$500 million in crypto spot trades in less than a year: A deep dive into the rise of Jihan Wu’s Matrixport

After a much-anticipated debut last year, Bitmain co-founder Jihan Wu’s new venture Matrixport has maintained a rather low profile – while quietly becoming one of the biggest cryptocurrency financial services firms in the world. 

In less than a year, Matrixport amassed over $500 million worth of digital assets under custody, generated around $100 million in outstanding loans, and processed over $500 million in spot crypto trades, according to the company. 

As a point of comparison, Genesis Global Capital – one of the largest crypto lending desks and one that is one year older than Matrixport – previously said that it had $450 million in active outstanding loans as of the third quarter of 2019. 

As staggering as Matrixport's figures might seem, the firm’s success is perhaps to be expected.

Helmed by former Bitmain executive Yuesheng Ge, Matrixport is described as “closely knitted” with Bitmain, the bitcoin miner equipment giant, according to Matrixport COO Daniel Yan. Thus, the financial services firm inherits arguably the best mining client base from Bitmain, which often refers its clients to the former, Yan said. 

“Because of this relationship [with Bitmain], it’s so easy [to get sales inbounds]. We know the Bitmain salespersons really well and we work together,” Yan told The Block. 

Matrixport’s offerings

The financial service firm was reportedly launched in June, although it has been operating since February 2019, according to Yan. Its three lines of business – trading, lending, and custody – all serve both retail and institutional clients. 

Unsurprisingly, the core part of Matrixport’s client inflow comes from miners. The platform runs an over-the-counter (OTC) trading desk to process large trades and offers various risk management solutions to miners via derivatives contracts and structured products. 

For example, miners can hedge their BTC outputs by buying put options to sell their bitcoins at a certain strike price. They can also take out loans with zero interest-rate costs when borrowing through a product that combines options and loans. Instead of paying a 12% annualized interest, the product allows the borrower to sell a call option with a high strike price. If Bitcoin price rises to a significant degree at expiry, Matrixport sells the borrower's bitcoin collaterals at the strike price, keeps the loan principal, and returns the differences to the borrower.

On the retail side, Matrixport supports spot trading and offers a dual-currency contract that settles in either USDC or bitcoin, depending on whether a certain strike price is hit. Complimentarily, the platform also offers its custody and lending services to retail users. 

It's worth noting that, for all trades, investors form bilateral relationships with Matrixport while the latter sources liquidity and hedges its risks through various other market makers and exchanges. This structure allows investors to hedge out larger positions than directly trading on derivatives exchanges, which usually don't have sufficient liquidity for big trades. 

“On Deribit you can buy 50 BTC options easily, but when you need to hedge 500, or 1,000 [BTC], you cannot get it on Deribit. But I can tell you I can do that, because I have the liquidity and the risk capacity,” said Yan.  

Competition and the halving 

Matrixport fills a key gap in the mining industry where there are only a handful of financial services firms that cater specifically to miners. 

Genesis Global Trading is one of the few lending desks that works closely with miners. Market maker GSR also recently tied up with a strategic partner of miner manufacturer Canaan to help miners hedge risks via various structured products, including hash rate derivatives.

“In a lot of cases we are just growing the pie together. Genesis and us, we are working on a lot of things very closely. They never think of us as a competitor, obviously because we are smaller, and we never think of them as a competitor because they don't face miners that much. They want to face institutions. They want to face counterparties like us,” said Yan. 

Meanwhile, as Matrixport directly deals with miners, its business well-being is closely tied to the upcoming mining reward halving. Expected to take place in May, the event will see the per-block reward fall from 12.5 BTC to 6.25 BTC. The Block previously explored the implications of the halving and whether the event is already being priced in by miners. 

Confronted with a known event that will certainly cause revenue dip if everything else remains the same, miners are actively seeking ways to hedge their bitcoin position, rendering the role of financial services firms like Matrixport critical. Scenarios in which bitcoin's price sees heightened volatility after the halving also make Matrixport’s risk management offerings more attractive. 

“We are going into halving we see opportunities in a way that there are people who need to hedge. So we can sell our derivatives and build our relationships with customers on derivatives,” said Yan. “And the market can be really volatile. When the market is volatile, there are always opportunities.” 

“I would say, 2020 because of halving, there is a lot of uncertainty, and at the same time there are a lot of opportunities,” Yan added.

Update: This post has been updated to correctly reflect details of Matrixport's options-loans combined product.