Gate Institutional AMA series with GSR: GSR on Crypto Market Making, Risk Management, and 2023 Outlook
Gate Institutional Department hosted an AMA (Ask-Me-Anything) session with CJ Fong, Head of Sales (APAC & EMEA) at GSR, on Gate.io Exchange YouTube channel.
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Guest
CJ Fong, Head of Sales (APAC & EMEA) at GSR
In the third episode of Gate Institutional AMA series CJ Fong of GSR discusses the company’s focus on market making in the world of crypto, including services such as OTC, treasury management, asset management, and VC. He also discusses r and offers advice to professional traders looking to get into crypto trading and market making. He talks about the outlook for 2023 in the crypto world, emphasizing regulatory efforts, innovation, and the battle between newer and older Layer One systems. Finally, CJ Fong encourages the audience to learn more about global market maker GSR and its reports and analysis.
Introduction
Gokay (Host): Hello everybody! This is Gokay from Gate.io Institutional services. Our team manages a wide range of institutional clients, including: hedge funds, institutional traders, High net worth individuals, and family offices. I’m excited to host our third episode of the Gate Institutional AMA series. And I’m happy to present you a new format of our AMA series - now you can not just listen to us, but also watch on Youtube.
So welcome to our stream with crypto market maker GSR. Today we have special guest: CJ Fong, Head of Sales (APAC & EMEA) GSR. Thank you for joining our stream. Nice to see you! How are you? How do you feel?
CJ Fong: It’s a pleasure to meet you, Gokay! Thanks for having me on your AMA. I look forward to the discussion today. Feel free to take it away.
Gokay: Yeah, thank you. This is also a pleasure for me and nice to meet you, CJ!
Q1: CJ, tell us a little about yourself. Who is CJ Fong? What’s your background?
CJ Fong: Yeah sure. I run sales over at GSR. The regions I cover are APAC & EMEA. So technically everything that’s the non-US side of the business. I joined GSR about two and a half years ago. My background actually is one from traditional finance. I spent more than 10 years in banks. My career predominantly was at Morgan Stanley in Hong Kong. I was a structure on the training floor, moved to private wealth, had a bit of a stint at Nomura private bank as well and ended up in crypto. So I’ve been in crypto since about 2017 from an investment perspective. And right now GSR is an organization that has a global footprint with more than 250 staff worldwide.
Gokay: Wow, that’s amazing. I know lots of people coming from traditional finance to crypto world and that this is a great background experience.
Q2: How did GSR come to life and how is it positioned in the market?
CJ Fong: GSR has a very interesting story and I think we have a lot of history in the firm. We started off as the first altcoin market maker in 2013. It was started by ex Gordman traders. So, once again alluding to your traditional finance comment, and right now where we are is we’re a global market maker covering on a global basis. Where in Asia - we have Singapore as a HQ, in Europe South - London and also in the US’s presence. We have about 250 staff globally right now and I’ll focus on the market making all the coins for the projects out there. Currently, we market making more than 200 projects. We’re also contracted by various exchanges and we market make certain pairs for them. Right now, I think this stands at around 15 different exchanges on a global basis.
Gokay: GSR is a pretty well known company and this is a great opportunity right now for our audience to know a little bit more about GSR.
Q3: What is GSR’s current focus?
CJ Fong: I believe that what we’ve seen in 2022 has been and almost reset of the crypto industry, and I think it’s important. I think those of us who are from traditional finance saw this during the Lehman days and I think it’s happening right now. I think what it alludes to in the focus is trust. Trust is everything and I think this is where we view ourselves. From a market-making perspective, we view ourselves as ethical market makers. We are the market makers that can be trusted because our approach to market making is a client-centric approach. Besides pure market making what we feel as well, there is a need for more of that vertical stack. So our focus is on the OTC basis. We also look at Treasury management for companies as well as asset management and VC. So we’re trying to be a one-stop shop, which covers multiple areas of the value chain within the crypto ecosystem, in short an infrastructure player.
Q4: How has the recent macro environment affected crypto?
CJ Fong: So I think we can look at it in two fashions, right? And I think we do need to differentiate the nature of crypto. I think what we saw last year, it’s recovered a bit now, but it was a crypto winter of sorts when we talked about prices of crypto. But the one thing which I love about crypto and is something that I’m learning every day is that innovation in crypto has continued to happen. Builders are still building. People are now focusing on products on use cases. And I think that anything what has happened has put us in greater stead for what we will become. I’m very excited to see where we’re going to go from here.
Gokay: Yeah, that’s definitely very important. People finally understand that Blockchain develops fast and we need market makers and people to build it and keep through for this ecosystem.
Q5: How do you stay informed and educated about the cryptocurrency market and its development?
CJ Fong: So that’s an interesting dynamic. And something actually, I get asked a lot from our more traditional old school finance clients. There are so many informational sources. How do you keep them all in line? How do you sift through the weeds to find what’s pertinent, and what is accurate? Unfortunately, within Crypto, we don’t have news sources like Bloomberg that we had in traditional finance states. However, what you kind of find is that the nature of crypto is because it’s societal in nature, it’s democratized in nature. You can find information from Twitter and from Reddit. Not only that, you have really good reporting standards out there. But the biggest element of information or source is the network that you’ve built. The people that you have on the ground. This can be the VC network. The exchanges like Gate, for instance. It can be different people on different parts of the chain who see different elements. By having regular conversations, by maintaining contact, you are able to create and paint a picture which is very holistic on a global basis.
Gokay: Yeah, this is amazing. Because, if something happens in the market, your network directly gives you information. And if you surround yourself with amazing people in this ecosystem, you will be one step ahead of others.
Q6: Most of our viewers and followers are, naturally, retail investors, so I was wondering if you wouldn’t mind giving us a brief explanation, in simple terms, of what Market Making is and what does a Market Making company do?
CJ Fong: I think market making it is a fundamental liquidity provision. Now, if we think about that, what we can do is we can compare parallels to traditional finance. So in traditional finance, the banks themselves are considered as market makers. How it tends to work is that all of the banks, within the traditional finance space, will provide liquidity on a singular venue. If you wanted to trade a tech stock, for instance, it will be on one venue where all banks participate. So you get very thick pools of liquidity. Unfortunately, crypto is very unique in this aspect though, because we have very fragmented pools of liquidity and the market maker needs to sit in the middle, so to speak. And he needs to ensure that the trading experience and all venues are fungible. Meaning it’s the same. Meaning if I trade on exchange A versus B versus C, I should experience it the same way.
Liquidity provision within crypto is very unique compared to what you would find in traditional finance though. So one aspect, I would like to give an analogy, is that let’s say tomorrow Tesla decides to deal with their stock for any reason. Well, Tesla still produces cars, they still generate revenue and businesses are going concerned will continue. But within crypto, if layer one, for instance, the token that they provide goes out into circulation and stops circulating within the ecosystem - a lot of the times that Blockchain may slowly decay.
So a market maker within crypto plays a very responsible role. You’re almost a base layer before the layer ones build on top. It is our job to ensure that projects are like that. The trading experience there is always liquidity and that is where we fit in the grand scheme of things.
Q7: How do you manage risk when market making in cryptocurrency?
CJ Fong: I think managing risk is a very interesting dynamic and I kind of feel like risk management in crypto is slowly evolving to the same levels that we have seen in traditional finance. And I think that’s a very important analogy, right? Risk is very similar, right? You have things like price risk. You have things like security risk. And I think more and more. So the cyber security aspect of business is becoming very important. Another area where a lot of market makers, and even participants in industry, are touching to look at more is regulatory risk. Reg risk has come to the forefront, right? KYC, AML, the nature of being able to trade, for instance, some dexes, it’s a very different dynamic.
I feel the best way to manage this risk and it’s something that we do very well at GSR, is we have centralized risk functions. We have a risk team, which literally spreads, and permeates across the firm and the different functions that we have. And they’re able to identify be it counterparty risk, be it red risk, be a tech risk pricing. And I think something which happened in 2022 and has really come to the front and center is that of counterparty credit risk. This is something that’s very, very common in the olden world, right? Where you trade with somebody and what you expect is to understand what they look like, and be able to measure the risk accordingly. Unfortunately, for crypto we haven’t managed to do that. Now, the biggest question we get asked whenever we deal with counterparties on OTC, is they really want to know: How is GSR positioned? How do we look in the current climate? And how have weathered? So what they are really asking about is counterparty credit risk. I think this is going to become more sophisticated. And I think the more sophisticated it becomes, the better it is. Because what it does creates a robustness within the infrastructural companies within Crypto.
Q8: Do you have any advice for pro traders looking to get into crypto trading and market making?
CJ Fong: So it’s very unique, right? I think we need to be able to first categorize market makers. GSR’s approach to marker making is very client-centric. And our approach to market making is one where our focus is on being market neutral, by being a market making shop. It means that we do not take directional views on the underlying that we are market making for. It means that what I am able now to do is create bids and offers which are equal on both sides. This is fair market practice, so to speak. Our job is to ensure that the underlying token can be traded by the ecosystem and by the community. And there is no real right or wrong here. There are many other market making shops in the street who, for lack of a better term, their DNA isn’t proprietary trading. The way they approach market making is slightly different. They tend to focus a lot more on taking of levels, and it’s very unique compared to the making of levels.
Now, alluding to your question: How do people get into the game? I think it really depends how you want to position yourself. I think having good algos, robust systems is always going to be the basic level. There are a number of companies out there creating basic software. So the pro trader, the people at home, are able to run their own algorithms to trade how they want to trade. But I think if you really want to become a proper market neutral market maker, which services the industry, the first thing you’re also gonna need is balance sheet. I think what we’ve noticed about crypto, especially when the borrower lending markets collapsed, was that capital is king. And when credit markets freeze up overnight, it does affect market makers. And it’s something that we pride ourselves in over at GSR, where we maintain a healthy balance sheet, understanding how these dynamics would shift.
Q9: How do you handle volatile markets? How does GSR adjust its liquidity provision strategies in a volatile market?
CJ Fong: I think if anybody comes across and tells you that volatility is bad, that is a very strong statement. Say that too much volatility is good will probably not as well. It tends to scare away retail. I think volatility maintains that fine balance between it. And that’s something that we tend to do at GSR when it comes to volatility. Obviously, a bit of volatility is good, because it causes price to move, keeps people interested in the market. At GSR, what we do is we have risk systems in place. Even the way that our pricing model works is that we restrict volatility. What we like to approach is that we try and smoothen out volatility. We make it more palatable for everybody. Rather than having gaps up and down, it sends to reduce this. So there’s still movement, but it’s on a much more manageable level.
Gokay: So it keeps more stable and more enjoyable in the market when it’s like this.
CJ Fong: I mean, it would be controlled, right? Stability is one aspect. We don’t go in to tell you where a price should be. The price of an underlying is the price that the market trades act. Thats nothing to do with your market maker. But what we tend to do is to get to that price. Does it take massive swings? Are we able to assist in smoothing out that type of volatility? That is the approach we would like to take.
Q10: How do you stay competitive in the Market Making space?
CJ Fong: Certainly, you asked a really good question. And its a question transparently. As senior management teams, we discussed this on a very regular basis. I think the first thing is to be humble. It is to understand, firstly, that the market we’re in is perpetually evolving. And with that evolution, we need to stay flexible, we need to stay nimble. But more importantly, we have to accept changes that are going to come.
So when it comes to “How we stay competitive”, there are a few things. On one aspect, we have the tech aspect. We are continuously refining our algorithms. We are continuously ensuring that the robustness of the systems remains. On the other side of the business, were ensuring that from a risk management perspective, we look at our risk holistically across the books. By doing so, we ensure that we remain a going concern. But more importantly, this puts trust in us by our clients.
The one thing that GSR does very well, and we’ve actually done this since we started out, and we feel that right now we are almost at the Pinnacle of what we were doing, is the franchise that is GSR. I think the competitive GSR maintains on by being one of the very few market neutral client servicing market makers, we have managed to develop a franchise. Everybody knows whose GSR is. Our approach to business is fair, it is one of education, and it’s one of really teaching the right things to be done in this market. And we think that as this continues to evolve, as it continues to develop, it’s becoming more positive. Because people understand that when a token list, for instance, is the beginning of the journey of a project. The project’s real goal is to develop its product, its ecosystem. And if it does it well, the underlying token should follow suit.
Gokay: So if any project is backed by GSR, I think they feel lucky. This is one thing we can consider.
CJ Fong: I wouldn’t say “lucky”. I think if a project, and when project work with GSR above all else, they know that they’re gonna get professional service. They know that it’s gonna be the right thing and they know that from an ethical and compliant aspect. We’re top of the part for something like that.
Q11: How has GSR’s experience been so far working with Gate.io?
CJ Fong: Gate.io has been one of those exchanges that we have been on a very early basis. We actually support a lot of projects on Gate. I think as an exchange, Gate does the right thing by one. Manipulation is probably one of the worst things that happens within the industry, and I think Gate does a good job of trying to remove a lot of that. So it was a very good experience.
But the best thing about working with Gate.io transparently has always been the responsiveness of the teams. We always feel like Gate really works with us whenever we make a suggestion. Because the suggestions we make, as a large market maker, are very highly likely that other trading shops, other market makers, we have a very similar opinion. So by doing that, it actually helps Gate evolve. So Gate I feel it’s very good at that.
Gokay: Well, thanks for this. Yes, we especially consider our clients’ and our partner’s advice and suggestions very strongly. And what we’re gonna do on the long term basis.
Q12: We are almost at the end of our main section about “GSR”, so before we wrap things up, I would like to ask what are your expectations for 2023?
CJ Fong: Regulatory, innovation, use case and penetration. I think this is the way that we should look at 2023. And everything I think about 2023 has nothing to do with prices. I’m a believer that when we can reinstill trust back in the system, when we show that there is a proper use case and we evolved to that level, prices will fall. So if you think about the regulatory landscape, we’ve had a very tough one. There is no real, on a global basis, real regulator right now leading the way for the cups of crypto regulations.
I think 2023 is the year that this sort of changes a bit. I don’t think we’re gonna see one main leader. What I think we’re gonna see is most likely a few countries banding together, having a lot of open discussions, and that framework will slowly start to take place.
So I think that the year itself is gonna be very exciting. I think we started off very well, all things considered. I mean, right now there’s a lot of problems still in the market, especially with the Genesis thing that just happened recently. But I do feel the market is a bit more constructive. So I think when a market is constructive, should we be looking at prices for that 1020x? I don’t believe in that. What I think is when the market is a bit more constructive, people can actually take a breather. We stop panicking about where prices are, and we go into build mode. We go into growth mode. But more important, we go into that mode where we sit down and we think, what is really going to be right for crypto? So I do believe 2023 will be the year for that.
Gokay: Wow, that’s amazing. I think people need to go a little bit back and listen one more time. And there are lots of answers inside of this. Thank you so much, CJ!
Q13: And finally, if there’s one thing that you would like our audience to take away from today’s AMA session, what would it be?
CJ Fong: I think from an audience perspective it is an understanding that market making within crypto, it’s an ever changing game. I think that there is a market maker which suits a particular person. And I think that on a few levels, as a project, you must understand what youre looking for. Because a market maker is critical. Regardless if you go for a prop shop market, neutral, etc. But I also think that crypto right now is looking towards larger, more stable players. And one of those is going to be GSR. We are going to be around and we’re seeing this growth of market share on our side. So I’m very hopeful about going forward. And I think the beginning of the year, what was started off really strongly, so hopefully continues.
Gokay: Definitely. I think our partnership with GSR will continue and will grow in the coming years and we will have great results together.
Ending
Gokay: CJ, thank you very much for all of your time. It’s been really informative and I hope our audience, who always watch us, now knows better about who you are. And it’s been really good for me just to have the information about you and be more interested in GSR itself. Get in touch with GSR, visit their website, read more information, follow their reports and analysis.
CJ Fong: Thank you for the opportunity, Gokay. It was nice to meet you!
Gokay: Thanks to everyone who joined to watch our AMA series. Follow us on social media, for more information write to our key account managers.
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