In a recent live AMA Spotlight session hosted by dYdX, Evgeny Gaevoy, Founder and CEO of Wintermute, and Yuriy Myronovych, Head of DeFi at Wintermute, shared deep insights into the world of decentralized finance (DeFi) market making. From strategy frameworks and risk management to the evolving dynamics between centralized (CeFi) and decentralized exchanges (DEXs), the conversation revealed how top-tier market makers navigate volatility, innovation, and infrastructure constraints in today’s fast-moving crypto markets.
This comprehensive recap explores their journey, operational philosophy, and forward-looking vision for DeFi liquidity provision—offering valuable takeaways for traders, builders, and investors alike.
The Origins of Wintermute: From Traditional Finance to Crypto Liquidity
Evgeny Gaevoy’s path into crypto began in traditional finance. As a former employee at Optiver—one of the largest ETF market makers globally—he gained firsthand experience building algorithmic trading systems from the ground up. When Bitcoin’s momentum surged in early 2017, he recognized a new frontier.
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Teaming up with a software engineer, Evgeny co-founded Wintermute during the 2018 bear market—a period when most startups struggled to survive. Instead of relying on hype, they doubled down on core market making operations. Their focus on technical excellence and risk discipline allowed them to emerge as one of the leading liquidity providers in the crypto ecosystem.
Yuriy Myronovych brought a different perspective. With a background in blockchain development and prior work on Argent Wallet, he was drawn to the technical depth and autonomy of DeFi. Joining Wintermute two years ago, he led its expansion into decentralized protocols—starting with dYdX as his first integration project.
What Is Market Making? Core Principles and Strategies
At its core, market making involves providing bid and ask quotes continuously across trading venues. This ensures traders can enter or exit positions efficiently—especially crucial on platforms like dYdX where users trade perpetual contracts with high leverage.
Wintermute employs a multi-layered approach:
- Providing liquidity on order-book-based DEXs
- Supplying pools for automated market makers (AMMs)
- Facilitating over-the-counter (OTC) pricing requests via RFQ systems like 1inch or Paraswap
While their primary goal is market neutrality, maintaining perfect balance isn’t always feasible—especially during rapid price movements or flash crashes. However, through advanced algorithms and real-time monitoring, they aim to minimize directional exposure within seconds.
CeFi vs. DeFi: Key Differences in Market Structure
Despite similar end goals, operating as a market maker differs significantly between centralized and decentralized environments.
Technical Integration & Flexibility
Yuriy emphasized that DeFi development is more creative but complex. Each protocol operates uniquely—some use AMMs, others hybrid models combining order books with liquidity pools. Integrating into these systems requires custom engineering rather than plug-and-play APIs.
In contrast, CeFi APIs (e.g., Binance, Coinbase) follow standardized formats with minor variations—making integration faster but less innovative.
Capital Efficiency and Withdrawal Control
One major advantage of DeFi is self-custody. Unlike CeFi platforms where withdrawals may be delayed for hours—or blocked during outages—DeFi allows instant asset movement via gas fee adjustments.
This transparency reduces counterparty risk and enhances capital efficiency, especially critical for market makers managing large inventories across multiple venues.
Cross-Margin Benefits on dYdX
Cross-margin functionality on dYdX allows traders—and market makers—to use a single pool of collateral across all positions. According to Yuriy, this feature reduces required collateral by up to 5x compared to isolated margin systems.
For liquidity providers managing dozens of markets simultaneously, such efficiency is transformative.
Risk Management: The Backbone of Sustainable Market Making
Risk isn’t just a concern—it’s the foundation of long-term survival in volatile markets.
Inventory & Exposure Control
Market neutrality remains the gold standard. But when imbalances occur—due to sudden demand shifts or technical lags—Wintermute uses tools like delta hedging and perpetual contract offsets (e.g., long spot + short perp) to neutralize exposure quickly.
Their systems are designed to detect deviations in real time and auto-rebalance within milliseconds.
Handling Flash Crashes and Extreme Volatility
During extreme events like flash crashes:
- Systems automatically widen spreads to avoid “crash zone” pricing
- Some modules temporarily shut down to prevent erroneous trades
- Human oversight kicks in for manual intervention if needed
Evgeny stressed that no system is 7×24 fault-proof. A conservative approach—pulling back during chaos and re-entering only when conditions stabilize—is key to avoiding catastrophic losses.
The Role of Technology and In-House Development
Wintermute builds nearly everything in-house—from trading engines to risk monitoring dashboards.
Why? Because third-party aggregators often lack the speed, reliability, and customization needed for millisecond-level execution. Even latency-sensitive tasks like gas optimization require bespoke solutions.
They briefly used CCXT early on to connect with CeFi exchanges but eventually migrated to proprietary infrastructure as scale increased.
This commitment to full-stack control ensures resilience, performance, and adaptability—an essential edge in competitive markets.
DeFi’s Future: Innovation, Index Products, and Layer 2 Growth
Both speakers expressed strong optimism about DeFi’s trajectory.
Accelerated Innovation Cycle
“DeFi moves at 10x the speed of traditional finance,” said Yuriy. While CeFi evolved slowly over decades, DeFi has already experimented with 50+ variations of AMMs, derivatives, options, and futures—all within a few years.
The low cost of experimentation enables rapid prototyping—teams can launch novel financial products in days instead of years.
Potential for Index-Based Perpetuals
Evgeny highlighted index products as an under-discussed opportunity. In traditional markets, index futures (like S&P 500) dominate volume over individual stocks. Bringing similar instruments to DeFi—such as a BTC/ETH basket perpetual—could unlock massive institutional interest.
“If DeFi launches compelling index derivatives,” he noted, “it could outperform centralized exchanges.”
Layer 2 as the Path Forward
Currently, only 20–30% of Wintermute’s volume comes from DeFi, largely due to high L1 fees. But with dYdX’s shift to Layer 2 for perpetuals, scalability improves dramatically.
“L1 is no longer viable for mass adoption,” Evgeny stated. “The future is Layer 2.”
Lower costs mean tighter spreads, deeper liquidity, and better user experience—key drivers for attracting mainstream traders.
FAQ: Common Questions About DeFi Market Making
Q: How do market makers stay profitable during high volatility?
A: By dynamically adjusting spreads and using hedging strategies (e.g., delta hedging), market makers protect against adverse price moves while capturing bid-ask spreads. Automation ensures responses happen in milliseconds.
Q: Can small players compete with firms like Wintermute in DeFi market making?
A: Yes. Many emerging protocols lack sufficient liquidity, creating opportunities for smaller teams. Starting with niche markets or partnering directly with new projects allows agile entrants to grow alongside ecosystems.
Q: Is it possible to eliminate impermanent loss in AMMs?
A: Not entirely—but risks can be mitigated using options hedging or concentrated liquidity strategies (as seen in Uniswap V3). True solutions will likely come from next-gen AMM designs focused on dynamic rebalancing.
Q: Why does Wintermute prefer self-built tech over third-party tools?
A: Speed, control, and reliability. Third-party tools introduce latency and dependency risks. For a firm operating at microsecond precision, owning the entire stack is non-negotiable.
Q: How important is governance participation for market makers?
A: Increasingly so. Wintermute actively engages in governance votes for protocols they support. Influencing fee structures, incentive models, and listing decisions helps align long-term interests between platforms and liquidity providers.
Q: What skills are needed to start a career in DeFi market making?
A: Strong foundations in algorithmic trading, smart contract understanding, risk modeling, and programming (Python/Rust). Hands-on experience with dYdX or Serum offers practical exposure to order-book mechanics.
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The conversation concluded with a powerful message: DeFi isn’t replacing CeFi—it’s evolving beyond it. With faster innovation cycles, greater transparency, and superior capital efficiency, decentralized markets are poised to lead the next phase of financial evolution.
As Wintermute continues expanding its footprint across DeFi protocols—including pioneering integrations on dYdX—their journey underscores one truth: sustainable liquidity isn’t about chasing trends—it’s about mastering technology, risk, and timing.
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