Thanks to Bincentive for having us!
So I’m gonna talk a few things today,
and I’m gonna start by talking about a study that we recently released
Okay, I’m not gonna start with that, I’ll start by talking about me apparently
So, my name is Sam. I graduated from MIT in 2014.
After that I went to Jane Street Capital where I was a quantitative trader
for about 3 years.
I left in 2017 to found Alameda Research.
I called up Gary, who was a college’s friend of mine, and was bored of hell at Google.
He was glad for the opportunity to try something else.
Started up in a Berkeley three-bedroom apartment with the downstairs, there’s a office
and quickly had too many cardboard boxes and monitors actually be able to operate.
So eventually grew out of it.
Alameda Research today is a quantitative trading firm in crypto.
We trade, you know, a bit of a billion a day.
Obviously that number goes up and down with market volumes and volatility.
Split across bunch of different assets and venues, in general we’re trading basically every coin on every major exchange although obviously
, you know, growth of coins is not a bulk of our volume.
One thing that we started looking to what logics for our trading was where is the volume coming from.
Obviously, as a liquidity … in crypto
we go where customers go, and as we need to know
where all these trading is really happening.
And there are few trends which probably aren’t that shocking.
One of them is that most of the volume is in Asia.
This is obvious to anyone who really is in crypto or is really enmeshed in it.
But it’s not actually obvious to everyone on the side lines
and so you get things like there are bitwise reports claiming that all the Asian volume is fake that everything goes happening in America.
It’s obviously wrong.
But it’s actually the thing that a lot of people do get wrong.
And it’s the same about, you know, three quarters of volume is Asian.
It’s a little bit hard to categorize that, you know,
you look at the BitMEX volume where they don’t even do KYC,
you don’t really know where it’s coming from, and clearly some of it is coming from Asia,some of it isn’t.
So, you know, there is some ambiguity, you can say anywhere between 60 and 90 percent.
Another thing that, again, it’s obvious if you really trade on all these venues
but it’s not obvious to people on the outside, is that there is very little fiat trading in crypto.
Almost all these exchanges trading is either derivatives or is happening in stable coins,
and with Tether being the largest bulk of that. Binance, obviously, who’s here today
is the largest spot exchange in the world, doesn’t have fiat entirely in Tether base .
The same is more less true, OKEx, Huobi, and move to the other industry leaders.
And it’s not really shocking that it is true if anyone who’s operating crypto, you know how hard it is to really hold down a bank account
while sending money to unregistered money service business all across the world.
You know, you try telling Bank of America that
ya it’s gonna be another 5 million dollars.” “Ya we know that this place is like appearing in a lot of stories
about fraudulent crypto trading.” “No, they don’t have any registration.
Yes, it’s crypto, can we please send the wire?” They’re not gonna say yes. And because of that,
you get most of the volume happening against Tether and other stable coins,
with just a few fiat gateways scatter across different regions where people can actually get dollars
or yen, or won, or maybe in and out.
And another thing is that
you know, derivatives trade a lot.
They trade probably a little bit more than spot does.
Unlike spot, they’re super concentrated.
There’s only about five large derivative exchanges in crypto right now
BitMEX, Huobi, OKEx, Deribit, bitfFyer make up almost all of the volume in the derivative space.
And, you know, the derivatives/spot ratio stayed more or less constant.
It’s a little bit harder to find it.
The biggest reason honestly is CoinMarketCap just doesn’t list derivatives, I don’t know why, but they don’t.
So you can just go there and see a list of all derivatives trading but there’s a lot of it.
This ratio just something like 1 to 1, maybe 2 to 1 right now.
It’s actually substantially less than the ratio that you see in a lot of finance
you know, you often see 5, 10, to 1 ratios where almost all of the trading is actually going up in derivatives.
So anyway, you know, we have trading on all these venues for a while,
and then we see a lot of other people trying to categorize what volume is real and they do kind of a startling terrible job.
You look at, you know, CoinMarketCap right now,
and you haven’t heard of half of the exchanges there, and the reason that you’ve never heard of them is they’re fake,
I mean, they don’t have any real volume.
But like 15 of the top 20 exchanges, they’re fake. It really is all over the place.
And, you know, there was a while where CoinMarketCap was trying to filter through all this
They see a bunch of wash trading going up, somewhere they banned the exchanges from CoinMarketCap.
There’s a game of whack-a-mole and eventually they just give up.
There’re just too many of them. And now it’s just completely overrun by fake volume.
On the flip side, you have reports like the Bitwise volume report.
This is a US volume, you know, volume by US entity,
they came out and claim that all of the action volume was fake that actually basically the only volume in crypto was Coinbase and Binance
and there’s nothing else.
Actually the CME was like the largest venue in crypto.
And, you know, for those a few who have been using a lot of these exchanges for years, that wasn’t seem quite right.
You know, there are clearly other real exchanges in crypto.
You know, you’ve done trades on Huobi, on OKEx, you’ve done some trades on maybe ZB or on Bitflyer
and it’s clear that there is other real volume there, and there’s also a lot of other fake volume.
These two methods are quite different.
The CoinMarketCap method basically is fuck it let’s just allow everything, we can’t tell.
So it doesn’t really work. The Bitwise report chose somewhat arbitrary criteria and did a little bit of a sloppy job
and just throw anything that looks sketchy at all.
So you get, you know, a factor of ten difference in reported volume,
and neither of those is fake. And, you know, that was pretty clear tous and to a lot of other people who have been trading on the exchanges.
You know, we traded more each day on some of these exchanges then Bitwise claimed the traded total,
and on the flip side we saw some of these exchanges cleaning two billion dollars a day of volume and you look at them in their order books are 10 percent wide.
Ya that’s clearly not rivaling Binance.
So, we developed some internal criteria for how it tell if volume is actually real
and what did we do, well, we have six criteria.
The sort of overview of it is that one of the biggest thing we did is that we compare the order books to the trades.
You can see where the bids are, where the offers are, and then you can see what trades in exchanges says is happening on them, and often there are just not consistent with each other
And to give a few kinds of comical examples, there are a lot of exchanges that just printed trade at mid-market every second.
And you can’t actually trade at mid-market, right?
Like there’s a bid, and there’s an offer, and if you want to buy, you have to trade at the offer, and if you want to sell, you have to trade at the bid, you can’t trade at mid.
But somehow all of their volumes was going up at mid, and that was, the trades just didn’t happen at all
they’re just fabricated.Other exchanges, Other exchanges, were printing trades way bigger than their order book
there would be five total Bitcoins offered on an order book, and they’d printed 20 Bitcoin trade,
which they’re just like literally was not as the size on the order book total, just report that.
One exchange, just took Binance’s trades, and repeated them a third of a second later.
So you see BNB/Tether trade print on Binance, and then three hundred milliseconds later, BNB/Tether trade at exactly the same price
printed on that exchange.
So the first thing that we did which we just develop some criteria to take the really obvious stuff.
The stuff where the exchange were just aren’t trying, and the volume is obviously fake.
Other things that we did is we looked at how much trade each hour on the exchange and correlated that with real exchanges
to see whether the volume spikes happened at the same time.
Another thing we did i, we are trading on both these venues.
we’re, you know, non-trivial fraction of all volume and so we just tested when we put orders out, do we get filled.
You know, this single market claims to trade 200 million dollars a day and we’re a market maker there and somehow no one lifts our offers.
That’s a bad sign. I means probably those trades are not actually happening.
And putting together all obvious criteria, it turns out you can actually get a pretty accurate picture of which volume is real and which volume isn’t.
There obviously can be some complicated cases, chains mining is a good example of this.
You have exchanges like FCoin, that pay people that trade, and as you get a lot of volume and it is real in their two accounts actual trading with each other on the order book.
But they’re not trading because one person wanted a Bitcoin and the other didn’t.
They’re trading in order to get negative fees,
probably shouldn’t actually count really as volume, but it’s a little bit more ambiguous of a case.
Anyway, we released our volume report earlier this week.
It’s on FTX.com/volumereport.
And, you know, puts all of the top exchanges through these criteria and throws out all of the exchanges that failed them
and what you’re left with is basically the real volume in crypto.
And what you’ll see is that, well, what are the top four, it’s kind of what you think, you know,
it’s BitMEX, Binance, Huobi, and OKEx.
It’s not shocking, but it’s worth knowing that CoinMarketCap’s top four are exchanges you probably never heard of, cause they’re fake.
And the Bitwise just excluded three of these entirely.
So, you know, you can scroll through this report.
By and large, it matches with what you would expect.
The old exchanges that you’ve heard of, that seem to be everywhere, have a lot of employees, that you’ve traded on before are mostly real.
The exchanges popped up last year, and claim 2 billion dollars of volume that you’ve never seen anyone use are mostly fake.
And you can see, you know, spot versus derivative’s volume – derivative’s volume is higher although they’re both
had been quite large recently with, you know, the increased volatility and volumes.
So, you know, I invite all of you to go check out the site, it’ll explain the criteria and we have a link to our full research report as well
where we go through at the, maybe our, you know, see the report here,
and maybe my favorite part of this is the appendix where we just have screenshots of 60 different exchanges faking volume.
And so you can see, here is a set of impossible trades on BKEX.
Here is a set of impossible trade, and you know, we just go through exchange by exchange and take screenshots of them obviously faking volume.
One thing worth noting is that this isn’t black or white.
There are some top exchanges that do have some fake volume, and in fact maybe some on the screen.
And the fact that there is some wash trading or fake volume doesn’t mean that it’s all fake volume.
That’s one of the hardest things about this. It’s to understand, well okay,
this shit coin market is actually fake.
It’s just a guy self-trading to pretend the coin is active.
But the Bitcoin feature actually is real in trades of billion dollars a day on the same exchange.
And that’s one of the things that I think Bitwise had a hard time with, was understanding when they found an exchange had
yeah, some signs of sketchy things, some signs of fake volume. But actually mostly was real.
So we pushed this out earlier this week and ended up on the front page of Forbes which is pretty cool.
Here is the anatomy of fake cryptocurrency trade, and I think my favorite line from this was talking about the exchange that just reprinted Binance’s trades
at a third of a second later and described it as, quote:
“perhaps the laziest attempt in history to prove that you are a lively place to trade digital assets.”
I encourage you to check out this report, it’s well written , it’s fun,
it’s illuminating, I’m super happy with how it came out basically.
So anyway that was, you know, one of our projects recently, and sort of a piece of research that we now released.
This appears on FTX.com and maybe I’ll get some back on what that is.
So Alameda has been trading on cryptocurrency derivatives exchanges across the world for about 2 years.
Now we’re trading about 5 percent of all volume.
And we’ve gotten pretty frustrated with this data derivatives in crypto.
Spot exchanges, a lot of them, basically worked. Binance is pretty good spot exchange.
There are many others, Coinbase, they basically works.
The derivatives have a lot of problems. There’ve been hundreds of millions of dollars of socialize losses.
In the last year, a liquidation leads to bankruptcy and then all their users have to fund it.
This is a really huge problem. The amount of money loss today is about the same as the amount of money
lost in cryptocurrency hacks worldwide.
It’s also quite annoying to use a lot of these derivatives. On a lot of platforms
if you want to trade a BSV future, the first thing you need to do is buy BSV, like the coin, and use it as a collateral.
But the whole point of derivative future is that you don’t have to trade spot, is that you can go long,you can go short
without needing to actually trade the physical coin.
This also means that you have to separately collateralize every single position that you have.
You can’t move your funds around easily in order to trade whichever market, whichever futures market
you want to trade most.
And a lot of the derivatives exchanges have really bad liquidity.
This is obviously bad because that means you lose a lot of money trading.
But it’s even worse for derivatives, because of liquidations.
If markets move and it can’t start to get margin called, and there isn’t enough of liquidity on the exchanges
you can have total breakdowns of liquidity, and massive freemium moves.
So, after a lot of frustration with the current derivative products, we built our own.
So FTX is the cryptocurrency future exchange that we built at Alameda Research
We have futures on a bunch of major coins including Bitcoin, Tether, EOS, XRP.
We also have BNB futures, Leo futures. It’s one shared merchant pool.
It’s stable coin collateralized, and has a bunch of other features redesigned from scratch.
We have both perpetual and quarterly futures on about 10 coins and we’re releasing a new feature every week.
We also have leveraged tokens. These are ERC-20 tokens, that basically tokenized margin positions.
And so you can move them around on the blockchain, just like a coin
but they move plus three or minus three times as the underlying coin.
So there’s a bear token for instance. Whenever Bitcoin goes down a percent, bear goes up 3 percent
this is source of liquidity form FTX.
So how are we solving the big issues that we had with derivatives exchanges?
Well, one thing that we’re doing is trying to prevent clawbacks and socialized losses.
So we have a sane sensible liquidation system combined with a backstop liquidity finder system
so that we can just take over endangered accounts before they go bankrupt, preventing other users from having to fund those losses.
We also have stable coin collateral, so you don’t need a bank account in order to use FTX.
You can use stable coins, but it has true USD based pricing, and so you don’t have this inverted future on most exchanges
which means that you can move the collateral easily in and out,
you can use the same collateral for all of your futures, and unless you want to, in which case you can split them up.
We also have an OTC portal.
So Alameda Research in addition to doing quant trading on exchanges, also has an OTC desk, and that powers FTX’s OTC portal.
It has a UI and also an API, and you can get 24-7 instant automated OTC trading with that
has a wallet system so you can just deposit a coin, get an OTC quote, to buy a different coin with it
click trade, and you’re done. It supports about 20 different coins
also US dollars and most major stable coins.
This is totally integrated into FTX as well, so you can use the same account to both trade on the OTC platform and trade the derivatives.
And the last thing that I’ll talk about here is FTT. FTT is the exchange token of FTX.
It does about what you think it would do.
You get fee rebates on FTX if you hold FTT. You also get tighter OTC spreads.
We do a buy and burn of a third of the fees generated on FTX.
Back into the FTT token, it’ll be useful as collateral on FTX as well.
And then the last thing is the socialize gains.
We’re happy enough and confident enough in our liquidation engine that in fact we expect expect our insurance fund to just grow over time
and 10 percent of all net additions to the insurance fund would be funnel back in FTT.
FTT is going to list on FTX on July 29th.
Cool! That’s all I had to talk about today.Thanks so much for listening.
There is some QR codes if you’re interested in such things. Thank you!