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With Sam Bankman-Fried’s Hedge Fund Gone, Crypto Trading Firm Wintermute Emerges


By deftly navigating crypto’s frontier markets and winning big on the collapse of Terra’s stable coin, Wintermute has grown into one of the world’s leading crypto trading firms. Now it must navigate a market littered with carcasses and landmines.


Evgeny Gaevoy was contemplating what to do if terraUSD (UST), a cryptocurrency stable coin pegged to the value of one U.S. dollar, imploded. UST had about $15 billion in circulating coins, and its parent company was backed by highly regarded investors like Lightspeed Venture Partners. But as early as 2021, a small set of people had been tweeting about its potential demise, saying that algorithm-based stable coins not backed by government-issued currencies were doomed to fail.

This past February, 38-year-old Gaevoy said to himself, “If this happens, we want to be in the middle of it.” His company, London-based Wintermute, is a trading firm that does rapid buying and selling of digital assets, pocketing tiny fractions of a dollar in profits from millions of trades a day. The more the market moves up or down, the more money they make.

That month, Gaevoy and Marina Gurevich–his wife and Wintermute’s chief operating officer–made battle plans. Wintermute’s developers spent a month integrating their trading systems with Terra’s blockchain technology. Just as high frequency trading firms try to get the fastest possible access to stock market data, Wintermute set up its own servers and ran Terra software nodes to get a front-row view of UST’s transactions and price. They wrote 4,000 lines of code for new trading algorithms. Then on Saturday, May 7, when UST’s price slipped to $0.98, Gaevoy asked his team to set up night shifts for the coming week.

Two days later, UST’s stunning freefall began, and Wintermute unleashed its arbitrage strategy. Due to Terra’s design and the coin’s cratering price, Wintermute could buy UST for $0.80 and redeem it for $1.00 worth of luna, its sister cryptocurrency. Then it could quickly sell luna, snatching a profit margin of 10% to 15% on every trade. Wintermute’s traders were sweating profusely as they worked, since the air conditioning in their London office had broken and temperatures climbed above 85 degrees.


NIMBLE KNIFE CATCHERS

Wintermute took major risks trading UST and luna as they were plummeting. It capped each trade at $5 million to prevent steep losses and came away with tens of millions in profits.


By the end of the week, UST had lost nearly all its value, and Wintermute had traded more than $250 million of it all the way down to about $0.10 a token, pocketing tens of millions in profits. Gaevoy didn’t cause Terra’s death spiral, but he greased the skids by being a major buyer of UST while people frantically tried to sell. During the coin’s descent, Terra founder Do Kwon, who is wanted by the South Korean government for violating financial laws (Kwon claims the charges lack merit and will likely be dismissed), had even loaned Wintermute millions of dollars’ worth of UST to help fund its trading, according to people familiar with the matter. Kwon apparently hoped the funding would make the market for UST more liquid and prevent it from freezing up.

The Terra play was a trademark move for Gaevoy–not just the contrarian bet on UST’s failure but having the nerve to play in the risky world of decentralized finance that many crypto firms avoid. Unlike more specialized trading shops, Wintermute’s strategy is to experiment in many corners of digital assets. “We are not the best ones in everything we do,” Gaevoy says. But its kitchen-sink approach and profits from over a billion trades have added up to big sums. While it had just 53 employees, Wintermute made $1.05 billion in revenue and $582 million in profits in 2021. Gaevoy owns a third of the company, putting his net worth at least in the hundreds of millions.

The recent fall of Sam Bankman-Fried’s exchange FTX and hedge fund Alameda Research, which was one of Wintermute’s close competitors, shocked Gaevoy and Gurevich as much as it did everyone else. “We knew they were a bit reckless and made big bets, but we could not have imagined the level of, frankly, stupidity that seems to have gone into their trading and management decisions,” Gurevich says.

Before Alameda’s crash, Wintermute was already one of the five largest crypto trading companies in the world, according to analytics firm Nansen. Could collateral damage from FTX bring Wintermute to its knees, too? Gaevoy insists Wintermute doesn’t take careless risks like Alameda, but if that debacle taught us anything, it’s that nothing is a guarantee in crypto.


Growing up in Moscow in the eighties and early nineties, Gaevoy remembers feeling a sense of optimism when the Soviet Union’s Communist government dissolved, and Russians could finally buy Western goods like Kinder chocolate eggs from Italy. Gurevich was raised thousands of miles away in Siberia and felt the same excitement, but she was always restless. As a teenager, she convinced her parents to let her switch schools four times in five years, perpetually chasing a better education. “I always wanted more, bigger, better,” she says today.

The two met in college, at the Higher School of Economics in Moscow, a highly selective, math-heavy institution founded in 1992. “It was very, very American … very, very capitalist … And it shaped us in a very big way,” Gurevich says. They met after they placed in the top 10% of their class based on their English-language skills and were assigned to the same working group.

In 2019, Wintermute had just $500,000 to trade with and brought in less than $1 million in revenue. It survived each month with just a few months of cash left in the bank.

In 2006, Gaevoy and Gurevich got married, and Gaevoy’s first job out of school was in Amsterdam at Optiver, a top global trading firm. He grew their exchange-traded fund business from a one-person operation into a profitable team of 12 and learned valuable lessons in risk management. He left Optiver after a decade because he wanted to expand beyond the niche he was in. In 2017, he, Gurevich and their two kids moved to London, and Gaevoy started dabbling in crypto trading with $20,000 of his own money.

While crypto fell into a bear market in 2018, it took Gaevoy and his two cofounders Yoann Turpin and Harro Mantel nine months to raise just $900,000 from angel investors. Trying to appeal to fellow crypto geeks, Gaevoy named the firm Wintermute after an artificial intelligence creature from the 1984 science fiction novel Neuromancer. The following year was terrible for Gaevoy and the crypto industry–retail investors had largely lost interest, and trading activity was extremely low after the 2017 bubble burst. Gaevoy only had $500,000 to trade with and brought in less than $1 million in revenue. His startup survived each month with just a few months of cash in the bank.

But in January 2020, Gaevoy says he had a breakthrough. The arbitrage trading algorithms he had built, which searched for price differences for a single cryptocurrency on different exchanges so he could buy on one and quickly sell on another, started producing real profits. On March 12, while the pandemic was causing U.S. stock markets to swing 10% in a day, crypto trading volume spiked, and Wintermute made $120,000 in 24 hours. “It became very clear that if we had more capital, we would make much, much more,” Gurevich says.

In July, Wintermute raised a small $2.8 million round of Series A venture funding led by Jeremy Liew at Lightspeed Venture Partners. Liew says his impression of Gaevoy was that “he’s very smart … it’s almost like the cliche of the extremely smart Russian mathematician type.” Gurevich, who had been working in management consulting, joined Wintermute full time as chief operating officer and became responsible for everything outside of coding or trading, including finance, strategy, recruiting and marketing. Cofounder Harro Mantel left Wintermute to spend more time with his family, while Yoann Turpin stayed on and became head of business development.

That summer became known as “DeFi Summer” due to an explosion of new products and users of decentralized finance applications for earning interest and trading. Uniswap, a decentralized trading platform that runs entirely on open-source code that can’t be modified, went from about $10 million in daily transactions in May 2020 to $1 billion three months later. Wintermute aggressively started trading on Uniswap and other decentralized exchanges, setting up systems where it could do arbitrage across a ballooning list of venues.

It began trading newly invented tokens including one fledgling coin called sushi, which had such low liquidity that Wintermute could charge spreads—the difference between the prices it was willing to buy and sell at, and part of which it could then claim as profits–of 2%.

Wintermute ended 2020 with $53 million in revenue and started leaning heavily into different lines of business. It ramped up its market making on trading platforms like Dydx, which traded more daily volume than Coinbase for a couple days in late 2021. It negotiated contracts with new token issuers like Optimism, which gave Wintermute an interest-free loan of its self-minted Optimism coins to trade and earn profits on. Often, such contracts also granted Wintermute options to buy the tokens at a fixed price and later date. Some of these deals turned out to be extremely lucrative, because during crypto’s bubbly bull market of 2021, trading coins newly created from thin air and getting low-priced options to buy them offered quick profits.

Wintermute also began experimenting in an obscure area of crypto called MEV, or Maximal Extractable Value, pursuing a trading strategy that capitalizes on the slow settlement speed of blockchain transactions to jump to the front of the line and access the best arbitrage trades.

As crypto trading volume in 2021 started hitting records, the scale of Wintermute’s operation created compounding benefits. It was connected to 30 centralized exchanges, including everything from Coinbase to Dubai-based Bybit, plus dozens of decentralized exchanges, and it was trading 350 different tokens. Like having a satellite’s view of the crypto market, that breadth was hugely helpful for arbitrage, opening a large universe of varying prices for a given asset. Being connected to so many exchanges also gave them rich signals on where the market was going, helping to predict sudden spikes or drops that might affect their trades’ profitability.

Two other big benefits of their scale emerged. The larger Wintermute got and the more it traded, the easier it was to obtain cheap financing from lenders and token issuers whose coin it traded. And transacting heavily on centralized exchanges like Coinbase gave it access to lower trading fees.

In 2021,…



Read More: With Sam Bankman-Fried’s Hedge Fund Gone, Crypto Trading Firm Wintermute Emerges

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