AMA series with DWF Labs: Who are Market Makers
Time: Dec 19th, 2022, 15:00 PM (UTC)
Gate Institutional Department hosted an AMA (Ask-Me-Anything) session with Andrei Grachev, Managing Partner at DWF Labs, in the Twitter Space.
Official Website: https://www.dwf-labs.com/
Twitter: https://twitter.com/DwfLabs
Follow DWF Labs on Telegram and Twitter
Guest
Andrei Grachev, Managing Partner at DWF Labs
Gate Institutional AMA series with DWF Labs, conducted on Twitter Space on December 19th, you can also read it now on our Gate Bloge. Andrei Grachev, Managing Partner of DWF Labs, joined this session to explain the fundamentals of Market Making and how DWF Labs has navigated through the challenging bear market of 2020. He also shares information about the DWF Labs team and the story behind the DWF Labs name. Additionally, Andrei provides his expectations of the crypto market for 2023 and gives advice to professional traders looking to get into the crypto space.
Introduction
Gokay (Host): Hello everybody! This is Gokay from Gate.io Institutional services. Our team manages a wide range of institutional clients, including hedge funds, institutional traders, High net worth individuals, and family offices.
Of course, we value each and every single one of our clients, so we work closely with them to provide customized solutions for each of their needs. We have also recently established a $100 million liquidity support fund to provide additional support to the crypto ecosystem. There are lots of things that I can go on about, but in the interest of time, please contact your Key Account Manager to get more detailed information. Let’s get back to our topic now:
Welcome to our stream with Digital Wave Finance - Everyone knows them as DWF Labs. Today we have special guest; Andrei Grachev is the Managing Partner at DWF Labs. Thank you for joining our stream. Nice to see you! How are you? How do you feel?
Andrei: Hello everyone! Hello Gokay! I’m fine. Thank you for having me here today!
Gokay: Now I will give you a short introduction to what’s gonna happen in this AMA session:
This is gonna be the format of the AMA session - questions and answers. I’m gonna ask Andrei different questions about DWF Labs and by answering them Andrei is gonna give us a better vision of what DWF Labs is all about.
Q1: Andrei, tell us a little about yourself. Who is Andrei? What’s your background?
Andrei: Hey! My name is Andrei Grachev, I’ve been in financial markets since 2014 - started as a trader on MOEX and we traded stocks and also as exchange we traded crude oil derivatives. And then in 2016 I moved to crypto space. I started as a miner. I had a small mining farm, with eight mining machines and they did mining for Ethereum. When it costs like 5 USDT per ETH. But in 2017, if you remember, it was like the first skyrocketing of crypto space and it skyrocketing it up from 5 USD to 200, 300 USD for one ETH. And we started the first “Friends and Family” fund. It was not a big one, just a small one for a few million USD with its investments in ISOs. And also we did some arbitrage trading and it’s just very simple, right? Then in 2018, life goes on, and I was admitted as the CEO of Huobi Russia and CIS. And a few months ago, we also started cooperation with Digital Wave Finance. DWF wanted to start trading and I had the chance to support it. Then we became friends and started working together. So, we go out from a small, small firm, like a startup, to our current size and we trade billions per day. Yeah, it’s kind of a long story short.
Gokay: That is great. I’m happy to find out that you come from the inside of crypto. That’s why it’s shows why DWF can be really successful, because you come from the old times.
Andrei: Not only me, but the whole team are very successful. The guys were related to quant trading and IT development. They started from traditional markets many years before me.
Q2: How did “Digital Wave Finance” come to life and how is it positioned in the market?
Andrei: It started in Zug in December 2018. The company started as a startup and we are still in startup mode - which means work hard and the team is very small. We started trading on one of the spot exchanges and thanks to the team and good market situation, we made enough money for exponential growth and just for 1.5 years we grew from 10M$ traded daily to almost 17B$. We started our expansion to other regions like South Korea, Japan and US exchanges. During the past 2 years, we have been adding new exchanges and launched our VC and liquidity direction - DWF Labs.
We made the first investments in one of the biggest DAO on this market. And after that, we were looking at other investment oriented things. And the current position is that we trade about 40 exchanges, trademark products, spot options, futures, perpetual’s and, of course, on Gate.io as well.
Regarding our market positioning, we define ourselves as a Global web3 investor and market maker. We don;t name ourselves as “a leading company”, because if you have a look at any website - everyone is leading. We just do our work properly.
Q3: Most of our viewers and followers are, naturally, “regular-joes” retail investors, so I was wondering if you wouldn’t mind giving us a brief explanation, in simple terms, of what Market Making is and what a Market Making company do?
Andrei: In simple words, a market maker provides liquidity to markets. What does it mean, if you go to exchange you have an order book. There you will see buy and sell orders. They are placed by organic traders and businesses. But market makers put more orders next to the spread and their work is to provide a fair price and liquidity for traders and institutional traders. Because without a market maker, I would say the spreads would be much bigger than with, plus trading activities would affect price much more than with the market maker. Let’s say market makers create market depth and they create fair prices covering. Because they cover this gap in the interest rate of institutional/investors and traders. Let’s say I want to buy something for 1 USD, and you want to buy something for 2 USD, and that means that our fair price is kind of 1.5 USD. The market maker should allow us to trade near to this price. Otherwise, this volatility will be insane and huge.
Gokay: That’s great. So, I want to say to Andrei and all the market makers out there “Thanks” for keeping the market stable and thanks for giving the order book good orders, so spread is not opening too much.
Q4: And now for our more experienced listeners… Frameworks for risk management in trading and market making? (A deep into the business of market making and different strategies deployed)
Andrei: Okay, let’s make it also simple to understand. Let’s start with market control for the position. If you want to trade some assets which are obligatory or do arbitrage between exchanges for let’s say BTC USDT, on one exchange and another one. If you do this, of course, you can make some money because of the spreads between exchanges, because of the price difference. But the risk is while you are doing this, one of your assets, let’s say BTC, could go down. And, of course, you can make more BTC. But if you want to have your position hedged and it is kind of predictable, because we need USD or we need some stablecoins. You will probably need to have this position hedged. Let’s say you started with 1000 or 10,000 USDT. And then you can hedge your BTC. If you have one BTC, you can open a short position on Gate.io future markets and sell this one BTC. In this situation, you don’t have this BTC. Because if it goes up, your hedge position will go down and it will be zero. But if BTC goes down, your hedge position will go up and you will also have more losses. You should also keep in mind that there could be some interest rates and something similar, but it is for a more experienced discussion. In simple words, one of these risk management tactics is better hedging and you can hedge your volatile position just to sell the same asset on the future market for an equal amount.
Q5: How is the recent macro environment in crypto? Do you provide any real data & analyses by DWF Labs?
Based on our data we can see that interest from retail traders is at the lowest level compared with the previous years. I can compare it with the winter of 2019. The most part of trading volumes is produced by HFT and market makers (as usual), but now their market share has increased.
In very very simple words, it means following > less retail investors > less risky investments > extremely low altcoin volumes and low major volumes > BTC down > altcoins down > BTC up > altcoins don’t follow it (mean medium and small ones).
Q6: Okay, now here’s a million dollar question… How has DWF’s experience been so far working with Gate.io?
Andrei: We started trading on Gate.io around 1.5 years ago, and from the beginning, we explored all of the products. I would say that we are happy to trade here, because we have great support from the exchange, nice infrastructure, really competitive fees, and a wide range of tradable products. We find trading on Gate.io very very attractive for us, because we can trade, we can make money, right? It means that there are a lot of organic users and no trading bots. Our market share is not so high, like 50% or 60%. It means that there are a lot of other market makers which make Gate.io markets. Because we are not the only market maker, it means that there is competition. Competition means better price for retail users.
Gokay: What I like about Gate.io, we are giving the same capability, same opportunity to everyone. Our speeds or rate limits are not customized. We are trying to create a better market for everyone. I think this is also an important fact in this case.
Q7: Okay, now that we have heard about DWF’s business, I assume the viewers would like to know more about the people who are standing behind the firm. So can you tell us more about the team?
Andrei: Of course! As I mentioned above, we are trying to be a very small team - in total we are about 35 people. Most of the team are very experienced and highly graduated quant traders and developers, the same as 3 of my partners - we are located in Switzerland. In Labs vertical we have 3 additional partners, who have been in crypto space for ages and they are located in Singapore and China.
Q8: I think this next question will be really interesting for everyone, because it’s 2022 and we know that this year presented us with quite a lot of…challenges, to say the least. We are now officially in a bear market after several black swan events and I’m wondering if and how DWF Labs was affected.
Andrei: Yeah, this year was very terrible and I’m sure that it’s still not the end of the story. Frankly, we have been almost not affected by those situations, because we didn’t play these games with risky loans and leverage. Also, we don’t have any investors or LPs, that means nobody can do a bank run =) Yes, we lost a bit on FTX, but it’s acceptable - it was just a small part of funds that were needed for trading.
Q9: We are almost at the end of our main section about “DWF Labs”, so before we wrap things up, I would like to ask what are your expectations for 2023?
Andrei: My personal expectations are that we will see a few big events of bankruptcy, and it will be about lending platforms/companies + coins that played games with high annual rates of income. But at the same time, I believe that the overall market will be fine. That doesn’t mean that BTC will be 100k, but it will still have volumes and acceptable prices.
I think that this will be the year of real value of crypto assets. Because now almost any project which goes to an exchange and trying to do something is dumped immediately, because the people lost their trust. I guess it is also consolidation, not of some particular assets, but consolidation around some assets. We will have exchanges and platforms with bigger market share than before. And we will have top assets and their market share will be much bigger than it was before. Because people are just afraid.
One more trend is when people want to have a decentralized world. People are afraid of custodians and it can be a falling trend. Let’s say an order book based trading and chain settlements. Something like that could also be true.
Gokay: Yeah, but people learn how to deal with these problems and everybody will be more careful, smarter. So this is a good thing actually. But of course, we try to prevent bad things from happening, because this is people’s investment and it’s really important for Gate.io to keep everyone safe. We also work with big custodians like Copper and are aiming for a safer market for everybody.
Q10: Okay, so now that we have heard about DWF Labs, we heard about the team, so it’s time to hear about the community. So which social channels do you have and how can someone reach out and connect with you guys?
Andrei: We have almost all possible channels of communication:
Twitter - https://twitter.com/DwfLabs
Linkedin - https://www.linkedin.com/company/82082012/
Telegram - https://t.me/dwflabs
Website - https://www.dwf-labs.com/
Q11: Do you have any advice for pro traders looking to get into crypto trading and market making?
Andrei: Yeah, but this advice is not for an existing professional market maker in the crypto space, but for new ones. So the advice is very simple: Pay attention to data, fees, latency improvements and prediction models. At the end of the day - the most accurate and fastest will be the leader. Trading is a game with 0 sum - you win or you lose, nothing else :) And don’t play with money you are not ready to lose.
Q12: And finally, if there’s one thing that you’d like our listeners to take away from today’s AMA session, what would it be?
Andrei: Pay attention when FUD or FOMO don’t impact the market > this is the right to buy or sell. And don’t take any advice seriously - DYOR!
Ending
Gokay: Andrei, thank you very much for all your time. It’s been really informative and I hope our audience, who always listen us, now knows better about who you are. And it’s been really good for me just to have the information about you and be more interested in DWF Labs itself. Get in touch with DWF Labs, visit their website, read more information, follow their reports and analysis.
Andrei: Thank you Gokay! And thanks to everyone! It was a real pleasure to participate in this AMA series.
Gokay: Thanks to everyone who joined to listen to our AMA series. Follow us on social media, for more information write to our key account managers.
Twitter: https://twitter.com/gate_io
GateVIP Twitter：https://twitter.com/GateioVIP
Telegram: https://t.me/gate_zh
API Telegram：https://t.me/gateioapi
Instagram：https://www.instagram.com/gateioglobal
Linkedin: https://www.linkedin.com/company/gateio/
