Wintermute’s Evgeny Gaevoy has seen crypto winters before

by Arthur · July 21, 2022

Evgeny Gaevoy is one of the original cowboys, building a digital asset trading store in the midst of crypto winter 2017. Wintermute is now among the largest crypto market makers, providing liquidity on 65 exchanges.

Driving the news: Gaevoy, in an interview with Axios at an Ethereum conference in Paris, is stoic in the face of the current bear market and the mess left by the firms that lent billions of dollars to the now-defunct Three Arrows Capital (3AC).

Why it matters: Thousands of investors, including large institutional firms, were burned by crypto lenders who, unbeknownst to their customers, lent billions of dollars to 3AC – some of which were done in good faith alone. And now a couple of the biggest lenders among them – Voyager Digital and Celsius Network – have started bankruptcy proceedings.

What they say: Gaevoy says the leverage build was evident on the DeFi side of things. It is a feature of DeFi – transactions are visible to everyone. But not so much with regard to the centralized lenders.

“As for Three Arrows – nobody could see it. The only players in crypto who could see it are the centralized lenders, but they didn’t talk to each other and share information because they were afraid of others stealing clients.”

Between the lines: “It’s a balancing act. On the one hand, you have assets that are not obviously verifiable because some of it might be on chain, some in GBTC, but a lot was in DeFi tokens. But it wasn’t clear how to calculate how much.”

On the debt side of the balance: “What they owed everyone else, and it was completely invisible.”
“If you’re cheating as a prop trading company and sending information that’s not true, there’s not much you can do as a centralized lender.”

Between the lines: “What happened was that 3AC borrowed from everybody,” says Gaevoy. “It’s like mortgaging your house with five different banks.”

It also turns out that much of the multibillion-dollar loans 3AC took out were unsecured, i.e. not backed by anything.
Context: The concept of unsecured lending is not shocking, says Gaevoy.

Catch up quickly: “We at Wintermute were basically borrowing from the same set of lenders, albeit on a smaller scale. We were downgrading after all.”

Flashback: Gaevoy built Wintermute in July 2017 and in two years began to make a profit. He emphasized that Wintermute did things “the right way” from the beginning.

“There were a bunch of prop trading firms that called themselves market makers at the time, but they pumped and dumped,” he says.
“We didn’t do anything that would get us fined or in jail.”
By the way, Wintermute is a reference to an AI that drives the action in William Gibson’s first famous book, Neuromancer.

The big picture: “If you look at the 2017 cycle, it basically only brought ICOs. This cycle brought us the concept of automated market makers, decentralized lending and resilient stablecoins. Protocols are emerging and becoming more important.”

At the same time, too many firms focused on too much growth, he said.

“Centralized exchanges were not profitable last year – crazy because it was the best year possible. It was just because they invested very heavily in growth. So now you see the layoffs, for example at Coinbase,” Gaevoy said. – It’s going to be brutal.

The future: Gaevoy is “cautiously optimistic”. Careful because the global recession is looming and the crypto winter could last anywhere between 6 months and 5 years, he said.

Still, Gaevoy says the future of market making is promising.

Yes, but: Big money endures. “Institutions are pulling back from everything. Everyone is waiting on the sidelines trying to figure out how to live in this new market environment. Like growth vs value.”

What will be next: Gaevoy plans to launch Bebop, a decentralized exchange or DEX aggregator, with a focus on user experience.

“The UX for DeFi protocols lags. Normal people find it pretty scary,” he said.
Bebop is a three-year project that Gaevoy described as “DeFi commerce reinvented.”
It will be designed to have a user-friendly interface, like Robinhood, with the back-end sophistication of a well-known Wall Street firm, like Citadel Securities, on the Ethereum blockchain.
Bebop will be launched later this summer.

Fun fact: The name of Gaevoy’s latest project is partly inspired by Cowboy Bebop, a Japanese neo-noir anime set in 2071 that tells the story of Spike and Vicious, who represent good and evil respectively.

Gaevoy’s Twitter profile is of Spike, “Bebops” main character.
The anime series ends with Spike defeating Vicious, but badly injured in battle – falling over like cowboys do in classic westerns.

The bottom line: Gaevoy intends to outlast its peers this crypto winter.