Lightspeed Venture Partners backs crypto market maker Wintermute in $2.8 million fundraise

A trading firm sitting behind both the centralized and decentralized cryptocurrency worlds has scored $2.8 million in a Series A funding round led by Lightspeed Venture Partners. 

Wintermute, a London-based market maker in the digital asset space, announced Tuesday the close of the multi-million dollar raise exclusively to The Block, noting that the fresh capital injection will help it continue to provide liquidity in new markets and products across the non-custodial and centralized cryptocurrency exchange space. Wintermute raised a "seven-figure" sum in a seed round in February, as The Block  previously reported. 

Lightspeed, which is the only investor in the round, was founded in 2000. The firm has previously invested in Blockchain.com and Ripple. Partner Jeremy Liew is known for being Snapchat's first investor. Earlier this year, it raised more than $4 billion across three funds. 

Wintermute has stood out among other trading firms in the crypto space as a first-mover in providing liquidity to nascent, esoteric markets and serving as a partner on the launches of products including decentralized exchange dYdX's perpetual swaps and Amun's leverage tokens.

"We are quite profitable from our core activities," said Wintermute CEO Evgeny Gaevoy, a former derivatives trader at European high-frequency trading firm Optiver. "We want to continue to grow by being competitive in new products."

Gaevoy added that the impetus to raise capital was the COVID-19 health and economic crisis, which first gripped global markets at the beginning of this year. The point was to raise cash in case the firm needed it to weather the storm, but given favorable market conditions for market makers it will now allow the firm to accelerate its plans. Gaevoy said options are the next thing on the firm's radar and it is also eyeing the launch of its own over-the-counter trading desk to compliment its market making business. 

Already, the firm says it is one of the largest liquidity providers across spot and perpetual swap markets, "covering 500 pairs across most vetted crypto exchanges and trading platforms."

The firm is a liquidity provider on London-based Blockchain.com's exchange. CEO Peter Smith told The Block the trading firm came on as a liquidity provider following launch, adding that they offered superior product scalability and stability relative to competitors. To be sure, Blockchain is an investor in the firm and they are a primary market maker for some pairs on the exchange, according to Smith. 

More exchanges, more money

Looking to the future, further fragmentation in the crypto exchange landscape could serve as a tailwind for market makers like Wintermute. 

"The growing number of crypto exchanges is leading to an increased need for market making, and that is where Wintermute comes in,” said Liew. In a conversation with The Block by phone, Liew added that the patchwork of regulatory regimes across the crypto world would likely lead to new exchanges popping up to serve specific regional jurisdictions, fueling the need for market makers to provide liquidity on day one and beyond. 

Although centralized exchange volumes have fallen off a bit, non-custodial volumes continue to hit new highs and firms continue to launch new products.

"With the rise of DeFi and decentralized exchanges, the rise in the real number of exchanges, we saw the opportunity for market makers," he said.

Indeed, Zhuoxun Yin, previously head of strategy of dYdX, said that lining up market makers like Wintermute is one of the most important things an exchange needs to do prior to launching a new market or product. 

"It is very hard to get traders onto an exchange or into a product very early on," he said. "There is price and product risk."