after the listing happens so and on those exchanges the stocking would typically trade higher because we basically cannot, yeah, we cannot like sell too much.

40:43So it's like there are a lot of inefficiencies just because of that. You mentioned most of the time it's not only one market maker, there's multiple ones. Do you guys talk to each other for this kind of price discovery process and target price? Or it's everyone does their own diligence and kind of price discovery process. and then the average of that is going to be what's being shown as a price and ultimately as a FDV, right, on the exchange. It's a very game theoretical thing. There is generally no, I would say for us at least, there is no incentive talking to other market makers because if you tell them, okay, we think this thing is priced at$1 billion, then we tell them like a very important piece of information that they might like they might have a different opinion or like they might think okay maybe they thought it should be priced at five but now 2001 maybe they're on maybe we are on like they get free information from us like there is nothing for us so there is this aspect of it then i think it's also yeah i think it's it's basically like we are in competition uh we want them to have as little information as possible we like we would love to know what their theoretical price is but yeah i guess we'll we'll see it when they start providing liquidity themselves it was a big it's a bit better now but there was a big uh theme over the last year this low float high fdv token and token launches and i had a lot of people on this podcast and I had a lot of obviously all of them invest early or run some of the biggest VCs and I had an example of for example Athena right the Athena launch where some of the early investors were telling me ah we know tomorrow is on the launch at whatever 10 or 11 billion it makes no sense and they were telling me i'm happy but it makes no sense how is it possible that the protocol launches at whatever an amount that doesn't make sense if there is this price discovery that should kind of make sense like the big yeah i mean those kind of launches are always a challenge for market makers because yeah like there is a saying that market can stay rational like way longer that you can stay solvent.

43:13And that's definitely a case like if you're a small market maker and you have like, let's say, you have a loan of Acino tokens from your market making agreements. And it's priced like, let's say, I mean, like I don't like using Acino because we're also investors, so we actually like it. But let's say there is a new L1 that's being launched. And let's say it's being launched and it's priced at 100 billion valuation, which would put it into pretty top positions on CoinGecko, to say the least. Let's say there is no activity whatsoever on this L1. There is no value there. There is nothing. The ecosystem doesn't exist.

43:55Maybe there is a charismatic nice founder and something, and that's it. um like as a market maker okay you can sell this 100 billion like you have a loan like you can theoretically go short like you can basically sell some at 100 billion and hope that the market will adjust and it will go to I don't know 10 or 5 or 1 where you think it should be but yeah like if it's 100 billion it's kind of like more safe I guess because like it's more likely to go down And if anything, you basically, like, it's probably like the most, one of the most controversial things in general in crypto about this, because people, like a lot of people think that market makers selling at prices that just don't make sense is a like way of market manipulation.

44:43um i very much disagree with this notion primarily because like when we like if something is listed at a really stupid price it's pretty much like yeah us selling or somebody else selling at this price and because like we we have such such a big like impact like price should go down because of that um we are making money on that if we are right like if it should be worth five not hundred it uh but also retail investors not buying at those prices they don't lose money as a result like okay those people who bought at 100 billion they lose money but honestly it's on them like they should also make this comparative analysis and think okay like this thing should not be worth 100 billion um but it's it's very controversial because people like a lot of people think that it's like I don't know GameStop it should trade well like it should just go up if you wanted to go up like there are no I don't there are no rules there it's like it can be one trillion for what for what that matters like you should not like evil market maker you should not interfere um and yeah it's that that's why it's controversial because people saying that we should not take positions when we can take positions I can can go as a way around like maybe this like there is a new one and again with charismatic founder but at least at 10 million valuation which is like super low we're going to be doing as we're on then then we're going to be buying it because like for us it's like yeah it's just a good positional back to buying it so and a lot of market makers will go through this process of thinking okay like is it priced do we think it's priced too low or is it priced too high and that would be one of the very very few points in market maker life where we actually do take directional exposure because we because some like we are the only market participant who can quite often because especially when those things get listed because not not too many people are looking into it yet especially on the like short inside like not so many people can sell those things yet so you would short something that you think is worth way too much and you buy something something that you think is not uh worth enough basically yeah and yes and as i generally think it's like a lot of people would i think would disagree with me saying it's like it's an evil thing to do because you're crushing the prices i genuinely genuinely think it's a good thing to do because we make markets more efficient because the prices go to the more like natural equilibrium state I worked with some projects a few years ago actually 2020-21.

47:30I mean we're just early investors and the founders, it was the first time building a protocol and launching a token and they came to us and they said oh we're launching our token on these different exchanges and we're talking to the market maker and the market maker asked us if we want if we wanted a 30x a 40x or a 50x at launch and they were very surprised and we were like what the this is crazy is this normal i mean i guess it's normal in certain parts of the world like it's i mean that's something we would never like the best we can say to somebody like if somebody comes to us and they say like yeah what can you do like okay we cannot do anything but the thing the range of this token should be trading is probably like between this and this and this will be pretty wide range like we are not going to sell the token if i think it's like 10 overpriced like we are only going to step in if it's i don't know five or five x overpriced or something like because it's risky right like it's if something is let's say we go back to this like if it's 100 billion it's like an obvious sell but what if it's like 2 billion maybe it's still too high but if you sell it to be and it can easily go to 10 billion the same day and then then we lose 5x that's not nice um so at some point we will take those positions sometimes the risk return is just not adequate for us to take position so 100 billion is a good sell 2 billion if you think it's one worth 1 billion maybe not because it's like it can still be super risky and yeah markets can stay irrational for way longer um but that's the best feedback we can give to people and they can kind of infer where we will be pricing i guess uh from that but that's that's pretty much it but like we if somebody comes to us and say guys can you price at 30x and we're saying it's ridiculous we're gonna tell them no because we think it's ridiculous like because Because what happens then is if you price it at 30x and we think it's, well, if 30x is like this 100 billion example, somebody can sell against us.

49:44So we're basically going to be buying at 100 billion if people start selling and we'll end up being loan something at 100 billion, which makes no sense for us. Like we'll actually be losing money on this. And that's another aspect of why it's important for us to correct the price downwards in this example because if we let's say we let's say it's at least 200 billion and we show bits and offers there and somebody just starts selling to us we're gonna we're gonna end up being loaned the stock and at really ridiculous relation which we really don't want to so and as a market maker we actually have contractual obligations to effectively show bits and offers continuously like that's literally why we got the loan but not to well we want to make money but we get this loan for a reason we get this loan because we're providing liquidity to the market and if we price it at whatever price it got listed and this price is ridiculous we get can get over on one way or another which is just yeah losing money for us that makes sense