BitMEX chief urges crypto exchanges to drop market makers

Bitcoin exchanges that profit from prop-trading should abandon the services of internal market makers. This was stated by BitMEX acting CEO Stefan Lutze.

“There is no longer any need for this. You have a critical mass,” he explained.

In his view, large venues already have sufficient high-frequency traders and private trading activity.

Earlier reports on Crypto.com’s prop-trading unit, whose employees had pledged not to discuss their work.

Lutze openly stated that the company also hires internal traders. They operate for a separate legal entity — Arrakis Capital, which was once a major internal market maker for BitMEX.

Today Arrakis’s functions are limited to treasury operations. According to Lutze, with only a handful of employees, the platform is technologically and organisationally separated from the exchange.

According to the head of the company, Arrakis performs the following functions:

• converting commissions into fiat currency;
• hedging BitMEX’s exposure to assets held as reserves;
• creating markets for the native BMEX token.

Lutze noted that the division earns a “negligible profit”—up to $100 000 a month—from holding treasury bills.

“Most other exchanges probably did the same; it was largely market practice. If you wanted reliable liquidity for your order book, you had to do something yourself. There was no service provider,” he explained.

According to him, all trading platforms hire internal traders, but after the collapse of FTX this practice began to attract more attention.

Exchanges that charge a small fee for transactions, or operate without one, can also be seen as a “red flag”, signaling that their role is primarily to attract trading flow for a market maker, Lutze warned.

Back in December 2022, BitMEX implemented a solution to confirm its obligations. The company agreed to provide information about its reserves on a weekly basis.