- June 22, 2023
- Posted by: [email protected]
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Crypto.com, a prominent cryptocurrency exchange based in Singapore, is facing scrutiny due to its utilization of internal teams for token trading with profit motives. The Financial Times has reported that the exchange operates proprietary trading and market-making teams, leading to concerns about potential conflicts of interest among industry insiders.
According to individuals familiar with the matter, one person with direct knowledge of the internal teams alleged that Crypto.com executives provided “absolutely dramatic sworn statements” to external trading houses, asserting that the exchange had no involvement in trading activities. Another source claimed that employees were instructed to deny the existence of any internal market maker operations.
Crypto.com, however, refuted these allegations and stated that it had not asked its employees to deceive other market participants. The company clarified that it does have an internal market maker, which operates on the Crypto.com exchange under the same conditions as third-party market makers, ensuring tight spreads and efficient markets on the platform. It emphasized that its revenue primarily stems from its app for retail traders, where Crypto.com serves as the customers’ counterparty and operates as a broker model. On the other hand, the exchange caters to institutional traders and operates as a level playing field trading venue.
In most markets, exchanges match buyers with sellers at the most competitive and transparent prices. However, regulations surrounding market-making and proprietary trading mandate that these activities be conducted by separate private entities to prevent conflicts of interest. Crypto.com’s proprietary trading team focuses solely on generating profits rather than facilitating an exchange. Conversely, the market-making desk aims to enhance liquidity on the venue, according to insiders. Notably, the proprietary trading desk operates on both the Crypto.com exchange and other platforms.
Crypto.com purportedly informed the Financial Times that “all companies operating in the trading industry compare volumes to their competitors.” The company stressed that its top priority is to continuously enhance order book liquidity and reduce spreads, thereby fostering a more efficient market for all participants. It affirmed that all platform participants, including market makers, are treated equally and emphasized that it does not rely on proprietary trading as a revenue source.
These revelations regarding potential conflicts of interest within Crypto.com emerge at a time when regulatory bodies, including the Securities and Exchange Commission (SEC), have long cautioned users about the risks of manipulation in the cryptocurrency industry. Notably, the SEC recently brought forward 13 charges against Binance, the world’s largest crypto exchange, including allegations of manipulative trading and artificially inflated trading volumes through a trading firm owned by CEO Changpeng Zhao. The commission even sought to freeze assets at Binance.US, accusing the exchange of inappropriately transferring billions of dollars of customer funds to a bank account controlled by Zhao. However, a compromise has been reached between the SEC and Binance.US, avoiding the freezing of the exchange’s assets.
