According to a Financial Times report published on Sunday, Singapore-based exchange crypto.com deploys internal teams to trade tokens for profit.
The Financial Times (FT) received information that executive sat the exchanged managed the internal market-making operation, all the while making “absolutely dramatic sworn statements that Crypto.com was in no way involved in trading” to any external trading houses.
Crypto.com denied allegations that it asked employees to lie to other market players, but acknowledged the existence of the internal market-making teams.
One spokesperson told the exchange that “this is not a controversial practice”, explaining that the trading team ensures the exchange is risk neutral by hedging positions on several venues, including crypto.com itself.
But according to sources knowledgeable about the matter, per the FT, the proprietary trading desk isn’t concerned with facilitating an exchange, but rather functions with the sole intention of making money.
This could mean that Crypto.com is directly or indirectly trading against its own customers.
One Twitter commentator wasn’t surprised about the news, saying that “cryptocom runs a high frequency hedge fund that trades against the interests of their users”.
Surprise surprise, @cryptocom runs a high frequency hedgefund that trades against the interests of their users https://t.co/K6JzLcYTZH pic.twitter.com/TUSkOmZrjF
— Pledditor (@Pledditor) June 19, 2023
The market-making desk tries to increase liquidity on the exchange, according to these sources, which Crypto.com acknowledged, telling the FT that its priority was to improve order blook liquidity and lower spreads for a more efficient market.
Aside from ensuring a liquid trading environment, internal market making operations can sometimes result in the exchange outperforming retail investors trading on the platform, making the practice rather contentious.
Nonetheless, a handful of exchanges, such as BitMEX and Binance, have established internal trading desks with the purpose of increasing market liquidity.
The FT report raises questions about possible conflicts of interest as American regulators crackdown on exchanges like Binance and Coinbase, both of which were sued by the US Securities and Exchange Commission this month.
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