Jakob Palmstierna of GSR: Building the Capital Markets Infrastructure Crypto Actually Needs

The weekend Bitcoin dropped and most of crypto was panicking. Jakob Palmstierna was working through volatility the way he's done since 2017: methodically, without excess leverage, treating market turbulence as opportunity rather than crisis.

"Volatility is actually not bad for a liquidity provider," Jakob tells during the latest episode of the alpha un# podcast. It's a counterintuitive stance in an industry that often conflates movement with risk, but it speaks to a deeper philosophy that has kept GSR operating since 2013, making it one of crypto's longest-running market makers.

Jakob's path to crypto runs through the quant hedge fund world: Two Sigma, Winton Capital, Barclays Global Investors. That traditional finance pedigree shapes everything about how GSR operates today. When he started trading crypto personally at Two Sigma around 2013-14, it wasn't just about a new asset class but about observing market microstructure in its rawest form.

"It was one of the only places in modern finance where you could see how an order book behaved with the naked eye and you didn't have all the regulations you had in traditional finance. Obviously in traditional finance you have to do it by inference as opposed to with the naked eye, it goes too quickly. Today it's the same in crypto, it's evolved a lot."

That evolution, from visible order books to microsecond execution, mirrors crypto's journey from experimental technology to institutional infrastructure. And Jakob has been building that infrastructure, piece by piece, for nearly eight years.

The Bond Between Networks and Tokens

GSR serves over 500 crypto projects today across market making, OTC trading, derivatives, DeFi liquidity, and venture investments. But the foundation of everything rests on a thesis Jakob articulated early: the relationship between a blockchain network and its token is fundamentally different from the relationship between a company and its stock.

He offers a visceral analogy: "If you're out driving your Tesla and there is no liquidity or shorting within the Tesla stock, your car is not going to stop in the middle of the road. That would be dangerous. And obviously there's no link between the two."

The contrast in crypto is stark.

"Whereas in crypto, if you take Ethereum, if there's no liquidity on ETH, you can't really use the network. So the role for a market maker in crypto seemed to be much closer, not only to capital markets, but to the core of these projects."

This insight positioned market making not as peripheral financial engineering but as mission-critical infrastructure. Networks literally cannot function without liquid tokens.

When Jakob joined GSR as a partner in 2017, the firm was smaller but ambitious. The challenge wasn't optimizing for performance, it was optimizing for robustness. APIs changed constantly. Exchange connectivity was patchy. The goal was simply staying in the order books with integrity.

"At the time, you didn't optimize for performance. You optimized for robustness," he recalls. By 2025, the technical landscape has matured. GSR now operates across centralized venues with hardware colos in NY5 and LD4, cloud-based exchanges, and an expanding DeFi ecosystem. But Jakob is clear-eyed about where crypto still lags: "Even today, when you're talking about pure latency, we aren't really there in crypto by and large yet. Not necessarily sure that's needed, by the way. Whether we transact in milliseconds or microseconds doesn't really matter for most people as long as it's a level playing field."

Beyond Market Making: The Full Lifecycle Vision

GSR's business model has expanded far beyond providing two-sided quotes. Jakob describes five integrated lines of business, each emerging organically from the needs of token issuers and institutional clients:

Market Making remains core, providing liquidity across centralized and decentralized venues.

OTC and Derivatives grew from foundation treasuries needing yield strategies. In 2020-21, projects had raised capital in ETH and BTC. Those treasuries needed management. GSR began writing options, offering structured products, enabling programmatic accumulations and liquidations.

DeFi Trading evolved as automated market makers and decentralized exchanges gained traction. GSR moved from trading in DeFi to helping architect it.

Ventures emerged naturally from proximity to deal flow, with GSR investing from the balance sheet and building out a dedicated venture arm.

Systematic OTC distributes liquidity programmatically to retail platforms and ECNs, streaming quotes and handling RFQs at scale.

Add to this GSR's push into digital asset treasuries (leading Upexi's $100 million Solana treasury strategy in 2025) and the co-incubation of Katana, a DeFi-first app-chain with Polygon Labs, and you get something broader than a market maker.

"Trading is a core capability of what we do and market making is a big part of what we do. But I think where we really see ourselves is being a trusted partner on that journey, not for an instant of time, but for a longer period of time."

The vision is lifecycle support: co-creation, early investment, go-to-market strategy, listing coordination, liquidity provision on-chain and off-chain, distribution to retail and institutions, inclusion in asset management products, building option markets.

"There is no real capital markets partner to crypto projects today," Jakob says simply.

The DeFi Plateau and Composability's Promise

DeFi total value locked hovers around $150 billion as of early 2025, up from post-crash lows but still searching for its next adoption catalyst. Despite infrastructure improvements and narrative momentum, growth has stalled.

Jakob sees this clearly: "Maybe that is that we've saturated a lot of the existing users in DeFi and we need more people to come in and adopt the space."

The problem isn't just user growth but product evolution. DeFi has commoditized into leverage loops and unsustainable yields. But Jakob also articulates why DeFi yields can be legitimately higher than off-chain yields, without resorting to Ponzinomics.

"In TradFi, intermediaries capture part of the yield through opaque re-hypothecation. In DeFi, smart contracts distribute the yield more directly to users. So depositors can capture a larger share of what their assets actually earn. That transparency and direct accrual is why on-chain yields can be higher."

He goes deeper on composability, often discussed in DeFi but rarely explained concretely:

"A tokenized fund unit can basically be reused as collateral in DeFi money markets, enable investors to borrow a stablecoin against their holdings, and they can redeploy that in maybe the same fund if it's a low risk fund to create some leverage, but maybe they can lend out those assets and earn some yield. This on-chain efficient use of capital is almost impossible in traditional structure."

The unlock is real. But institutional adoption requires solving operational risk, front-running exposure for large orders, and providing permissioned pools that satisfy compliance requirements.

On the front-running issue, Jakob says: "If you're an institutional investor and you want to buy a couple of billion dollars of the S&P 500, you do not want that to be published on chain as you start buying because people will front run you and you will pay the price."

Privacy-preserving execution, operational standards, better UI/UX beyond "degens", these are the missing pieces.

Katana: From Participant to Architect

GSR's strategic shift from participating in DeFi to architecting it crystallized with Katana, a DeFi-first app-chain co-incubated with Polygon Labs. The thesis: liquidity fragmentation and unsustainable yields are choking adoption. An opinionated chain with enshrined core apps (Morpho for lending, Sushi for DEX infrastructure) can solve both.

"For GSR to be part of the co-creation of Katana reflects a strategic shift for us from participating in DeFi to help architecting it," Jakob explains.

GSR's role is specific: shaping market design, LP incentives, liquidity strategy, and business development for protocols building on Katana. The goal is to ensure liquidity flows efficiently across the ecosystem, bootstrapping initial depth and attracting other participants.

The economic model channels value directly back to core protocols through sequencer fees, the AUSD stablecoin, and initial emissions, rather than relying on perpetual token dumps.

Jakob sees Katana as proof that deep liquidity and sustainable yields can coexist: "We want to see real market adoption in DeFi. And two of those things that need to happen are obviously deep liquidity and sustainable yields."

Regulation as Competitive Advantage

GSR holds two major regulatory licenses: a Major Payment Institution (Digital Payment Token) license from the Monetary Authority of Singapore (April 2024) and FCA cryptoasset registration in the UK (January 2025). For Jakob, these aren't marketing tokens. They're operational alpha.

"We've always been pro-regulation," he says. "What that means is we want a level playing field, fair and orderly markets and consumer protections."

Without regulation, he argues, crypto remains on the fringes. "I do think that the promise of crypto, Web3, digital assets, whatever you want to call it, is so much higher than living on the fringes of society."

The talent density in Web3, he notes, rivals the early internet days and is now matched by AI. But speculation without guardrails won't bring the next billion users.

GSR prepared U.S. applications in 2020-21, but "the tide turned a bit, to say the least." No progress was made. Singapore and the UK offered clearer paths. The MAS license specifically regulates market making and behavior, with disclosure requirements around market abuse.

Jakob is particularly firm on a point many crypto participants misunderstand:

"Some people in crypto think that because it's unregulated means you can do whatever you want. They miss this little footnote that fraud is actually a criminal offense. Fraud is always fraud, whether regulated or not."

The 2025 regulatory environment feels different to him. "Today it's going in the right direction, even if everything is not sort of crystal clear." He's hopeful the U.S. and Europe will provide enabling frameworks, not punitive ones.

Corporate Treasuries and the Solana Bet

In 2025, GSR led a $100 million private placement for Upexi to build a Solana treasury strategy, echoing MicroStrategy's Bitcoin playbook but with different primitives. I ask why Solana over Bitcoin or Ethereum.

"Tech, liquidity, ETF path," Jakob answers succinctly, though he's careful about declaring whether a spot Solana ETF is necessary for mainstream corporate adoption.

The controls for public company treasuries are non-negotiable: robust custody solutions, clear governance policies, hedging mandates, and operational rigor.

The broader implication is significant. Corporate crypto treasuries could be the next adoption catalyst, especially as structured products and risk management tools mature.

Risk Management: The Boring Work That Wins

Jakob's risk philosophy is unglamorous and effective. "If you're good at not losing money, you stand a good chance of making money," he says, citing one of the first Hippocratic oaths of trading.

GSR has never used excess leverage. Crypto's inherent volatility provides "enough bang for our buck" without amplifying risk. The firm has avoided major drawdowns across multiple cycles, outperforming Bitcoin primarily by not losing during downturns while participating in upside.

"We don't want to look like heroes in a bull market. We want to look like heroes in a bear market. The heroes in the bull market would always be leveraged longs. And a lot of those tapped out."

The reference to Three Arrows Capital is implicit but clear. Discipline in risk management, operational rigor, and infrastructure reliability matter more than flashy gains.

Market Outlook and the Path to $10 Trillion

Despite weekend volatility, Jakob is constructive on crypto's trajectory, though he's careful about timeframes.

"I wouldn't give you a prediction over a day or over a week or even a month. And even if I did, I would apply randomness to it. But I do think that the overall catalysts that are in the market, we've reached a tipping point."

Bitcoin, Ethereum, and Solana will continue adoption and price accretion on a year-scale, he believes. What's interesting is the potential for a selective altcoin rotation, particularly in quality projects.

DeFi needs architectural improvements, better narratives, permissioned pools for institutions, and the ability to bring off-chain yield on-chain alongside native crypto yields.

Crypto is roughly $4 trillion today. Where does it go by 2030?

"Ten," he says. Ten trillion.

The three critical DeFi unlocks, according to Jakob:

1. Evolve beyond leverage loops into option vaults, DOVs, ETFs, indices, and active strategies

2. Build permissioned pools that satisfy institutional compliance requirements

3. Educate on composability so the killer product is better understood and utilized

The privacy paradox remains: institutions want transparency for audits but not for execution. Solutions exist but need standardization.

Ultimately, Jakob sees GSR's role as enabling this transition, not just profiting from it.

"The promise of crypto is so much higher than living on the fringes of society. There's one of the biggest talent densities working within Web3 seen since early internet days. That's the self-fulfilling prophecy of it. It is more than a technology because it's merged with capital markets."

The stakes are clear: fair, orderly markets with consumer protection, confidence for the next billion users, and crypto's integration into real society rather than perpetual exile.

"We're in a good momentum," he concludes. "We're in a good space."