Crypto startups increasingly delay token launches as Alameda Research contagion continues

The crypto market is struggling with an “Alameda gap” as several projects postpone their token launch plans due to a lack of liquidity despite rising bitcoin (BTC) and ether (ETH) prices.

Data from CoinMarketCap shows that new coin applications fell through 2022, from 10,264 in the first quarter to 6,350 in the fourth. The decline accelerated towards the end of the year when the crypto exchange FTX and sister group Alameda Research collapsed. Before going bankrupt, Alameda was one of the biggest market makers, providing billions of dollars of liquidity to tokens with large and small companies.

So far this year, the number is only 3,000 applications.

“After FTX, we have seen liquidity dry up to 50% on major coins,” Guilhem Chaumont, CEO of Paris-based market maker and brokerage Flowdesk, said in an email. “At smaller market caps, the liquidity reduction has been even worse because Alameda has shut down all support for token issuers and other major market players have reduced their exposure and activity.”

Chaumont said he recommends delaying projects by three to six months. Flowdesk expects the bear market to last for another 12-18 months.

Last month, newly decentralized exchange dYdX said it plans to delay its token unlock, which will release more than 150 million tokens to early investors and founders, until December 2023 with hopes that the market will have recovered by then. People familiar with the matter say it is because of concerns over market liquidity.

Liquidity in the bitcoin and ether markets measured at 2% market depth has dried up since Alameda went down, making it more difficult for traders to execute large 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 ask/offer prices quoted at a given time. Data tracked by Paris-based Kaiko shows that 2% market depth for BTC fell to less than 8,000 BTC in January, even as the cryptocurrency rose 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 players, 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 the balances of key market players have fallen. Cumberland currently has a balance of $75 million, down from about $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 peaked.

Amber Group, which gave away a sponsorship deal with British football team Chelsea in December, has been through several rounds of layoffs. Arkham says it currently has a balance sheet of $92 million, down from a peak of around $350 million in mid-2022.

This is not necessarily a bad thing, said March Zheng, co-founder and managing partner of Byzantine Capital.

“Crypto markets are cyclical in nature, but they need stress test conditions like the past few months to prove their robustness over the long term,” he told CoinDesk in a note. “New token issuance activity has been down, but it provides more opportunities for incumbents and top projects.”