Alameda Research, Who Are They? And What Do They Do?Alameda Research, Who Are They? And What Do They Do?

The term quantitative trading strikes fear into the heart of many a trader. Quantitative trading firms are almost seem as the boogeymen of the trading world. They are rather sarcastically blamed for being the people to blame when you lose a trade or get stopped out. This reputation is partially due to the air of mystique surrounding quantitative trading. A lot of their operations are rather secretive and only insiders are aware of them. So, this bring us to the question; Alameda Research, who are they? And what do they do?

A lot of people first encounter the name Alameda Research when scrolling through the rather infamous BitMEX leaderboard. Currently they hold 2 spots. Netting over 7000BTC in profit. And this is just from accounts they have chosen to display. Alameda in recent times have been starting to give insight not only into how a quantitative trading firm operates, but also the new found institutional presence in the cryptocurrency industry.

The Birth of Alameda Research

Alameda was first founded during the famous bull run of 2017 by Sam Bankman-Fried and Gary Wang. Sam previously worked for Jane Street. A quantitative trading firm on Wall Street. While Gary previously worked for Google as a software engineer.

They currently manage over 100 million dollars in assets. Trading between 600 million and 1.2 billion dollars everyday across a variety of crypto assets such as spot Bitcoin, altcoins and crypto derivatives. Making them one of the largest liquidity providers in the cryptocurrency industry.

Alameda Research Trades over $600 Million in Cryptocurrency Everyday

Alameda makes the majority of its money from quantitative trading. However they have diversified into other areas such as creating their own over the counter trading desk and recently launching their own exchange FTX.

The CEO Sam Bankman-Fried goes into detail on how he got started in the cryptocurrency industry in an insightful interview with Venture Coinist.

The first thing that struck me was just how inefficient it (referring to the cryptocurrency industry) was

Interview with Venture Coinist

Quantitative Trading

To understand what he means by this this we must first understand a key component of quantitative trading. Market inefficiencies. Market inefficiencies can be very loosely defined as a situation where the current prices do not reflect all the publicly available demand and supply information, due to negligence or breakdown of buyer-seller communications.

This is best shown in terms of crypto by means of an example. In the run up to the Bitcoin bullrun top of 20000$ there were incredibly large price discrepancies between exchanges. One exchange may have quoted 19000$ per BTC while on another exchange 16000$ per BTC was quoted. If one were to short Bitcoin on the exchange quoting the price of 19000$ and buy Bitcoin on the exchange quoting 16000$ one could make a profit of 3000$ (19000$ – 16000$ = 3000$) risk free. This is one among many examples of a market inefficiency commonly known as arbitraging.

Alameda exploits inefficiencies similar to this on a daily basis (Though not as extreme). Alameda recently uploaded a video to their YouTube channel from a live trading session in which they talked through how they traded a large seller on Binance who created a 2% price discrepancy across exchanges. Creating a perfect arbitrage opportunity.

Alameda also engages in the nitty-gritty of what quantitative trading is most known for. Its large programming and mathematical basis for trading. Alameda like most other firms is quite secretive in regards to these quantitative models. Divulging very little details on how they are formulated. On their website they are intentionally vague simply state they employ “medium term quantitative strategies” such as “mean reversion” and “machine learning”. These terms reveal practically nothing.

However, who can blame them for being secretive? Quantitative models can make millions of dollars. But if the strategy’s leave the four walls of the trading firm the models become null and void, and practically worthless. Secrecy is an essential element of these models.

The Challenges Presented by Cryptocurrency Infrastructure

In Sam’s interview with Venture Coinist he also goes in depth on how cryptocurrency infrastructure as a whole presents challenges to quantitative firms due to its decentralized nature.

One of the key pieces there that makes these sort of opportunities exist but hard to take advantage of is in Finance its not that you can move Apple stock from one exchange to another instantly. It’s that you don’t have to because you just have centralized clearing firms.

Interview with Venture Coinist

Later in the interview he also discusses how the variance in exchanges and lack of co-ordination and standardization between them opens up quite a few problems for Alameda.

For example, one exchange may have a completely different way of interacting with trading programs (Through API’s) than another. While some may be limited in what they can do at all. Not only does he criticize exchanges and their API set-up but also their infrastructure as a whole. Making reference to the infamous order submission errors which are common on BitMEX which prevents trades going through. But also mentioning poor quality exchange matching engines, as well as the way bankruptcy’s are handled while on margin.

The Creation of the FTX Exchange

These issues are what motivated the team at Alameda to create their own exchange called FTX. Which they feel is done the right way for all party’s.

FTX is a cryptocurrency derivatives exchange built by traders, for traders. We strive to build a platform powerful enough for professional trading firms and intuitive enough for first-time users.

FTX.com

FTX has put a lot of time and effort into developing infrastructure so they don’t suffer the same problems like the ones highlighted previously. They have developed a more advanced liquidation engine to prevent claw backs, as well as working on platform stability and there matching engine.

Not only has FTX worked on doing the basics well they are also the exchange that is leading the way in terms of product innovation. From the launch of the exchange FTX has listed a whole host of new trading products. These include brand new leveraged tokens, perpetuals swap contracts on a range of coins, new tradeable indices such as altcoin indices, and a privacy coin index among others. These allow you to trade the altcoin or privacy coin market as a whole. FTX has also joined the list of cryptocurrency exchanges to offer options trading.

FTX has also worked on creating brand new features. These include things like Quant Zone which allow users to create their own quantitative trading programs, and a variety of trading competitions for traders to take part in.

Conclusion

In conclusion I feel that as a whole Alameda Research represent a rather changing cryptocurrency space. Their presence as a whole may be a net benefit. Increasing liquidity and market efficiency are good for the space and will further drive an increase of institutional on boarding. Although many retail traders may feel justifiably put off and even fearful by the ever many might see it as a necessary step forward.

qTrade.io Review – An Exchange Taking A More Grassroots ApproachqTrade.io Review – An Exchange Taking A More Grassroots Approach

About

qTrade was founded back in April of 2018. Based out of the United States of America. Though the exchange was only founded in 2018, the team has been involved in the cryptocurrency industry for a number of years. In 2014 they created a profit switching mining pool, later expanding their technology to carry out currency arbitration and conversion for miners. Their teams base in the grassroots stage of crypto shows in qTrades overarching ideology. Their manifesto is very simple: To accelerate the adoption of blockchain technology around the world by reducing the barriers faced by innovative, new, and emerging technology. But can it live up to its promises? This is our qTrade.io Review.

What Differentiates qTrade From The Competition?

qTrade prides themselves on their support of new and emerging projects. qTrade wants to encourage the development of projects built from the ground up by. They do this by creating some of the cheapest listing fees in crypto. Binance, the largest altcoin exchange was quoted giving out a listing fee figure of 400BTC. This parasitic fee is obviously way out of the reach of smaller projects where every penny needs to be put into development. Without qTrade, coins like NYZO which we have previously overwhelmingly positively reviewed may never gain traction, even if there technology is world class. Instead being replaced by projects with deep pockets and large corporate financial backing, and as we have seen in the past with crypto, these deep pockets do not necessarily translate into quality projects.

The fee for listing on qTrade can vary from from zero to 2BTC this is obviously a lot more competitive than their larger exchange counterparts. This gives smaller projects room to breath. The listing fee is based off a number of basic and preferred criteria. The full list can be found here. But, to summarize. qTrade rewards projects which are original, have new technology, dedicated development teams, and active communities. By having more of these attributes the listing fee goes down. qTrade also frowns upon projects which have large premines or ICOs and takes these factors into account when deciding the listing fee. They also put an element of control into the users hands by allowing them to vote on which coins they want listed. The vote does not guarantee listing but rather shows the team at qTrade which coins people want listed.

Security

One of the fundamental questions one must answer when it comes to an exchange is its security. qTrade employs rigorous security techniques and technology. They build their own transactions to allow for easy off-site signing, ensure idempotency, and leverage cold wallet storage for additional safety. On the user side qTrade has the industry standard support for two factor authentication allowing users to add additional security to their account.

Fees

qTrades fee schedule is interesting for a smaller exchange. They offer a maker fee (adding liquidity to the orders) of 0% and a taker fee (taking away liquidity from the orders) of anywhere between 0.5% and 1.5% depending on the asset. A maker fee of 0% essentially means that you can trade for free if you use limit orders. While the high taker fee penalizes people who use market orders and take liquidity from the orderbook. This is overall a good strategy on behalf of qTrade to generate consistent liquidity. One of the problems facing all smaller exchanges. I would suspect qTrade will begin to move their fees towards a more common structure such as the flat 0.1% Binance employs as the exchange grows in size and liquidity.

qTrades withdraw fees are competitive when compared to their much larger competitors even while lacking the economies of scale.

Regulation

qTrade is based out of the U.S which has perhaps the most stringent regulatory framework when it comes to crypto. However, there still remains a large grey area within the U.S jurisdiction. qTrade has gone on record and stated that they are committed to complying with all current and future regulatory law. They have demonstrated their willingness to comply by refusing to list coins which could be deemed as securities under the Howey Test. However, I do feel that being subject to U.S regulation is something that will hold qTrade back. We have seen the flight of volume away from American altcoin exchanges like Poloniex and Bittrex, towards exchanges like Binance and Huobi who are regulated in much more lazes-faire jurisdictions.

Conclusion

I am optimistic about the future of qTrade and I truly wish for their future success. They are shying away from the predatory corporatism which is rife in the cryptocurrency industry in favor of a more grassroots approach. Something cryptocurrency was founded on. There are a number of issues with qTrade but they are all things that can be overcome, and if they continue on the path they are I have no doubt that they will.