Key takeaways
- Flowdesk operates a retainer-based market making model where token issuers provide capital and retain all profits, differing from traditional proprietary trading approaches.
- The platform covers over 80 centralized exchanges and approximately 25 decentralized exchanges, executing millions of orders daily on behalf of clients.
- Flowdesk works with tokens across the spectrum from one million dollar market caps to several billion, including six or seven clients in the top 100 by market cap.
- The company raised a 30 million dollar funding round to scale operations and support 24/7 market making activities across multiple trading venues.
- Flowdesk is expanding beyond market making into custody, brokerage, and treasury management services while maintaining regulatory compliance across multiple jurisdictions.
A different model for market making
Ashton Addison: What does Flowdesk do, and how does it differ from traditional market making?▶ 01:05
Guilhem Chaumont: We are building an all-in-one platform for token issuers to address their financial needs, through connectivity to multiple trading venues, custodians and so on. The first product was market making as a service. It is a radically different approach from the historical model, in both traditional finance and crypto, where a proprietary trading firm ensures the liquidity. We are trying to give more power and control back to token issuers. We provide the technology and a team of traders worldwide. The issuers provide the capital. We work with them and for them, not against them, as can happen in a less healthy approach where the market maker is heavily incentivized to generate profits. Our model is retainer-based: the projects provide the capital and take the risk, but they also capture all the potential upside. They can adjust their trading parameters as they want, for example more liquidity or a tighter spread on a particular exchange. We are fully regulated, about 60 people between Paris and Singapore, and we are opening offices in the US shortly.
Ashton: Do you work with both centralized exchanges and decentralized ones?▶ 03:35
Guilhem: Of course. In a world that is a combination of CeFi and DeFi, there is no choice but to operate on both. You cannot forget either one. To give you some metrics, we cover slightly more than 80 centralized exchanges as of today and about 25 DEXs, and we execute a few million orders there on behalf of our clients on a daily basis.
Ashton: How do you manage liquidity with a client's capital?▶ 04:48
Guilhem: There are two approaches. On centralized exchanges, the issuers create the accounts and fund them. They are their own accounts, so they are always in control, and if they want to cut the trading they can do it virtually instantly. They give us the API keys and we connect our technology. We can boost up a market-making feed on any exchange in a matter of minutes. The other approach is that they give us the funds directly and we put them in sub-accounts, where we keep them in custody. We are also working on more non-custodial initiatives, where token issuers put money in smart contracts and give us a mandate to operate on it. Whenever they want, they can withdraw the funds. They lose the market making at that point, but it gives them more and more control. That is what DeFi brings to the table, and it is what we want to push.
In finance you cannot tell people, 'Trust me, I'm a nice person.' It's about proving it.
Who Flowdesk serves, and how it is scaling
Ashton: Do you work mainly with new coins, or with the largest ones too?▶ 06:11
Guilhem: Historically we worked with smaller coins that had liquidity issues, and some market makers could not even work with them because they could not assess the value of the coin. We have had really good traction over the last two years. We now work with any type of coin, from a one million dollar market cap to a few billion. I think we have maybe six or seven clients in the top 100 by market cap. Market making as a service is particularly relevant for new projects that want to bootstrap liquidity quickly and efficiently in the early days. But even the bigger projects require liquidity.
Ashton: You raised a $30 million round this year. How will you use it?▶ 07:36
Guilhem: For us it was a natural path. We had been bootstrapping the company for a while and had good traction, so it was a natural way to raise capital and scale faster. Market making is extremely complex because you are running 24/7, 365 days a year, and there is no room for mistakes like there can be at other tech companies. So we need to build a global team that ensures trading, sales and regulatory coverage on a daily basis. We also need to build the tech, because we are a technology firm before everything else. The ambition was to go from a team of 10 to 15 people one year ago to a global team that both operates the algorithms on behalf of clients and builds the platform. We have been lucky to have a terrific set of investors, and the bear market is actually the perfect time to do this.
Why Paris, and how regulators are responding
Ashton: What is your view on the EU as a crypto hub, being based in Paris?▶ 10:04
Guilhem: When we created the company two years ago, there was a question on the table about whether to do this in Paris or find an easier place. Our ambition was centered on compliance, transparency and regulation, so we made the bet on Paris. A few months later we were registered with the regulator, and I believe we were the first crypto trading desk to be registered. The momentum in Europe has been terrific, particularly in Paris, which I think is becoming the main hub for crypto in Europe, with many exchanges opening offices. MiCA is inspired to some extent by what the French regulator did. It brings a new set of challenges, but I think this is what crypto needs to hit the mainstream eventually. I see crypto being as decentralized geographically as it is in practice. Europe, China, Asia in general, the US: nobody will be left on the side.
Ashton: Do regulators have to work with firms like yours, or risk losing them to other jurisdictions?▶ 12:22
Guilhem: We have a very clear line of communication with the regulator. They are clearly not a blocker for these initiatives, and they are quite supportive. Innovation is about taking risk, and sometimes you want to take bigger risks than regulators will allow. Today there are things we cannot do, but I think they are conscious that the regulation set over the last 20 years in traditional finance is probably too heavy to some extent. We are not trying to reinvent the wheel, but to take the best of the traditional world. What MiCA proposes on stablecoins is extremely interesting. It will take years to build, but I find it reassuring.
The savings for projects are anywhere between 10x and 20x in terms of cost.
Security and staying competitive
Ashton: October 2022 saw a record level of DeFi hacks. How do you protect clients' assets?▶ 14:48
Guilhem: There is a logical assumption that DeFi will get more secure as it matures, but in practice we can see it is far from the case. We are still in a very intensive stage, with new things coming every month. The internet was probably not secure back in 1998, and even today you still see a good amount of hacks. I think we are really far from a completely secure crypto world. It will take decades. First, it is about identifying the protocols that are safer than others. As part of our treasury management services, there are a lot of protocols we don't work with. These include stablecoins that are not backed one to one, as the European regulation recommends, and protocols where we cannot guarantee AML checks. We use KYT to check whether the source of funds is clean. Second, it is about splitting responsibilities. Historically a single provider had both the technology and the liquidity. At Flowdesk, we split the tech from the liquidity. If we were hacked, the funds would still be stored on exchanges or with very reputable custody solutions, such as Fireblocks and Ledger. Third, it is about proof. In finance you cannot tell people, 'Trust me, I'm a nice person.' It's about proving it, through regulation and certification or auditors.
Ashton: Looking three years ahead to the next bull cycle, what will make projects choose Flowdesk?▶ 18:26
Guilhem: When working with counterparts, even in a decentralized world, it is always the same rule: an efficient product, a competitive product, and ultimately trust. On efficiency, we have built a global trading infrastructure with connectivity to all exchanges. We cover more than 90% of exchanges by volume, centralized and decentralized. On competitiveness, market making as a service is much more competitive than going through a traditional market maker. The savings for projects are anywhere between 10x and 20x in terms of cost. As the market matures, token issuers are trying to understand the real cost of liquidity, and they have less and less appetite for giving away one, two or five percent of their supply to an entity they don't control. Then there is transparency. Issuers need tools to see in real time what the market maker is doing: the liquidity it puts in the book, the trading volume, and the profit or loss it is generating. Being regulated matters too. That equation is extremely complex, and what we recently raised is helping us solve it. We hope it will be fully solved for the next bull run, which I think is two or three years away.
This interview has been edited for length and clarity. Recorded November 2022.
