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GSR, the crypto market maker founded by former Goldman Sachs executives, caused a splash at the start of this year when it laid out a plan to start using algorithms to trade non-fungible tokens (NFTs).
A major liquidity provider for crypto projects and exchanges, GSR traded more than $4 billion a day as of January. But applying its trading strategies to NFTs — highly esoteric assets spanning art and collectibles that are linked to blockchains — is an entirely new challenge for the company.
“Right now, we still do it in a fairly manual fashion,” Benoît Bosc, GSR’s global head of product, told The Block. “The idea eventually is to find both ways to do it systematically, and to find ways to engage with projects, collections or marketplaces to create proper contractual relationships where we can bring liquidity to their specific space.”
The market for NFTs exploded in the second half of last year. From almost nothing, NFT platforms recorded total trading volume of $3.88 billion in August 2021, according to The Block Research’s data. Volumes hit $5.63 billion in January this year, before falling off a cliff in the summer. Less than $1 billion NFTs were traded in June, and it looks as though volumes will be lower still for July.
But Bosc, who spent nearly 10 years trading crude oil at Goldman Sachs before joining GSR last year, is undeterred. He believes the timing is in fact “opportune” because the prices of blue-chip NFTs have fallen so dramatically. Can he be sure, though, that they will rebound?
“I’m pretty confident that they’ll be back, but they might be back looking different,” he said. “I think NFTs will act as an even higher beta than the wider crypto market.”
His thinking is that in the event of a rebound, rising floor prices — the cheapest entry point for NFT collections — coupled with a rally in ether (the token that most NFT prices are denominated in), will give holders “squared exposure” to the crypto market. Such exposure is typically worse on the way down, too.
GSR has been putting at least some of its money where its mouth is. On June 21, the company unveiled the GSR Blue Collection, an assembly of 16 pieces from prized collections, such as CryptoPunks, Bored Ape Yacht Club, Fidenza and Chromie Squiggle. Fidenza and Chromie Squiggle are blue-chip collections from the generative art platform Art Blocks, a focal point of GSR’s NFT trading efforts.
But GSR Blue — which is comprised of pieces the company intends to hold, not trade — is only the tip of the iceberg. To kickstart the market making project, GSR first had to accumulate a sizable inventory of NFTs. Bosc said that the firm has bought roughly 175 pieces so far, and sold 15 — much of the trading in Art Blocks collections.
A chart compiled on Dune Analytics by the Twitter user 0xRob shows that GSR has been driving a lot of volume through Archipelago, a generative art marketplace founded in November last year and backed by Fidenza creator Tyler Hobbs. According to the chart, GSR has bought 1,069.56 ether’s worth of generative art on the platform (approximately $1.7 million), while selling NFTs worth 229.83 ether (around $371,000). GSR has also been trading on gm.studio, a decentralized art platform, according to Bosc.
OpenSea is by far and away the NFT sector’s largest marketplace, dominating volumes in good months and bad. Yet GSR appears to be trading predominantly on Archipelago, a far smaller outfit with just a handful of staff. Why?
In part, because of the platform’s focus on generative art and Art Blocks, which aligns neatly with GSR’s plans. The firm’s co-founder and president Rich Rosenblum told The Block in January that Art Blocks pieces are a good fit for algorithmic trading, because of the “mathematical seed” that dictates their appearance. But Archipelago’s more sophisticated bidding system also helped entice GSR.
“They give us the option to create bids for collection level, but also at the trait level,” said Bosc. “So, if I said I want a slinky Squiggle, I could show bids to all of the slinkies.”
NFT trading is still a sideshow at GSR, with just a few people dedicated to it and a few million dollars at stake. The hope, though, is that it will help foster a smoother market in which operators will always have a buyer and seller of last resort, whatever the state of crypto prices.
“This is what is missing in NFTs — just creating the conditions for trading,” said Bosc. “And that’s part of the experiment. If you create those conditions, will they come?”