The crypto market is struggling with an "Alameda gap," where several projects are postponing their token launch plans because of a lack of liquidity despite surging bitcoin (BTC) and ether (ETH) prices.
Data from CoinMarketCap shows that new coin applications fell throughout 2022, from 10,264 in the first quarter to 6,350 in the fourth. The drop accelerated toward year's end after crypto exchange FTX and its sister concern Alameda Research collapsed in November. Before going bust, Alameda was one of the largest market makers, providing billions of dollars of liquidity to large-cap and small-cap tokens.
Year to date, the figure is just 3,000 applications.
“Post-FTX we have seen liquidity dry as up to 50% on major coins,” Guilhem Chaumont, CEO of Paris-based market maker and brokerage Flowdesk, said in an email. “On smaller market caps, the liquidity reduction has been even worse because Alameda has closed all their support for token issuers and other big market makers have reduced their exposure and activity.”
Chaumont said he is advising projects to postpone by three to six months. Flowdesk expects the bear market to be around for another 12 to 18 months.
Last month, the recently decentralized exchange dYdX said it was planning to delay its token unlock, which would release more than 150 million tokens to early investors and founders, to December 2023 with hopes that the market will have recovered by then. People familiar with the matter say it is because of concern over market liquidity.
Liquidity in bitcoin and ether markets as measured by the 2% market depth has dried up since Alameda went down, making it harder for traders to execute big orders without affecting the market price and for projects to issue new tokens.
The 2% depth represents a collection of the buy and sell orders within 2% of the mid-price – the average of the bid and the ask/offer prices being quoted at a given time. Data tracked by Paris-based Kaiko show the 2% market depth for BTC fell to less than 8,000 BTC in January even as the cryptocurrency rallied over 40%.
“Crypto liquidity is dominated by just a handful of trading firms, including Wintermute, Amber Group, B2C2, Genesis, Cumberland, and (the now-defunct) Alameda. With the loss of one of the largest market makers, we can expect a significant drop in liquidity, which we will call the “Alameda Gap,” Kaiko wrote in a November briefing note.
Data from Arkham Intelligence shows that balances at key market makers have dropped. Cumberland currently has a balance of $75 million, down from around $220 million in early December; Wintermute has $122 million, compared with $1.7 billion last February and $4 billion at the end of October 2021, when the bull market reached its peak.
This isn't necessarily a bad thing, said March Zheng, the co-founder and managing partner of Bizantine Capital.
“Crypto markets are cyclical in nature, but it needs stress test conditions like the last few months to prove its resiliency for the long term,” he told CoinDesk in a note. “New token issuance activity has been down, but it gives more opportunity for incumbent and top projects.”
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