Kaiko, a provider of historical and real-time cryptocurrency trading data, order books and aggregated prices via a cryptocurrency API, has released an explainer on how to properly manage the risks of crypto assets .
The deep dive into crypto risk management was published by Kaiko following the collapse of FTX, “perhaps the biggest risk management failure in the history of finance,” as they put it. have said.
The crash course in basic risk and liquidity metrics should be required reading for anyone managing crypto investments, the company said.
“When the bear market comes, the tide goes out and we see who was swimming naked”
The course covers risk measures such as value at risk (VaR), expected deficit (ES), and implied volatility. Part 2 covers liquidity metrics such as market depth, DeFi liquidity data, and exchange due diligence.
“When liquidity is plentiful, risk management is less of a concern, as most companies’ balance sheets appear healthy and liquid. However, when a bear market hits, the tide goes out and we see who was swimming naked. Those who hold large positions in illiquid tokens, such as FTT or stETH, have paid the price for not monitoring the liquidity of those positions and not accurately assessing the outsized risk of their positions should prices decline.” , said the Kaiko research team.
Risk management and crypto are two words that until recently were rarely mentioned in the same sentence. To quote FTX’s new CEO, John Ray III, he had never seen “such a complete failure of corporate controls and such a complete absence of reliable financial information”.
“If companies investing in crypto are to survive in the future, risk management must play a central role in the investment process. Liquidity metrics, combined with traditional risk metrics such as VaR or expected deficit, will allow investors to survive bear markets like these and reap the rewards of survival in the next bull market.” he concluded.
Kaiko raised $53 million in June
We were already in the crypto winter by the time Kaiko raised $53m in a Series B funding round aimed at further cementing its position as the global industry benchmark for digital asset data services. centralized and decentralized.
The round, which will fuel the enhancement of Kaiko’s institutional data products and infrastructure, was led by Eight Roads, with participation from Revaia and existing investors Alven, Point9, Anthemis and Underscore.
Proceeds from the financing will also be used to expand Kaiko’s global presence. The company currently operates from four global offices located in Paris, London, New York and Singapore.
The market data provider was founded in 2014 and quickly established its position by improving transparency and operational efficiency for institutional firms, DeFi participants and Web3 businesses. The company offers a suite of products consisting of market data, portfolio solutions, rates and indices, pricing services, DeFi data and research.
Kaiko’s leadership position can be proven by its prominent client list which includes ICE Global Network, Deutsche Borse, Oanda, Bloomberg and other major institutions in North America and Europe. The company provides data feeds for Ledger, Paxos, Chainlink, Tezos, Messari, SupraOracles, Flux, and the Pyth Network, among others.
Kaiko recently acquired Kesitys, a provider of quantitative decision tools for risk optimization, and agreed to acquire CoinShares subsidiary Napoleon Index, enabling the launch of Kaiko indices.
In February 2022, the firm received its SOC-2 Type-1 accreditation, a benchmark certification developed by the American Institute of CPAs (AICPA) that indicates how companies manage data security, confidentiality and availability measures. and controls.