Crypto Industry Advances Post-FTX, But Round-the-Clock Risk Management Remains Key
HONG KONG – The crypto industry has come a long way since the collapse of Sam Bankman-Fried’s FTX in 2023, but achieving full security and reliability remains a challenge, according to financial experts speaking at the “Views From Wall Street to Crypto” panel at Consensus Hong Kong on Wednesday.
“Traditional financial institutions are now actively participating in crypto, and most of our trading happens through off-exchange settlement—where assets remain with custodians while we trade on exchanges,” said Gautam Sharma, CEO and CIO of Brevan Howard Digital. “Technology has advanced significantly over the past 18 months, but there’s still work to be done.”
Sharma underscored the importance of 24/7 risk management, with a focus on market, counterparty, and credit risks.
Counterparty and Credit Risks Remain Major Concerns
Crypto trading introduces heightened counterparty risk, as the absence of banks or clearinghouses increases the potential for a trading partner defaulting on obligations. This risk is especially significant for arbitrage traders.
“When engaging in arbitrage, counterparty risk is the most critical factor,” said Fabio Frontini, founder of Abraxas Capital Management. He also highlighted the role of credit risk, which is crucial for ensuring smooth operations in volatile markets.
Frontini emphasized the necessity of stress testing strategies, particularly in perpetual futures trading, where traders can lose their margin upon liquidation. “If done correctly, stress testing can provide a major advantage,” he said.
Transparency, Liquidity, and Institutional Confidence
Mike Kuehnel, CEO of Flow Traders, pointed out that market transparency and liquidity management are essential for growing institutional adoption. “Investors need confidence in innovation, which requires better access to data and the ability to move liquidity efficiently across platforms,” he stated.
Liquidity—or the market’s ability to handle large trades without causing price swings—has improved since FTX’s downfall, particularly for major cryptocurrencies. However, liquidity fragmentation across multiple DeFi platforms, blockchains, and networks remains an issue.
“Ensuring competitive pricing and seamless trade execution is fundamental for institutional investors,” Kuehnel added.
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