GSR co-founder says the crypto market maker will enter the NFT space this year

Richard Rosenblum, co-founder and president of crypto market maker GSR, says he’s not interested in trading strategies that yield tens of millions of dollars — only those that reap hundreds of millions, if not billions. 

The next of these opportunities, he now believes, lies in the non-fungible token (NFT) market. 

“For good reason we haven’t been very active [in the NFT sector] algorithmically, but we think this is the year that that’s going to change,” says the former Goldman Sachs managing director. 

GSR, which currently trades over $4 billion in cryptocurrency a day, is now “well on its way” to developing software that can trade NFTs in much the same way, he adds. 

The service will amount to market making — the process of providing liquidity to a platform by offering both a buy and sell price for whatever assets that platform hosts. Market makers tend to charge higher selling prices than what they’ll buy assets for, pocketing the difference. 

This is what GSR has been doing for crypto exchanges since launching way back in 2013. Today, the company works with over 60 trading venues. 

But the trading firm has largely steered clear of NFT marketplaces. Indeed, the concept of market-making for NFTs has not yet been widely discussed. “There are bots that are operating on OpenSea,” says Rosenblum, but none of them at a large scale.  

So why is Rosenblum and his band of veteran algorithmic traders now turning their attention to the realm of million-dollar digital rocks and pixelated punks? Because NFT art itself has advanced to what Rosenblum calls “phase two.”

Generative indeed

In particular, the emergence of more sophisticated forms of NFTs — like the generative art peddled by Art Blocks — has caught Rosenblum’s eye. He calls Art Blocks “the key source of what we think lends itself more to algo trading.” 

The term generative art refers to a historically fringe genre in which an autonomous system determines the final form of a piece, but within stylistic parameters set by the artist. Tyler Hobbs’s Fidenza collection is a prime example. Individual pieces of the 999-item set, which first debuted on Art Blocks, have been resold for millions of dollars. 

The genre lends itself rather neatly to NFT drops because of its random nature. Like a lottery, buyers on Art Blocks don’t know what sort of piece they’ll get until after they’ve paid. 

“Generative art is one we’re going to lean into,” says Rosenblum. “It resonates with us that there’s this harmony between mathematics and art… When it’s created by software, it’s more likely that it can be understood by software.” 

More specifically, he argues that the “mathematical seed” that underpins generative art projects is a better base on which to build trading strategies than, say, the different accessories that might adorn a CryptoPunk or Bored Ape (two popular NFT collections). 

It is at first take a somewhat counterintuitive stance, since projects that assign features and accessories to characters tend to be explicit about rarity, and hence value, whereas the prices of generative art NFTs are usually more market-driven. But this lack of clarity may be exactly the reason that GSR believes it can generate alpha. Rosenblum hopes his software can pick up on “unique qualities” within a given collection. 

He adds that the advent of larger NFT collections and of NFTs with utility also helped persuade GSR to make the leap into the sector. 

Pic flipping

The arrival of institutional market makers will mean more liquidity for NFT holders, meaning more opportunities to sell. 

For that reason, their arrival may also increase speculative investing within a sector that is already rife with it. For some, that constant flipping of pieces for profit detracts from the value of the art itself. 

It is a complex issue, says Rosenblum — and he has a complex view on it. 

“I think that in order to be a market maker in something, you could be purely an arbitrageur,” he says. “But I think you’re likely to be a better market maker if you have an understanding of the inventory and are willing to take inventory risk.” 

In other words, if GSR wants to be a good market maker for NFTs, it will have to throw itself headfirst into the sector and may have to hold individual items for longer than it might hang onto crypto. The tea leaves suggest it is doing just that. 

Rosenblum would not mention any specific partnerships or investments within the industry, but he did say that GSR is “very much getting involved in the community.” 

And Rosenblum isn’t hiding his enthusiasm. He describes the advent of larger, more sophisticated NFT collections as “phase two” of the NFT ecosystem.

“Phase three is that everyone under thirty today is going to own many types of NFTs, and whether that’s in two years or ten years, we think that’s a given,” Rosenblum says.