The recent revelation of Crypto.com having an internal trading team has raised concerns about a potential conflict of interest. The Singapore subsidiary of the exchange is reported to run an internal proprietary trading and market-making team that trades crypto on behalf of the platform. Crypto.com, however, responded to the concerns by stating that the team’s actions are treated the same way as any other third party, existing to facilitate tight spreads and efficient markets on its platform.
BitMEX CEO Stephan Lutz weighed in on the issue, arguing that crypto exchanges do not need to run internal market makers. He suggested that exchanges making money from proprietary trading should by now have let go of their internal market-making teams. According to Lutz, there are enough high-frequency traders (HFTs) and prop shops that can perform the function of market maker teams.
BitMEX itself faced similar allegations years ago when accused of running an internal trading team to make profits. However, Lutz clarified that Arrakis Capita, which served as an internal market maker for BitMEX, now operates in a limited role and is “technologically” and “organizationally” separated from the derivatives exchange.
The notorious fall of FTX exchange has put more emphasis on examining exchanges with internal trading teams. FTX was accused of using its trading arm Alameda Research, which allegedly operated as a hedge fund, to bet the customers’ funds for profit-making purposes. Lutz highlighted ways to identify whether an exchange’s trading arm risks investors’ funds or is used solely as treasury. One distinguishing factor between Alameda-like companies and standard internal trading teams, Lutz said, is the fee structure.
Crypto exchanges charging no transaction fees could also raise a red flag, indicating their existence mainly to attract trading flow for a market maker. It becomes crucial for crypto enthusiasts to be vigilant about the platforms they operate on to prevent being caught in situations where their investments could be jeopardized.
In conclusion, the debate surrounding the use of internal market-making teams by crypto exchanges like Crypto.com highlights the importance of transparency and trust in the rapidly evolving digital assets industry. It is vital for these platforms to ensure that they are not perceived as conflicts of interests or risks to the funds of their users, and to maintain a level playing field for all participants.
Source: Cryptonews
