Crypto market maker Wintermute bears eery resemblance to Alameda

08.04.2023

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One of the largest market-makers in crypto, Wintermute, claims to generate amazing revenues, trading trillions of dollars across thousands of trading pairs with differentiated strategies.

Media often characterizes its CEO, Evgeny Gaevoy, as a wunderkind savant. Stories of his rise to fame bear eery similarities to once-fawning coverage of Sam Bankman-Fried’s brilliance.

The London-based firm positions itself as a quantitative juggernaut, providing liquidity for 250 tokens across 50 trading platforms in order to “make markets in digital assets liquid and efficient.”

Of course, it’s for profit. In 2021, the company’s trading volume topped $1.5 trillion, generating over $1 billion in corporate revenue with over 50% net profit margin. The firm disclosed hundreds of millions of dollars in corporate revenue in 2022, as well.

Crypto’s non-market-making market makers

Like every so-called market maker in crypto, Wintermute has considerable operations outside of actual market-making. Indeed, even the term ‘market-making’ in crypto has become suspect after Alameda Research claimed to make most of its money market-making. In fact, Alameda fraudulently siphoned customers’ money from FTX.

The term market-making is abused in the crypto industry, with the phrase used very generally to describe nebulously complicated trading activities. Acknowledging this, Wintermute even wrote a blog about the good, bad, and ugly of crypto market-making, which mostly describes activities that are not market-making at all.

Concerned with gaining support from crypto journalists

Oddly, one of the non-market-making roles of Wintermute executives includes serving on the board of directors for media outlet, The Block.

Gaevoy raised some eyebrows by joining The Block after the publication had just laid off a third of its staff and hired a new CEO.

Wintermute’s Gaevoy reassured readers that Wintermute did not invest in or receive compensation from The Block.

Some important disclaimers:
-There is no investment involved from Wintermute or its affiliated entities (or me personally)
-There is no cash compensation involved (I, frankly, don’t need it, and Block can use money better elsewhere)

— wishful cynic (@EvgenyGaevoy) March 31, 2023

Wintermute CEO assures readers of The Block of his financial relationships to the publication

However, The Block could become a valuable tool for Wintermute. Gaevoy appeared on a March 29 episode of The Block’s podcast, The Scoop. A website-specific Google query for ‘Wintermute’ returns 124 web pages hosted on the site.

The Block, readers will recall, once took substantial funding from Sam Bankman-Fried’s Alameda Research.
Not only did Alameda’s money buy out all prior investors in The Block, but it also personally bought its then-CEO real estate in the Bahamas.
Now that a number of FTX/Alameda executives have either pleaded guilty or are under government supervision, Wintermute may have a louder voice at The Block’s Board meetings.
Of course, Wintermute still has financial ties to FTX. It held approximately $59 million worth of assets on FTX’s platform when it declared bankruptcy in November 2022 and currently has a seat on an FTX creditors’ committee.

Profiting from Terra LUNA as nearly everyone lost everything

As Do Kwon’s Terra LUNA ecosystem lost tens of billions of dollars in May 2022, Wintermute somehow made tens of millions of dollars trading its stablecoin, Terra (UST).

As it profited while millions of Terra LUNA users lost, Wintermute was even taking UST loans approved by Do Kwon himself.

A glowing, Forbes magazine cover story described Wintermute’s trading one of the largest alleged pyramid schemes in modern history as its “trademark move” whose “strategy is to experiment in many corners of digital assets.”

Read more: Will arrested Terra founder Do Kwon be extradited to the US or South Korea?

Wintermute’s odd, $160 million loss

Questions about the inner workings of Wintermute only pique curiosity.

The company supposedly lost $160 million to a hack in September 2022. It later said the hacker exploited an old wallet with admin access to its vault contract.

However, some people question whether the hack was a hack at all.

Indeed, investigator James Edwards, writing under the pseudonym LibreHash, alleged that someone with inside knowledge of Wintermute stole those funds.

Wintermute had nearly $200 million in debt around the time of the $160 million hack. An analysis published on September 21, 2022, revealed a $92 million loan to TrueFi, $75 million in USDC and WETH loans from Maple Finance, and $22 million in debt owed to ClearPool.

Since then, Wintermute has paid back the $92 million loan to TrueFi.

Edwards suspected Wintermute used “ill-gotten” funds to pay back the loan, despite claims to the contrary by security researcher BlockSec. Edwards mentioned that BlockSec had previously made mistakes, like claiming that Wintermute used a vanity address to manage assets. BlockSec stands by its research.

Trading Celsius customers’ funds

Wintermute likely didn’t help itself by acting as a market maker for the now-bankrupt Celsius Network. Bankruptcy proceedings revealed improper allocations of Celsius Network users’ assets, such as sending funds to the now-defunct, Terra-related Anchor Protocol. Celsius Network also sent $30 million in WETH to Maple Finance’s liquidity pools, exposing its assets to Wintermute.

Despite the losses associated with Celsius Network’s bankruptcy, Gaevoy claims Wintermute doesn’t take careless risks.

Celsius founder Alex Mashinsky is facing fraud charges by the New York Attorney General.

Allegations of employee brain drain

A Twitter thread posted — and subsequently deleted — by Stat Arb detailed how, according to Wintermute staff, most of the firm’s employees tend to leave within months of being hired.

During spikes in market volatility, Stat Arb claimed that Wintermute simply turns off its systems entirely because “nobody knows how half of the code works,” and “no one knows how to trade it without losing money.”

Stat Arb also claimed that Bebop, a DEX aggregator incubated at Wintermute, flopped entirely.