Hi everyone, Evgeny here from Wintermute.
tldr: I think there is an opportunity here to gain significantly more from this proposal by considering more MMs with strong defi capabilities. Wintermute can bring very unique value prop by providing liquidity in multichain world, not just on centralized exchanges
Let me start by saying its unfortunate I’ve missed this post 5 days ago – its tough to keep an eye on everything in defi, especially with markets being as they are. However late, I’d like to weigh in on this given we are pretty active in defi (both on trading and governance side of things) and we did quite a few of MM deals ourselves this year🙃
So first, about Wintermute
Wintermute was founded in July 2017 by three Optiver veterans. We are active on all tier 1 and tier 2 cexes, all key defi protocols (AMMs, aggregators, CLOBs) and across other chains (Polygon, ZKsync, Avalanche to name a few) with a general focus on creating liquidity in a multichain world. We have a strong OTC desk focusing both on hnwi/family offices and services retail aggregators.
Wintermute is trading $6-8 bln on a normal day, $1.5 trl since we started counting. Significant part of it comes from our defi operations. We have been in defi since 2019 and are top MMs on DYDX and largest PMM on 1inch just to give two examples
Wintermute is backed by Lightspeed Venture Partners, Pantera, Blockchain.com Ventures, Sino Global
and others
Now back to the proposal. Factually, we’ve been approaching (and being approached by) DAO’s to become their Market Maker quite a few time this year. To that degree it’s not super accurate to say that this proposal (and AMA) is something unseen on defi😊. To provide an example:
https://vote.indexcoop.com/#/proposal/QmZJzVGRgsu4AZVWyr4zqeuQLYfbjmq3n7dGGJmrNNKp7b
In general, being a MM for a project is an important strategic part of our business. On a most basic level it allows us to get inventory to project’s token (and we generally expect to make money from that inventory for liquid tokens) and gives us an upside in form of options. However, we typically like to dig deeper into how we can provide value. In the abovementioned Indexcoop proposal we went beyond the usual setup and committed to provide liquidity in their index products. This deeper engagement is very much in line with our defi focus and it also helps to set us apart from other MMs who are not necessarily that sophisticated with what they can offer.
I understand that DAOs have to make certain choices and cannot just vote on everything and get into analysis paralysis. What’s missing for me (and looks like for at least a few others on this forum) in this proposal is who else has been in consideration list and how GSR made the cut. From my experience, the top firms, working in the loan+option MM business, currently are GSR, Jump and Wintermute. There are quite a few others as well. The main negotiation points for these contracts are size of the loan and strike for the options. Other things equal, MMs then try to convince the project about all the other amazing things they can do. Most serious MMs would have sufficient coverage for centralized exchanges, so it’s not really a differentiating point. For us it is:
- bringing liquidity to other chains and generally do cool things others cannot (for OHM specifically we could think about something for sOHM, gOHM and whatever other random alphabet letters will pop up in future😊). Think beyond scaling/L2s and even beyond EVM chains, starting with Solana for example
- being an active governance participant (without necessarily casting the votes using our loan – we usually specifically agree with projects whether it is acceptable or not (most of them say no and its cool)). We are even hiring people to focus on this full time (and welcome anyone at Olympus to consider and apply!):
https://jobs.lever.co/wintermute-trading/bc082c00-c48a-447a-a2c4-e1d19f59c76f
- anything OTC related. This is generally focused on treasury diversification or helping individuals to buy/sell OHM without significant market impact. But we can be creative and do something more complex on structured product side
- We also have at least two ohmies at Wintermute currently, which is not really a selling point but thought would be fun to mention😊
Also, reading through the comments, wanted to address a few points that were raised about MM model in general:
- Cex listings are inevitable if $OHM continues to be successful. Having a market maker will likely speed things up, but it’s not a 100% prerequisite. $DYDX launched without a marker maker on quite a few key exchanges despite the team being very vocal on not focusing on it (and being very much against engaging with Market Makers)
- There have been instances where MM signed agreements with DAOs (we did), but at the end of the day your main protection is the good name of your MM being damaged from doing something against the agreement or, worse, not returning the loan. Reputation damage for us (or GSR or Jump) would greatly outweigh $20 mln
- Loan amount is a very important consideration and I’m a bit on the fence with this one. On one hand its generally quite big – $10 mln would have been enough to cover most cexes. On the other hand, we would have required full $20 mln to cover dexes (and other chains). I’m not sure if GSR is a PMM for aggregators like 1inch or Paraswap – we are and would require some inventory for that
- A related point and one which I’m also still figuring out myself is whether an option is a big deal at all, given how much dilution $OHM will undergo in 6-12 months time if all goes well. A potentially better structure (from MM perspective) would be to keep increasing/decreasing the loan as % of total tokens issued and tie the option to the total market cap instead of price
To summarize as I’ve covered a bit of ground here. Wintermute would like to get into the consideration set. We are the strongest MM in defi across multiple chains and protocols and will only grow our coverage going forward. You can potentially add a lot of value by considering more MMs (Wintermute, Jump and Alameda at the very least). Otherwise there should be a good explanation of the decision process