Crypto.com has an internal trading team and operates as a market maker on its platform, highlighting a potential conflict of interest, reported the Financial Times.
Market makers provide liquidity, ensuring users can buy and sell quickly at prevailing market prices. The function reduces the risk of price fluctuation and enables efficient trading.
Earlier this month, Securities and Exchange Commission chair Gary Gensler criticized crypto exchanges for often commingling functions. He said, “In traditional finance, we don’t see the New York Stock Exchange also operating a hedge fund, making markets.”
Crypto.com defended its position by saying in-house market making is “not a controversial practice.”
Conflict of interest
Exchanges protect their customers’ interests, while trading teams aim to earn profit. If an exchange has its own market maker and traders, there is a risk that it may prioritize its interests over those of other parties.
For example, user orders could be executed at less favorable prices than the exchange’s trading desk. In addition, exchanges have access to market data, including order flow and trading volumes, which could be used to give an unfair advantage over other traders.
More importantly, with control over the trading platform and their trading desk, exchanges may be able to manipulate the market, including artificially inflating trading volumes and creating misleading market trends.
Crypto.com says there’s nothing to worry about
Crypto.com told the FT that its internal market maker is treated “exactly the same” as third-party market makers on the exchange.
Regarding its trading team, the firm said its traders hedge their positions on different platforms to ensure Crypto.com remains “risk neutral” – adding that it does not rely on its trading desk as a significant source of revenue, which mostly comes from its retail trading app.
Unnamed sources cited by the FT alleged that Crypto.com’s trading desk primarily aims to generate money, not to facilitate an exchange, and that it had asked employees to deny the existence of an internal trading team and in-house market maker operations.
Crypto.com said it had not requested staff to lie to other market participants.
Due to the hostile U.S. regulatory landscape, the firm is set to close its institutional exchange in the country this week.
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