Crypto’s Evolution Beyond FTX: Why Around-the-Clock Risk Oversight Remains Crucial, Says Brevan Howard Digital’s CIO

The crypto landscape has undeniably transformed since the catastrophic downfall of Sam Bankman-Fried’s FTX wiped out billions in investor capital back in 2023. Yet, industry veterans at the “Views From Wall Street to Crypto” panel during Consensus Hong Kong insisted the sector still has miles to go before achieving rock-solid resilience.

Bridging Traditional Finance and Crypto with Custodial Advances

“Most of our trading now hinges on exchange settlement mechanisms,” explained Gautam Sharma, CEO and CIO of Brevan Howard Digital. “This means assets stay under custodial protection even while trading on various exchanges.” He emphasized that although technological strides over the past 18 months have been impressive, the journey toward robust infrastructure remains ongoing.

The Imperative of 24/7 Risk Vigilance

Sharma underscored the necessity for continuous risk management encompassing market, counterparty, and credit risks alike.

Unpacking Counterparty Risk in the Crypto Sphere

The threat from counterparties failing to honor their commitments—counterparty risk—is particularly acute in crypto, where the usual safety nets like banks or clearinghouses are absent. This difference elevates risks for both directional traders and those engaging in non-directional arbitrage.

Insights from Industry Experts on Arbitrage and Stress Testing

Fabio Frontini, founder of Abraxas Capital Management, pointed out: “Counterparty risk stands as the primary concern when executing arbitrage strategies.” He also highlighted credit risk as a significant factor worthy of attention.

Frontini advocated for rigorous stress-testing simulations, especially within perpetual futures markets, where traders risk losing margin if stopped out—something rare in conventional markets. “When stress testing is executed correctly, it can yield substantial benefits,” he remarked.

Transparency and Liquidity: Cornerstones of Investor Trust

Mike Kuehnel, CEO of Flow Traders—a market-making powerhouse—stressed that transparent innovation is vital to winning and maintaining investor confidence. He emphasized the importance of ensuring “uninterrupted data availability and seamless liquidity flows without fragmentation.”

“Delivering the best prices and enabling transaction freedom at any moment form the crux of the investor experience,” Kuehnel added.

Liquidity Challenges Post-FTX

Following the collapse of FTX and its affiliate Alameda, liquidity—or the market’s capacity to handle significant orders without drastic price swings—has emerged as a critical concern. Although order book depth for top cryptocurrencies has notably improved, the scatter of liquidity across numerous DeFi platforms, blockchains, and networks continues to pose challenges.