Forbes Deep Dive: Can Wintermute Become the Next Alameda

With Sam Bankman-Fried's Hedge Fund Gone, Crypto Trading Firm Wintermute Emerges

原文来源：福布斯

原文作者：Jeff Kauflin

Qian Wen, ChainCatcher

"Wintermute has grown into one of the world's leading cryptocurrency trading companies with its skill in navigating the cryptocurrency frontier and winning the Terra Stablecoin debacle. Now it must move forward in a chaotic and fraught marketplace."

Evgeny Gaevoy 正在思考，如果与一美元价值挂钩的加密货币 Stablecoin terraUSD（UST）内爆，该怎么办。UST 有大约 150 亿美元的流通市值，其母公司受光速创投（Lightspeed Venture Partners）等大型投资者的支持。但早在 2021 年，就有一小部分人在推特上预言它的灭亡，他们认为，不受政府发行货币支持的算法稳定币注定要失败。

"If it happens, hopefully we'll be there for the moment," Gaevoy, 38, told herself in February. His company Wintermute, based in London, is a trading company that trades digital assets quickly, taking a few cents a day from millions of transactions. The more volatile the market, the more money they make.

That month, Gaevoy and Marina Gurevich, his wife and Wintermute's chief operating officer, laid out the battle plan. Wintermute's developers spent a month combining their trading system with Terra's blockchain technology. Just as high-frequency trading firms try to get stock market data as quickly as possible, Wintermute sets up its own servers and runs Terra nodes to get the latest intelligence on UST trading and prices. They wrote 4,000 lines of code for the new trading algorithm. On May 7, when UST prices dropped to $0.98, Gaevoy asked his team to start the night shift to prepare for the week ahead.

Two days later, UST began a stunning price decline and Wintermute began to arbitrage. Taking advantage of Terra's own design and price collapse, Wintermute bought UST for $0.8 and redeemed it for $1 worth of Luna (its sister cryptocurrency). Then sell Luna quickly, making a profit margin of 10 to 15 per cent on each transaction. Traders at Wintermute were sweating at work as the air conditioning in their London office broke down and the temperature climbed above 85F.

By the end of the week, UST had lost almost all of its value, and Wintermute had traded more than $250 million of UST until the value dropped to about $0.10. Wintermute had pocketed tens of millions of dollars in profits. Gaevoy was not behind the collapse of Terra, but he exacerbated the process somewhat by becoming the primary buyer in a frantic attempt to sell UST.

According to people familiar with the matter,During the UST fall, Terra founder Do Kwon, who is wanted by the South Korean government for violating financial laws (a charge Kwon claims is baseless and likely to be dismissed), even lent millions of dollars worth of UST to Wintermute to help with its transactions. Kwon clearly hopes the money will make UST markets more liquid and prevent them from freezing up.

Gaevoy's "Terra strategy" is one of his signature plays -- not only betting against UST failure, but also navigating the risky world of decentralized finance in a way that many companies are afraid to do. Unlike more professional market makers, Wintermute's strategy is to experiment with multiple assets. "It's not that we're good at everything," Gaevoy says. But its full penetration strategy and profits from more than a billion transactions add up to a lot of money.With just 53 employees, Wintermute generated $1.05 billion in revenue and $582 million in profit in 2021. Gaevoy owns a third of the company, meaning his net worth is at least in the hundreds of millions.

Good at catching knives

Wintermute took on significant trading risk when UST and luna plunged. It capped each trade at $5 million to prevent steep losses, but ended up reaping tens of millions in profits.

The recent fall of Sam Bankman-Fried's trading platform FTX and hedge fund Alameda Research (one of Wintermute's closely watched competitors) has shocked Gaevoy and Gurevich as much as anyone. "We knew they were reckless and made big bets, but what really happened is beyond our imagination. Frankly, their trading and management decisions seem to have reached the level of stupidity." "Gurevich said.

Before Alameda's collapse, Wintermute was already one of the top five cryptocurrency trading companies in the world, according to analytics firm Nansen. Will the fallout from FTX's demise also bring Wintermute into trouble? Gaevoy insists Wintermute won't take the same desperate risks as Alameda. But as this debacle has taught us -- there are no guarantees in the cryptocurrency world.

Growing up in Moscow in the 80s and early 90s, Gaevoy was feeling optimistic after the collapse of the Soviet Union and Russians could finally buy Western goods from Italy. Gurevich, who grew up thousands of miles away in Siberia, felt the same excitement, but she was always ambitious. As a teenager, she persuaded her parents to let her change schools four times in five years, always in pursuit of a better education. "I always want more and better things," she says.

The two met at Moscow's Higher School of Economics, an elite mathematics school founded in 1992. "Its style is very Western, very capitalist," Gurevich said. "It completely shaped who we are." Both ranked in the top 10% of their class in English, after which they met and were assigned to the same group.

Gaevoy and Gurevich married in 2006, and Gaevoy's first job after graduation was at Optiver in Amsterdam, one of the world's top trading firms. He grew the trading platform trading fund business from a one-man operation to a 12-person profit-making team and learned valuable lessons about risk management. He left Optiver after a decade because he wanted to get out of his comfort zone and learn about other fields. In 2017, he, Gurevich and their two children moved to London, and Gaevoy began to dabble in cryptocurrency trading with $20,000 of his own money.

Cryptocurrencies plunged into a bear market in 2018, and it took Gaevoy and his two co-founders, Yoann Turpin and Harro Mantel, nine months to raise $900,000 from angel investors. Gaevoy appealed to others interested in cryptocurrencies by naming the company Wintermute after an artificially intelligent creature from the 1984 science fiction novel Neurosurgeon. The following year was a bad one for both Gaevoy and the cryptocurrency industry -- retail investors largely lost interest, and trading activity was rare after the bubble burst in 2017. Gaevoy had only $500,000 in trading funds and brought in less than $1 million in revenue. His startup survives on just a few months 'worth of cash in the bank each month.

But in January 2020, Gaevoy says he made a breakthrough. The arbitrage trading algorithm he built, which looked for differences in the price of a single cryptocurrency across different trading platforms so he could buy on one platform and quickly sell on the other, began to generate real profits. On March 12, when the pandemic caused the U.S. stock market to swing 10 percent in a day, cryptocurrency trading volume surged and Wintermute made $120,000 in 24 hours. "It's clear that if we had more money, we would make more," Gurevich said.

In July, Wintermute raised $2.8 million in Series A venture capital, led by Lightspeed Ventures' Jeremy Liew. Liew says his impression of Gaevoy was that "he was very clever... almost the cliche of a very clever Russian mathematician". Gurevich, who had been working in management consulting, joined Wintermute full time as chief operating officer and became responsible for everything outside of coding or trading, including finance, strategy, hiring and marketing. Co-founder Harro Mantel left Wintermute to spend more time with his family, while Yoann Turpin stayed behind to become head of business development.

That summer became known as the "Summer of DeFi" because of the proliferation of decentralized financial apps for profit making and trading, and the explosive growth of users. Uniswap, a decentralized trading platform running on completely unmodifiable open source code, has grown from about $10 million a day in May 2020 to $1 billion three months later.

Wintermute has actively started trading on Uniswap and other decentralized trading platforms, building an arbitrage system for a wider range of channels. And started trading a new class of tokens, including a new one called sushi, which was so illiquid that Wintermute could charge a spread -- the difference between the buy and sell prices -- and then take a portion of that as a profit.

At the end of 2020, Wintermute had revenue of $53 million, and has begun to aggressively grow its different business lines. It ramped up market-making on trading platforms such as dydx, which surpassed Coinbase in daily trading volume for a few days in late 2021. It negotiates contracts with new coin issuers such as Optimism, allowing Wintermute to lend Optimism tokens interest-free in order to trade and make a profit. Typically, such contracts also give Wintermute the option to purchase tokens at a fixed price and at a later date. Some of these trades proved to be very profitable, and in the crypto bubble bull market of 2021, trading tokens created out of thin air and cheap options to buy them turned a quick profit.

Wintermute has also begun experimenting in an unremarkable area of cryptocurrencies known as MEV, or Maximum Extractable Value, which pursues a trading strategy that takes advantage of the slow settlement speed of blockchain transactions to get the best arbitrage trades ahead of time.

The scale of Wintermute's operations creates compounding benefits as cryptocurrency volumes begin to set records in 2021. It is linked to 30 centralised trading platforms, including Coinbase and Bybit in Dubai, and dozens of de-centralised trading platforms for 350 different tokens. Like a satellite view of the cryptocurrency market, this breadth is great for arbitrage, presenting a wide world of different prices for assets. Being connected to numerous trading platforms also gives people a wealth of signals about where the market is headed, helping to predict sudden rises or falls that could affect their trading earnings.

This scale offers two other big benefits. The bigger Wintermute gets and the more volume it trades, the easier it will be to secure cheap financing from lenders and token issuers of the tokens it trades. And doing a lot of trading on a centralized trading platform like Coinbase allows it to get lower transaction fees.

In 2021, Wintermute transacted a staggering $1.5 trillion, generating $1.05 billion in revenue and $582 million in net income, the company said. Some employees received millions of dollars in bonuses during the year. Wintermute paid out $35 million in dividends to its shareholders, and Gaevoy received about $12 million due to his 33 percent stake in the company. Jeremy Liew, from Lightspeed Ventures, which has a 15% stake in Wintermute, describes the company's 2021 prospects. "They're positioned well, so when the wave comes, they're able to ride the wave that's going to last."

This year is a little different. As inflation and interest rates rise, almost every asset class has fallen, and cryptocurrencies have been among the hardest hit. For the first nine months of the year, Wintermute's revenue was just $225 million, down significantly from 2021. Some of its escapades in the DeFi have also come at a great cost. Wintermute was hit by a $160 million hack after making a human error in securing its digital wallet. It will not be profitable this year, Gaevoy said.

When Sam Bankman-Fried's trading platform FTX declared bankruptcy last month, Wintermute still had $59 million in the trading platform, and Gaevoy and Gurevich thought they were gone forever.They have consolidated most of their trading platform holdings into three places: Coinbase, Kraken and Binance.While the industry is in crisis mode, they are now trading just $1 billion a day, down from $3 billion to $5 billion earlier this year.

The episode and its possible effects raise the question of whether Wintermute will be the next to fall. They insist that their firm (which has 95 employees) is financially sound, with $400 million in equity and $720 million in assets, and a debt-to-equity ratio of 0.8, figures that are conservative compared with publicly traded market-making firms like Virtu. They also stated that $350 million of the equity was in stablecoins (mostly USdcs) and cash, while the remaining $50 million was mostly venture capital investments.

In the meantime, Gaevoy and Gurevich say they are working seven days a week, harder than ever,Gaevoy is seriously considering launching a financial derivatives trading platform catering to professional traders, aiming to fill the gap left by FTX.But he claims he will use a different structure to hold his clients' money: their money will be segregated and held by outside custodians, using the same model as traditional financial exchanges such as the New York Stock Exchange.

As for the Wintermute deal, "we're basically gearing up for the next 2021," Gaevoy said. "We don't necessarily have to make the most money now, because we can make more money in a possible bull market."

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