(Bloomberg) — Donald R. Wilson, founder of Chicago-based proprietary trading powerhouse DRW Holdings LLC, criticized the practices of digital asset exchanges during last week’s crypto market meltdown, where cascading liquidations led to record losses.
“If crypto markets aspire to institutional credibility, then exchanges need to be just that: neutral venues for trading,” the Chicago-based Wilson said in a commentary Friday. DRW’s Cumberland unit is one of the largest trading and market-making firms in crypto.
Without naming any specific exchanges, Wilson chastised the platforms for providing liquidity on their own venues both when there was a huge liquidation event like last Friday and during normal time.
“In traditional finance, that’s a bright line,” he added. “In crypto, it’s often blurred, and that’s a problem.”
His comments came after a record $19 billion in bets evaporated in crypto last Friday, and prices across cryptocurrencies tumbled. The selloff marks the biggest single-day liquidation event in the history of crypto, bigger than the collapse of TerraUSD and FTX’s blowup. Since the crash, there has been been increased discussion in crypto over how to avoid such large-scale liquidation events in the future.
Cumberland continues to operate business as usual, a spokesperson said.
Wilson also said certain exchanges allegedly suspended deposits during the selloff, of what he called as “unthinkable” in traditional finance market plumbing, and that had triggered additional volatility. That’s because many traders could not add deposits to meet margin calls.
“That’s the kind of operational fragility that must be fixed for tradfi to function on these new rails,” he said.
At the same time, Wilson said that the crypto market can benefit from the role of futures commission merchants, or FCMs, which can serve as a buffer between customers and the exchange especially in a market where real-time margining exists.
“Most crypto platforms don’t have this type of FCM-like buffer in the mix, which makes this approach far more challenging,” Wilson said. “Positions are marked and liquidated instantly and when liquidity dries up, there’s no intermediary capital to cushion the shock, as we saw last week.”
More stories like this are available on bloomberg.com
