In the latest signs of a potential conflict, reports have emerged that crypto trading platform Crypto.com has deployed its internal teams to trade tokens for profits.
The Singapore-based exchange, also one of the top-10 crypto trading marketplaces, is operating proprietary trading as well as market-making teams, said five people familiar with the matter to Financial Times.
In most markets, separate private companies are behind market-making and prop trading activities. Also, the exchanges here match the buyers with the sellers at the most competitive and transparent price.
However, the US regulators have started clamping down on exchanges that support internal market-making activities. Earlier this month, the US Securities and Exchange Commission (SEC) charged crypto exchange Binance for using a trading firm operated by chief executive Changpeng Zhao and engaging in “manipulative trading that artificially inflated the platform’s trading volume”. The SEC Chair Gary Gensler said:
“These trading platforms, they call themselves exchanges, are commingling a number of functions. In traditional finance, we don’t see the New York Stock Exchange also operating a hedge fund, making markets.”
Ever since Crypto.com‘s launch in 2016, there hasn’t been much talk about internal trades at the exchange. However, one source with direct knowledge said that Crypto.com executives gave other, external trading houses “absolutely dramatic sworn statements that Crypto.com was in no way involved in trading”. Another source added that the exchange asked employees to “say there is no internal market maker type operation”.
In response to the questions asked by Financial Times, Crypto.com said:
“We have an internal market maker that operates on the Crypto.com exchange and that internal market maker is treated exactly the same as third-party market makers that identically facilitate tight spreads and efficient markets on our platform. This is not a controversial practice”.
According to the company, the majority of its earnings came from its app designed for retail traders. In this app, Crypto.com acted as the counterparty for transactions and operated as a broker model.
“As such, the Crypto.com trading team ensures that Crypto.com is risk neutral by hedging these positions on a number of venues, including the Crypto.com exchange”. It further added that “operates as a level playing field trading venue”.
However, sources said that Crypto.com’s proprietary trading desk trades on both – the company’s own exchange and other venues. The sources said that the market-making desk at Crypto.com tries to boost liquidity on the venue. One person said that the proprietary trading team has the sole goal of making money and “not facilitating an exchange”.
“All companies operating in the trading industry compare volumes to their competitors,” said Crypto.com said, adding that their priority was to “continuously improve order book liquidity and lowering spreads as it results in a more efficient market for all participants”.
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