The cryptocurrency landscape has undergone a remarkable transformation since the catastrophic collapse of FTX in 2023. While significant progress has been made, industry leaders from traditional finance (TradFi) who have ventured into crypto emphasize that considerable work remains to build a truly resilient ecosystem. At the recent “Views From Wall Street to Crypto” panel at Consensus Hong Kong, experts highlighted the critical importance of robust risk management frameworks operating around the clock.
 The New Era of Crypto Infrastructure
Gautam Sharma, CEO and CIO of Brevan Howard, noted the significant evolution in trading infrastructure: “Traditional players have entered the space, and most trading now happens through exchange settlement, where assets remain with custodians while still enabling exchange trading.” This separation of custody from trading represents a fundamental improvement over the commingled model that contributed to FTX’s downfall.
However, Sharma emphasized that technological advancements over the past 18 months, while impressive, represent only the beginning of necessary reforms. The industry requires comprehensive 24/7 risk management systems addressing various risk categories:
– Market risk: Monitoring volatility and potential price dislocations
– Counterparty risk: Evaluating the reliability of trading partners
–Credit risk: Assessing the financial health of institutions
 Counterparty Risk: A Persistent Challenge
Counterparty risk remains particularly pronounced in cryptocurrency markets compared to traditional finance. Without established intermediaries like banks or clearing houses, the possibility of a transaction partner defaulting on obligations creates significant vulnerability.
Fabio Frontini, founder of Abraxas Capital Management, underscored this reality: “When we do arbitrage, counterparty risk is the most important consideration.” For arbitrage strategies that capitalize on small price differences between markets, even minor counterparty failures can eliminate profits and potentially create substantial losses.
 Stress Testing: A Necessary Discipline
The panel highlighted stress testing as an essential practice for crypto market participants. Frontini specifically referenced the unique risks in perpetual futures markets, where traders can lose their entire margin when stopped out—a mechanism that differs from traditional markets.
“Simulating stress testing scenarios can be very rewarding when done properly,” Frontini noted. This involves modeling extreme market conditions to ensure risk management systems can withstand severe disruptions without catastrophic consequences.
 Transparency and Liquidity: Building Market Confidence
Mike Kuehnel, CEO of market-making firm Flow Traders, emphasized that innovation must be paired with transparency to rebuild investor confidence. This includes:
1. Comprehensive data availability
2. Efficient liquidity movement without fragmentation
3. Consistent access to best pricing
4. Reliable transaction execution capabilities
“Getting the best price and giving you the possibility to transact whenever you want is a key ingredient,” Kuehnel explained. This reliability forms the foundation of market trust.
 The Lingering Challenge of Fragmentation
While liquidity has improved for major cryptocurrencies since the FTX/Alameda collapse, fragmentation remains a significant concern. Liquidity distributed across numerous DeFi platforms, blockchains, and networks creates inefficiencies and potential vulnerabilities.
This fragmentation can:
– Increase transaction costs
– Reduce overall market depth
– Create pricing discrepancies
– Complicate risk management
 The Path Forward: Institutionalization Meets Innovation
The evolution of cryptocurrency markets increasingly resembles a hybrid model—adopting proven risk management principles from traditional finance while preserving the innovative aspects that make crypto distinctive.
Key developments supporting this evolution include:
– Institutional-grade custody solutions separating assets from trading venues
– Advanced settlement mechanisms reducing counterparty exposure
– Sophisticated risk monitoring tools operating continuously
– Cross-platform liquidity aggregation to address fragmentation
A More Resilient Future
The cryptocurrency industry’s response to the FTX collapse demonstrates its adaptability and commitment to improvement. While vulnerabilities remain, the influx of traditional finance expertise and risk management disciplines suggests a more resilient future.
As Sharma concluded, “The technology has come far ahead in terms of the last 18 months since then, but there’s more work to do.” This ongoing work—implementing comprehensive risk management, enhancing transparency, and addressing liquidity fragmentation—will determine whether cryptocurrency markets can achieve their potential as a truly transformative financial system.
The industry’s willingness to embrace these challenges, rather than resist them, indicates a maturation that may ultimately deliver a more robust ecosystem than existed before the FTX crisis—proving once again that in both traditional and crypto finance, effective risk management remains the cornerstone of sustainable innovation.
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