Alameda-Backed Crypto Trader Folkvang Is Still Standing Despite Big Hit From FTX's Demise

The firm, which managed as much as $400 million in 2021, had half of its equity parked on FTX before it collapsed.

AccessTimeIconFeb 23, 2023 at 5:32 p.m. UTC
Updated May 9, 2023 at 4:08 a.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global hub for everything crypto, blockchain and Web3.Register Now

More than three months after the contagious collapse of the FTX exchange, the cryptocurrency industry is still reeling. Folkvang, a market-neutral, Cayman Island-based trading firm is still going despite suffering a major blow during November's crash.

"Our equity was halved, so we lost a lot of the gains we made in 2021," Folkvang founder Mike van Rossum said in an interview with CoinDesk. "This is the risk, right? This is the risk of the game. I guess we're happy we're still standing."

  • DCG Reaches In-Principle Deal With Genesis Creditors
    02:26
    DCG Reaches In-Principle Deal With Genesis Creditors
  • Crypto Custodian Prime Trust Files for Bankruptcy
    02:06
    Crypto Custodian Prime Trust Files for Bankruptcy
  • Celsius Can Start Converting Altcoins to Bitcoin, Ether as of July 1, Judge Says
    04:58
    Celsius Can Start Converting Altcoins to Bitcoin, Ether as of July 1, Judge Says
  • FTX’s Bankruptcy Fees on Track to Be 'Very Expensive', Court Examiner Says
    05:48
    FTX’s Bankruptcy Fees on Track to Be 'Very Expensive', Court Examiner Says
  • Founded in January 2020 by a team of seasoned crypto quant traders, Folkvang rose to prominence across all major exchanges. For instance, it edged toward the top of FTX's volume and profit leaderboard in 2022. Folkvang's emergence on FTX was expected after Alameda Research, the trading firm 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.)

    Speaking on a recent video call from a high-rise Singapore office building, Folkvang's van Rossum provided a candid account of the "messy" situation in the aftermath of FTX's collapse.

    "It was a tough pill to swallow," van Rossum said after revealing that half of the company's equity was tied up on FTX. "We were able to survive, but as we were quite active borrowers we had to pay the lenders back out of pocket."

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

    Folkvang acts solely as a proprietary high-frequency trading firm. It doesn't offer any other services as an over-the-counter desk or do market-maker token deals. It relies on a blend of algorithmic strategies that includes arbitrage trading, yield farming and market making.

    Strategy shift

    "We learned a hard lesson with FTX," van Rossum continued. "We found that risk is real. We thought it could never really happen in the way it did, so we are a lot more risk averse now."

    He added: "We just trade our own balance sheet. We aren't really borrowing at all. The risk is just too big."

    As Folkvang is a market-neutral trading firm, it avoids directional risk and profits by providing liquidity and trading off negative and positive funding rates against each other. It is the antithesis of long-only shops like Three Arrows Capital, which spectacularly collapsed in a cascade of liquidations last year as the market tumbled.

    Although directional risk for Folkvang is minimal, the fall of FTX has intensified the fears of 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 unavoidable. Arbitrage trading involves buying an asset for a certain price on an exchange and selling it immediately for a higher price on another; this requires active capital across multiple centralized venues.

    When asked where Folkvang trades now that FTX is defunct, 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. So Binance offers a good risk/reward ratio, but the risk is still there."

    Hopeful of FTX resolution

    After losing around 50% of its trading equity on FTX, Folkvang remains confident that a portion of the funds will be returned, even if it takes between five to eight years.

    "We're definitely engaging with lawyers," he said. "We're engaging with the bankruptcy people, but it's hard to do something here as the situation is complicated."

    Alameda "invested in us so they're on our cap table and we invested in FTX, so it's all intermixed," 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 creditors list, with individual creditors at the top end of the list being owed as much as $226 million.

    "This will be a long process," van Rossum added. "We have mentally written it off to zero. We aren't thinking we're going to be getting back X or Y. Mentally, it's written off but we are hopeful that we will get something. But it will take many, many, many years."

    UPDATE (Feb. 24, 10:48 UTC): Alters wording on where company is based.

    Disclosure

    Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

    CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

    Oliver Knight

    Oliver Knight is a CoinDesk reporter based between London and Lisbon. He does not own any crypto.


    Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.