As we close the books on 2018, I wanted to take a moment to reflect on work we have done over the past 12 months and share some thoughts on what I think 2019 may have in store for us. For GSR, 2018 was a year of institutionalization. Our core Market Making and Trading operations experienced record growth, and our Quantitative Investment Strategies team had an auspicious start. On the flip side, Strategic Investments took a step back as a result of market beta.
Our headcount doubled, strengthening our management bandwidth through key hires from leading finance and tech firms. Our trading volumes increased amid the market downturn as we further established our leadership position as a provider of algorithmic market making to issuers, exchanges, and other trading venues. We made strides towards the creation and growth of the digital asset derivatives market, which enables us to offer more tailored trading and risk management solutions. Last but not least, we made a significant move in our efforts to promote a fair and orderly marketplace by becoming one of the founding members of the Association for Digital Asset Markets (ADAM).
Engineering & Research
GSR’s competitive edge hinges on research and software engineering, so it merits the first mention. Our ambition has always been to leverage our proprietary trading platform to offer our clients tailored services and products for all of their crypto trading needs. We are continuously upgrading our technology, including our market making client, the engine that drives most of our trading. Amongst the upgrades last year were improvements in infrastructure robustness, integration efficiencies, and order-gateways, leading to increased overall stability, performance, and scalability of our trading system. We significantly grew the number of data feeds we listen to, allowing us to improve our pricing and risk management, allowing us to trade faster and smarter, and increasing uptime. We also integrated KPI measurement into our order-gateways and reporting, allowing us to be more transparent and accountable to our clients.
Market Making
At GSR, we continue to consolidate our position globally as one of the most reputable and effective market makers. We have deployed hundreds of models in as many crosses and are integrated with over 30 liquidity pools. Our trading volumes typically afford us the lowest fee schedule available, further adding to our competitiveness. Throughout the year, we also expanded from physical token trading to margin trading on both tokens and futures. Our clients include new token issuers to multi-billion dollar projects, some of which have traded with us since 2013, and whom we support across a broad range of trading venues. We continue to broaden our market-making services to exchanges. In addition to providing liquidity, we have assisted several exchanges in improving their APIs to become more competitive. Although the utility token space has slowed down considerably, there are still numerous upcoming high-quality projects which we are excited to work with. We also continue to prepare for the arrival of the much-anticipated STO market. Thus far, there is no secondary market to speak of as most projects are still within the one year SAFT lockup.
Trading
Trading our balance sheet over the past five years has served as a constant reminder to respect the market and prioritize disciplined risk management. As active discretionary traders, we are more informed on market dynamics and can provide more fluid execution and flexibility versus a traditional agency model. From the most basic needs to highly structured or enterprise-level engagement, we helped a diverse list of counterparts achieve their trading goals in 2018. We successfully worked with ICOs, miners, exchanges, family offices, endowments, and institutional traders such as hedge funds and index funds. Our connectivity and programmatic execution capabilities have been instrumental in helping our clients to enter and exit large amounts of risk in a year of shrinking volumes. We can source liquidity from numerous pools simultaneously, fostering significant efficiency gains, saving both time and capital. Additionally, with our expansion into 10 cities globally and the addition of several new banking partners we can offer seamless FIAT settlement across most jurisdictions and currencies.
Quantitative Investment Strategies (QIS)
Our continued research in digital asset data is at the core of what we do, and led to the formation of our QIS group. QIS is leveraging our extensive experience in algorithmic market making to develop predictive alphas. We have spent a lot of time collating and parsing reliable market data and building a robust research environment with sound protocols. We are currently in live production across numerous models for our principal strategies and have a healthy research pipeline. In parallel, we continue to evaluate the performance and robustness of our models as they are incorporated into our risk management framework. While these are exciting developments, we are not rushing to market with a client investment vehicle until we have a deeper appreciation of the longer-term diversification, risk, and return characteristics of the investment strategies, as well as the overall capacity of our trading program.
Developing Market Standards
The Association for Digital Asset Markets (www.theadam.io) was launched in 2018, and GSR played an influential role as a founding Board Member of the Governance Committee. ADAM is the first broad-based organization in the US to proactively seek comprehensive standards for digital asset market participants, a goal that we strongly support. ADAM will work with regulators to provide rules for delivering efficient trading, custody, clearing, and settlement of digital assets. Future guidelines will encourage professionalism and ethical conduct by all market participants, increase transparency by providing information to the public, and deter market manipulation. Through such efforts, ADAM will accelerate fair and orderly digital asset markets where innovators and capital can transact with confidence. We are proud to form part of this critical effort and look forward to realizing the positive impact in the year to come.
What to expect in 2019
The existential decline last year added a needed seriousness to the market. This notion is best personified by the attendees of the many conferences we participated in last year around the globe. While it was mildly entertaining to witness people in costume successfully raise funds for ambitious endeavors, the much-needed hangover arrived by mid-year. The character of conferences was more sober as infrastructure and custody providers and regulators began to outnumber the evangelists, pundits, and their fans. The industry may always keep a more casual demeanor than Wall Street, but once billions of dollars are at stake, it is essential that responsible parties are in charge. This will also help to ensure that adoption leads the market higher, rather than hype or manipulation.
It is hard to predict the future when the landscape remains so uncertain. But, this is an essential part of running a business. I hope 2019 will be the year of adoption. There are projects with inspiring visions and strong teams that will finally come to market with products solving real-world problems, including incorporating blockchain more into our daily lives. We expect to see more exchanges and stablecoins in the first half of 2019. However, by year-end, consolidation should win out. Compliant derivative exchanges, in particular, should dominate, as participants get accustomed to the ease and safety of trading futures and options on proper platforms with professional customer service. We will see more regulation, and with it, the slow emergence of the security token, and tokenized asset markets. The utility token space will likely continue to dry up but is liable to pop up again in the future. Similar to traditional angel investing, few projects succeed, and those that do often take years before they have anything significant to show for themselves. But, eventually, there will be true innovators that succeed in creating great products.
Thank you
Thank you to our clients for your business and continued trust in GSR. We view all of our relationships as partnerships and wish everyone the best of luck navigating 2019.
I appreciate all the hard work and sacrifices made by my team and their families as well as the many service providers and counterparts we engage with daily to effectively operate in a 24/7 business environment. I trust that our communal efforts will have positive impacts on the future of both technology and finance, and I thoroughly enjoy being part of the dynamic movement that is crypto and blockchain.
Cristian Gil
GSR Co-Founder