Crypto Still Need For 24/7 Risk Management, TradFi Panelists at Consensus Hong Kong Emphasize

The crypto ecosystem has come a good distance for the reason that implosion of Sam Bankman Fried’s FTX destroyed billions in investor wealth in 2023. However, the business as an entire must extra to develop into bullet proof, mentioned TradFi specialists at the “Views From Wall Street to Crypto” occasion held at Consensus Hong Kong on Wednesday.

“You have traditional players who have come into the space now, especially for us, most of our trading happens of exchange settlement, where you actually keep your assets on custodians while you are able to trade on exchanges,” Gautam Sharma, CEO and CIO of Brevan Howard mentioned. “So the technology has come far ahead in terms of the last 18 months since then, [but] there’s more work to do.”

Sharma pressured the necessity for 24/7 threat administration, together with market, counterparty, and credit score dangers.

Counterparty threat refers to the potential for one get together concerned in a transaction failing to satisfy its obligation, leading to a loss to the opposite get together. This kind of threat is increased in crypto than in conventional finance, given the absence of intermediaries corresponding to banks or clearing homes that guarantee belief and settlements, and it’s a reason for concern for each directional and non-directional arbitration gamers.

“When we do arbitrage, the counterparty risk is the most important one,” Fabio Frontini, founding father of Abraxas Capital Management, mentioned, including that credit score threat can be crucial.

Frontini pressured the significance of simulating stress testing situations, referring to the perpetual futures market the place customers can lose the margin when stopped out on a commerce, which isn’t the case in conventional markets. “It [stress testing] can be very rewarding, when done properly,” Frontini added.

Mike Kuehnel, CEO of the market-making agency Flow Traders, highlighted the necessity to make innovation clear to win over investor confidence and guarantee “availability of data and moving liquidity without fragmentation around it.”

“Getting the best price and giving you the possibility to transact whenever you want to is a key ingredient,” Kuehnel added.

Liquidity, or the power of the market to soak up giant orders at steady costs, emerged as a major concern following the collapse of FTX and its sister concern, Alameda. While the order e book depth has absolutely improved for main cash, fragmentation or distribution of liquidity throughout a number of DeFi platforms, blockchains and networks, stays a priority.