Crypto.com Faces Potential Conflicts of Interest as Internal Trading Teams Surface
Crypto.com, a Singapore-based cryptocurrency exchange that gained attention through its association with Hollywood actor Matt Damon, is now under scrutiny due to the revelation of its internal teams engaged in token trading for profit. This development raises concerns about potential conflicts of interest within the digital assets industry.
According to five individuals with direct knowledge of the matter, Crypto.com, ranked among the top-10 crypto marketplaces globally, operates proprietary trading and market making teams. Typically, exchanges facilitate transactions between buyers and sellers at the most competitive and transparent prices, while market making and proprietary trading are typically handled by separate private entities.
Regulators in the United States have recently taken action against similar activities at other digital asset exchanges. In a significant move, the US Securities and Exchange Commission (SEC) leveled 13 charges against Binance, the largest crypto exchange worldwide, including allegations of manipulative trading that artificially inflated trading volume using a trading firm owned by CEO Changpeng Zhao.
Gary Gensler, the chair of the SEC, recently highlighted the blending of various functions within these trading platforms, stating, “In traditional finance, we don’t see the New York Stock Exchange also operating a hedge fund, making markets.”
The existence of internal trading teams at Crypto.com remained relatively unknown since the company’s launch in 2016. Insiders familiar with the matter revealed that Crypto.com executives made dramatic sworn statements to external trading houses, vehemently denying the company’s involvement in trading. Additionally, employees were allegedly instructed to deny the presence of any internal market maker operations.
When questioned by the Financial Times, Crypto.com denied any attempts to deceive market participants.
“We have an internal market maker that operates on the Crypto.com exchange and that internal market maker is treated exactly the same as third-party market makers that identically facilitate tight spreads and efficient markets on our platform,” the company said. “This is not a controversial practice.”
Market maker is also how Zhao explained why Binance.US accepts international clients, contrary to its supposed purpose to be the crypto exchange’s US-exclusive arm.
“The recent [Binance] US to Binance.com international transactions… Binance.US accepts international clients,” said Zhao in a Twitter AMA back in December 2022. “They are market makers that work on both, they transfer funds.”
Crypto.com primarily generates revenue through its retail trader app, where the company serves as customers’ counterparty for transactions using a broker model.
“As such, the Crypto.com trading team ensures that Crypto.com is risk neutral by hedging these positions on a number of venues, including the Crypto.com exchange,” the company said.
The company asserted that its exchange operates as a level playing field for institutional traders. Crypto.com clarified that its proprietary trading desk engages in trading activities solely for profit-making purposes, without functioning as an exchange. Simultaneously, the market making desk focuses on enhancing liquidity on the platform.
Responding to concerns, Crypto.com stated that all participants, including market makers, are treated equally. They emphasized their commitment to continuously improving order book liquidity and reducing spreads to create a more efficient market for all participants. The company also underlined that proprietary trading is not a significant revenue source.
As a private company, Crypto.com publishes accounts in various countries, such as Malta, which do not provide revenue breakdowns by business line.
Founded by Kris Marszalek and Rafael Melo, among others, Crypto.com has conducted $35 billion in spot crypto and $21 billion in crypto derivatives trading so far this year, according to CCData. The company gained substantial visibility in recent years through high-profile sponsorships and sport deals.
Notably, they enlisted the support of Oscar-winning actor Matt Damon to promote the exchange during the Super Bowl, while their logo adorned football stadiums during the Qatar World Cup and Formula One racing circuits. Crypto.com also holds a multiyear partnership with basketball icon LeBron James and secured 20-year naming rights to a major sports arena in Los Angeles.
Following the SEC’s enforcement actions, Crypto.com announced the closure of its institutional US traders’ exchange from June 21 due to limited demand in the current market landscape.
Information for this briefing was found via Financial Times and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
