tl;dr
Wintermute, a major crypto market maker, paused trading after its risk protocols collapsed during last week's $19B liquidation crisis triggered by Trump's tariffs. The incident highlights vulnerabilities in automated systems and sparks debates about crypto market stability.
**Wintermute Halts Trading Amid Crypto Flash Crash, Cites Internal Rule Breaches**
In the wake of last week’s dramatic crypto market crash, which triggered over $19 billion in liquidations following President Donald Trump’s tariff threats against China, prominent market maker Wintermute temporarily halted trading. The decision, however, was not driven by profit motives—as some social media users speculated—but rather by the collapse of the firm’s internal risk management protocols during the turmoil.
Wintermute, a key player in stabilizing cryptocurrency markets by providing liquidity, found its automated trading systems overwhelmed by the extreme volatility. Jasper De Maere, Wintermute’s Desk Strategist, explained that the firm’s predefined rules were “broken” amid the rapid liquidation cascade, forcing a brief pause in operations. “The violence and speed of the liquidation events made it difficult to continue market making in that window,” De Maere said, highlighting the challenges of hedging during such a volatile period.
Market makers like Wintermute and LO:TECH play a critical role in maintaining order by continuously buying and selling assets to ensure liquidity. However, their automated systems rely on strict risk parameters. During the crash, these safeguards triggered, leading to temporary exits from the market. LO:TECH, another market maker, also halted trading, with its CTO, Marcus Horsley, attributing the move to “circuit breakers” in their risk engines. “The exchange APIs were unreliable, so it took time to get back to full size,” Horsley noted.
Rumors of a “coordinated withdrawal” by market makers to maximize profits circulated on social media, but both Wintermute and LO:TECH denied such claims. LO:TECH emphasized its systems are fully automated, with Horsley stating, “Our systems worked as intended.”
The pause by market makers had tangible consequences. Messari Research Analyst Matthew Nay warned that reduced liquidity could amplify price volatility, while Amberdata’s Greg Magadini pointed to price fragmentation across exchanges. “Market makers often align prices across platforms like Binance, Bybit, and Deribit,” Magadini explained. “But when hedges fail due to auto-deleveraging—where exchanges close winning positions to protect against losses—providing liquidity becomes riskier.”
Traditional markets rely on clearinghouses to mitigate risks, but many crypto exchanges instead use insurance funds or auto-deleveraging mechanisms. Magadini noted that this approach can create an unstable environment for market makers, who must now navigate fragmented price signals and unreliable hedges. “If you can’t trust your hedges, the only option is to pull out,” he said.
Wintermute’s De Maere reiterated that the firm would return to trading “if we can make markets in a safe, delta-neutral way.” However, the severity of last week’s crash made that impossible. As the crypto market grapples with the aftermath, the incident underscores the vulnerabilities of automated systems in the face of extreme volatility—and the critical role of market makers in maintaining stability.
For now, the industry remains on edge, watching how exchanges and market participants adapt to prevent such crises from recurring.