John Gu – Crypto Market Making & The Cold Start Problem (S7E30)
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John Gu, founder of Caladan, reveals how crypto's 'cold start problem'—launching a token with no order book, comparables, or regulatory scaffolding—forces market makers to bootstrap liquidity from nothing. Unlike traditional markets where IPOs come with designated market makers and reference prices, crypto requires someone to quote a two-sided market into a void. Gu explains how Caladan uses a mix of data-driven price discovery, adaptive quoting, and Delta hedging via token options to manage inventory risk during the volatile first days of a token launch. The conversation dives into the stark contrast between market making for profit (where edge comes from speed and flow forecasting) versus market making as a service (where the goal is to meet KPIs like uptime and size, often compensated with options or retainers). Gu also unpacks how the FTX collapse reshaped counterparty risk awareness, spurring innovations like on-chain vaults, bilateral trading, and credit intermediaries. He argues that the long-term health of a token depends not on hype, but on real economic value and sustainable use cases—because in crypto, a token's price health directly impacts user adoption and project viability. Finally, he shares how Caladan is evolving into a structured products provider, helping token foundations manage illiquid treasuries through bespoke derivatives that shield them from market signaling while monetizing volatility.
The 'cold start' problem in crypto means launching a token with no order book, comparables, or demand curve—requiring market makers to quote a two-sided market into a void.
Caladan uses Delta hedging via embedded token options to manage inventory risk, selling into rallies and buying dips to dampen volatility and avoid large, unmanageable positions.
Market making as a service is not about profit—it's about meeting KPIs like uptime and size, often compensated with options or retainers, which shifts the risk from the market maker to the project.
The FTX collapse forced a systemic shift toward transparency, with new infrastructure like on-chain vaults, credit intermediaries (Copper, BitGo), and bilateral trading relationships reducing counterparty risk.
Token price health directly impacts project sustainability—when a token's price drops, user adoption often declines, creating a self-reinforcing cycle that can kill a project.
…and 3 more takeaways available in PodZeus
Introduction & Podcast Mission
Corey Hofstein introduces the podcast 'Flirting with Models' and sets the stage for the episode's focus on the human side of quantitative strategy, highlighting the unique perspective John Gu brings from crypto market making.
The Cold Start Problem in Crypto
“In traditional markets, every newly listed stock arrives with scaffolding already in place... Crypto inverts that. A new token can launch with no order book, no comparables and no clear demand curve. Someone has to quote a two-sided market into that void.”
John Gu's Career Path: From MIT to Citadel
Gu recounts his journey from MIT, where he studied computer science and worked with Andrew Lowe on the adaptive markets hypothesis, to roles at Alpha Simplex, Citadel's Principal Strategies Group, and Tower Research, which led him to Singapore.
The Birth of Caladan: From Kimchi Premium to Business
“I was thinking about that there's no right answer, right? It's really a question of values... And it wasn't that I was farsighted in seeing the opportunity because I was almost certain the trades themselves would disappear. But what I thought was nice was I got the opportunity to leverage that to build a business.”
The Art of Initial Price Discovery
Gu explains how Caladan determines the initial bid-ask spread for a new token—starting wide, using exchange guidance, and adjusting based on trading feedback—without relying on fundamental value.
“The main thing I would say is make sure your project actually has real value and real revenue and real use, and that's what ultimately will drive kind of the token.”
“to bootstrap the marketplace. So this is not unlike Uber, where initially they gave very good incentives for people to participate and to ride. So people come for one thing, but then they stay for another.”
“I sort of see it really developing in that direction where it's a highly, highly distributed, highly fragmented market where you have a lot of different bilateral relationships.”
Host
Guest
Caladan
organization
John Gu
person
FTX
organization
Alpha Simplex
organization
Uniswap
organization
Hyperliquid
organization
Citadel
organization
MIT
organization
Ethereum
organization
BitGo
organization
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