Wintermute's Evgeny Gaevoy has seen crypto winter before

• "The worst is already known," the Wintermute CEO tells Axios at an Ethereum conference in Paris, called Ethereum Community Conference 5 (EthCC).

Why it matters: Thousands of investors, including major institutional firms, were burned badly after crypto lenders who, unbeknownst to their customers, loaned billions of dollars to 3AC — some of which were made on good faith alone. And now a pair of the biggest lenders among them — Voyager Digital and Celsius Network — have started bankruptcy proceedings.

• Meanwhile, their customers hang in the balance.

What they're saying: Gaevoy says the leverage buildup was obvious on the DeFi side of things. That's a feature of DeFi — transactions are visible to everyone. But not so much with respect to the centralized lenders.

• "As far as Three Arrows goes — no one could see that. The only players in crypto who could see that are the centralized lenders, but they were not talking to each other and sharing information because they were afraid of others stealing clients."

Between the lines: "There is a balance sheet equation. On the one side you've got assets that are not obviously verifiable because some of it might be on chain, some in GBTC, but a lot was in DeFi tokens. But it was not clear to how to estimate how much."

• On the liabilities side of the balance sheet: "What they owed to everyone else, and that was completely invisible."
• "If you cheat as a prop trading firm and send info that is not true, there is not much you can do as a centralized lender."

Between the lines: "What happened was 3AC was borrowing from everyone," Gaevoy says. "That's like mortgaging your house with five different banks."

• It also turns out that much of the billion-dollar loans 3AC took out were uncollateralized, meaning not backed by anything.
• Context: The concept of uncollateralized lending is not shocking, says Gaevoy.

Catch up quick: "We at Wintermute pretty much borrowed from the same set of lenders, albeit on a smaller scale. We deleveraged after the whole thing."

Flashback: Gaevoy built Wintermute in July 2017 and in two years started turning a profit. He emphasized that Wintermute did things the "right way" from the beginning.

• "There were a bunch of prop trading firms that were calling themselves market makers at the time, but they were pumping and dumping," he says.
• "We did not do anything that would get us fined or in jail."
• By the way, Wintermute is a reference to an AI that drives the plot in William Gibson's first famous book, Neuromancer.

The big picture: "If you look at the cycle of 2017, it basically only brought ICOs. This cycle brought us the concept of automated market makers, decentralized lending and resilient stablecoins. Protocols are emerging and becoming more important."

• At the same time, too many firms focused on too much on growth, he said.

• "Centralized exchanges were not profitable last year — crazy because it was the best year possible. That was only because they invested really heavily into growth. So now you see the layoffs, at Coinbase, for example," Gaevoy said. "It's gonna be brutal."

The future: Gaevoy is "cautiously optimistic." Cautious because global recession is looming and the crypto winter could last anywhere between 6 months to 5 years, he said.

• Yet Gaevoy says the future of market making is promising.

Yes, but: Big money is holding out. "Institutions are backing out of everything. Everyone is waiting on the sidelines trying to figure out how to live in this new market environment. Like growth vs value."

What's next: Gaevoy plans to launch Bebop, a decentralized exchange or DEX aggregator, focused on user experience.

• "DeFi protocols' UX is lagging. Normal people find it quite scary," he said.
• Bebop is a project three years in the making that Gaevoy described as "DeFi trading reinvented."
• It will be designed to have a user-friendly interface, like Robinhood, with the back-end sophistication of a well-known Wall Street firm, like Citadel Securities, on the Ethereum blockchain.
• Bebop is set to launch later this summer.

Fun fact: The name of Gaevoy's latest project is in part inspired by Cowboy Bebop, a Japanese neo-noir anime set in 2071 that tells the story of Spike and Vicious, who represent good and evil, respectively.

• Gaevoy's Twitter profile is of Spike, "Bebop's" protagonist.
• The anime series ends with Spike defeating Vicious, but badly injured in battle — slumps over as cowboys do in classic westerns.

The bottom line: Gaevoy intends to outlast his peers this crypto winter.

• "We have the resources to last any time period, but I'm hoping [it's only] 6 months."