Alameda-backed crypto trader Folkvang is still standing despite the big hit from FTX’s demise

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More than three months after the contagious collapse of the FTX exchange, the cryptocurrency industry is still reeling. Folkvang, a market-neutral trading company based in Singapore, is moving on despite suffering a major hit during the November crash.

“Our equity has been cut in half, so we’ve lost a lot of the profits we made in 2021,” Folkvang founder Mike van Rossum said in an interview with CoinDesk. “That’s the risk, right? That’s the risk of the game. I think we’re glad we’re still standing.”

Founded in January 2020 by a team of experienced crypto quant traders, Folkvang gained notoriety on all major exchanges. For example, in 2022, it topped FTX’s volume and earnings rankings. Folkvang’s rise to FTX was anticipated after Alameda Research, the trading company that played a central role in FTX’s demise, invested in Folkvang and Folkvang returned the favor by investing in FTX. (Sam Bankman-Fried owned both FTX and Alameda.)

In a recent video call from a high-rise office building in Singapore, Folkvang’s van Rossum gave a candid account of the “chaotic” situation following FTX’s collapse.

“It was a tough pill to swallow,” said van Rossum after revealing that half of the company’s equity was tied to FTX. “We were able to survive, but because we were very active borrowers, we had to repay the lenders out of our own pockets.”

At its peak in 2021, Folkvang managed approximately $400 million in assets, including equity and loans. And even though it has a lean team of less than 10 quant traders, it once made $8 billion in volume during a single trading session during this bull market.

Folkvang operates solely as a proprietary high-frequency trading company. It does not offer any services other than over-the-counter desk or market maker token deals. It relies on a mix of algorithmic strategies that includes arbitrage trading, yield farming and market making.

The story goes on

change of strategy

“We learned a hard lesson at FTX,” continued van Rossum. “We have found that the risk is real. We thought it could never happen the way it did, so we’re much more risk averse now.”

He added: “We only trade on our own balance sheet. We don’t take out any loans at all. The risk is just too great.”

Because Folkvang is a market neutral trading company, it avoids directional risk and gain by providing liquidity and balancing negative and positive funding rates. It’s the opposite of long-only stores like Three Arrows Capital, which spectacularly collapsed in a cascade of liquidations last year as the market plummeted.

Although directional risk for Folkvang is minimal, FTX’s fall has increased concerns about counterparty risk. Holding assets on an exchange has always been frowned upon by Bitcoin (BTC) maximalists, but for a trading firm like Folkvang it’s inevitable. In arbitrage trading, an asset is bought at a certain price on one exchange and immediately sold at a higher price on another; This requires active capital across multiple centralized trading venues.

When asked where Folkvang is trading now that FTX is gone, van Rossum replied, “Binance is the biggest, but I don’t think it’s because of trust.”

He continued, “We still have a company. We have an office. We have a team of people. We still have to pay the bills.

Hope for FTX resolution

After losing around 50% of its trading capital to FTX, Folkvang remains confident that some of the funds will be repaid, even if it takes between five and eight years.

“We’re definitely working with lawyers,” he said. “We are working with the insolvency practitioners, but it is difficult to do anything here as the situation is complicated.”

Alameda “have invested in us, so they’re on our cap table and we’ve invested in FTX, so it’s all mixed up,” he said. “And then we had our money there, so it’s a very messy situation.”

Folkvang finds itself as a redacted entity on FTX’s top 50 creditor list, with individual creditors at the top end of the list owed up to $226 million.

“It’s going to be a long process,” added van Rossum. “We mentally wrote it off to zero. We don’t think we’re going to get X or Y back. Mentally it’s written off, but we’re hoping to get something. But it will be many, many, many years.”

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