Alameda-backed crypto trader Folkvang is still standing despite taking a big hit from FTX’s demise

More than three months after the contagious collapse of the FTX exchange, the cryptocurrency industry is still reeling. Folkvang, a market-neutral, Singapore-based trading company, is still going strong despite a major blow during the crash in November.

“Our equity was halved, so we lost a lot of the gains we made in 2021,” Folkvang founder Mike van Rossum said in an interview with CoinDesk. “This is the risk, isn’t it? This is the risk of the game. I guess we’re glad we’re still standing.”

Founded in January 2020 by a team of experienced cryptocurrency traders, Folkvang gained prominence on all major exchanges. For example, it moved towards the top of FTX’s volume and scoreboard in 2022. Folkvang’s rise on FTX was expected after Alameda Research, the trading firm that played a central role in FTX’s demise, invested in Folkvang and Folkvang returned the favor by investing in FTX. (Sam Bankman-Fried owned both FTX and Alameda.)

Speaking on a recent video call from a Singapore high-rise, Folkvangs van Rossum gave a candid account of the “messy” situation in the wake of FTX’s collapse.

“It was a tough pill to swallow,” van Rossum said after revealing that half of the company’s equity was tied up in FTX. “We managed to survive, but since we were quite active borrowers, we had to pay the lenders back out of our own pockets.”

At its peak in 2021, Folkvang managed around USD 400 million in assets, including equity and loans. And while it has a lean team of fewer than 10 quant traders, it once did $8 billion in volume in a single trading session during that bull market.

Folkvang operates exclusively as a proprietary high-frequency trading company. It does not offer any other services such as an over-the-counter desk or make token deals for market makers. It relies on a mix of algorithmic strategies that include arbitrage trading, yield farming and market making.

“We learned a hard lesson with FTX,” van Rossum continued. “We found the risk is real. We thought it could never really happen the way it did, so we’re much more risk-averse now.”

He added: “We only trade our own balance sheet. We don’t really lend at all. The risk is simply too great.”

Since Folkvang is a market-neutral trading company, it avoids directional risk and profit by adding liquidity and trading negative and positive financing rates against each other. It’s the antithesis of overextended shops like Three Arrows Capital, which spectacularly collapsed in a cascade of liquidations last year when the market fell.

Although the directional risk for Folkvang is minimal, the fall in FTX has reinforced the fear of counterparty risk. Holding assets on an exchange has always been frowned upon by bitcoin (BTC) maximalists, but for a trading company like Folkvang it is inevitable. Arbitrage trading involves buying an asset for a certain price on one exchange and selling it immediately for a higher price on another; this requires active capital across several centralized arenas.

When asked where Folkvang trades now that FTX has closed down, van Rossum replied: “Binance is the biggest, but I don’t think it’s because of trust.”

He continued: “We still have a company. We have an office. We have a team of people. We still have to pay the bills. So Binance offers a good risk/reward ratio, but the risk is still there.”

After losing around 50% of the trading stock in FTX, Folkvang is still confident that part of the funds will be returned, even if it takes between five and eight years.

“We are definitely in touch with lawyers,” he said. “We are in contact with the bankruptcy people, but it is difficult to do anything here as the situation is complicated.”

Alameda “invested in us so they’re on our table and we invested in FTX, so it’s all mixed,” he said. – And then we had our money there, so it’s a very messy situation.

Folkvang is listed as a redacted entity on FTX’s top 50 creditor list, with individual creditors at the top of the list owing as much as $226 million.

“This will be a long process,” van Rossum added. “We’ve mentally written it off to zero. We don’t think we’re going to get X or Y back. Mentally it’s written off, but we hope we’ll get something done. But it will take many, many, many years.”