What We Can Learn From the FTX Collapse: Our Perspective on the Crypto Market Liquidity Crisis

Sharing our perspective from the last weeks and the months to come.As most of you know by now, FTX had an enormous bank run last week that was halted last Tuesday. In our opinion, this comes as a result of the LUNA crash in May of this year. The domino effect was halted by FTX stepping in, but behind the scenes, it was just an extension. The tiles started falling again when Alameda Research’s balance sheet came out of the closet—causing a series of dramatic events which brought us to where we are today.Kairon Labs has had a bearish view in the market ever since March of this year and was —and still is — positioned for this since then. Besides our own positioning, this is something we never expected. As one of the leading market makers, we did use FTX extensively and even worked closely with them on different sponsorship deals. Last weekend the management decided to remove >98% of our assets from FTX to reduce our risk. The leftover balances are not impacting any of our risk management rules. Very few company assets and zero client balances are thus exposed to the insolvency of FTX and Alameda Research.However, this turn of events is indescribable, and its ripple effect is unimaginable. As a firm, we have always been risk-averse, and focusing on market-neutral strategies has been one of our highest priorities. Currently, the market has lower liquidity and wider spreads than usual.If we can learn anything from this year, it’s that every relevant player in this industry must be transparent in their actions.In the coming months, the ripple effect will continue. ​​We expect that the current market will likely need to find another bottom, followed by a low volatile and low volume market. In the long term, we believe that decentralized protocols will keep growing in both volumes and in the type of financial product offering. This is where Kairon Labs will also keep investing time and resources. If you have assets stored on our Kairon Labs corporate exchange accounts and are not comfortable holding them there anymore, let us know, and we can transfer these assets back to you at your earliest convenience. We do want to point out that we have not seen any signs from other exchanges in regard to their possible insolvency. It's darkest before dawn, but unless the world has ended, the dawn will come, just as it always does.(authors: Mathias Beke and Brett Beattie)