Market-making on-chain trades is a mysterious and crucial aspect of the crypto world. It is not only important but also highly profitable. The issue, as pointed out by the pseudonymous trader Grug, is that valuable order flow in crypto protocols is not being fully utilized.
Grug’s company, Warlock Labs, recently secured $8 million in venture funding for what he believes is the solution to this problem. They have developed a proprietary trading firm that uses on-chain data to demonstrate responsible processing of order flow.
With two years in the industry, Warlock Labs is ready to delve into the intricate blockchain infrastructure that facilitates trading on Ethereum. Many operators offer incentives to protocols in return for processing their order flow, which can result in significant profits amounting to millions of dollars annually.
However, Grug warns that there is a risk of manipulation within the world of maximal extractable value (MEV), where trades can be exploited to the detriment of the protocol and its users.
“We are developing order flow tools and a platform that provides zero-knowledge guarantees, ensuring that the order flow submitted to us remains intact and unaltered,” explained Grug.
While initially focusing on on-chain activities, Warlock Labs aims to expand its services to cater to centralized exchanges (CEXes) as well. Grug referenced the recent incident at Binance involving a market maker taking unauthorized profits from MOVE tokens, highlighting the importance of transparency and integrity in order flow processes.
“In the future, the ability to demonstrate the integrity of order flow will be as valuable as receiving it. Building trust with users and protocols is key,” noted Grug. The company is viewed as a “venture scale business” with Wintermute, the market-making giant, as its primary competitor.
Leading the funding round was Polychain Capital, with participation from Greenfield Capital, Reciprocal Ventures, Symbolic Capital, Ambush Capital, and TRGC, indicating significant interest from venture firms in Warlock Labs’ innovative approach to market-making.
