William Essex: So where are we now? Bring us up to date.
Rosario Ingargiola: We spent about three years building out the platform. It’s an end-to-end markets infrastructure solution that is applicable in any asset class including FX – where we’re starting in spot FX and Crypto. I see it as the technology equivalent to prime brokerage. We don’t have our own balance sheet to use for financing leverage and repo, but we do everything else. Our technology opens up a way for others to come in and perform those “prime services” functions.
WE: You used the word solution…
RI: Yes. The problem we’re solving is the elimination of trading counterparty and settlement risk, which is the point of FX prime brokerage. We achieve this with the tokenisation or digitisation of collateral assets that are held by clients at a regulated custodian on our network, onto a proprietary, enterprise-permissioned blockchain layer.
Then we have a real-time collateral management as well as all the services that support the whole trade-to-settlement life cycle.
WE: Trading’s live now, isn’t it?
RI: We’re live with our OTC block trading venue and we’re getting ready to launch a crypto dark pool and a crypto ECN, which would be like a lit central limit order book. We have aggregation and smart order routing in and around those different pools as well as external liquidity, but most importantly, we make it possible for people to trade Bitcoin or any other crypto without any counterparty or settlement risk, and with instant clearing and settlement.
WE: Faster as well, I think?
RI: Exactly. Today, if you want to do a trade north of a hundred grand, you don’t do it on an exchange because you have huge price impact – because all those exchanges are like retail brokers with no prime brokerage in the middle stitching them together. Instead, you do a block trade and it generally takes hours to a full day to get the whole trade done and settled. And you have full exposure to the other counterparty.
Nothing else works like that in the real world, but for whatever reason, I guess because these are such attractive instruments to trade in terms of P&L, people are taking these inordinate risks. Our technology makes it possible to remove all public ledger transactions from the real-time trading critical path -- movement of crypto is never required.
RI: So, we make that block trade clear and settle instantly against provable assets on the custodial blockchain ledgers where the underlying asset never has to move. A market maker could buy Bitcoin across 20 different counterparties including exchanges, and sell the sum total instantly in a single OTC block trade transaction with no wallet movements, for example.
WE: The crypto can stay in deep cold storage for the entire time.
RI: It never has to be hot and it never has to be in flight, and it never has to go through a public ledger transaction; you have immediate re-tradability of the crypto assets. It’s like a Layer 2 network for crypto; there’s nothing like it, it’s extremely powerful; at the moment there doesn’t appear to be anyone even close to figuring out how to do all this from front-to-back like we do with pure technology. Store Cold – Trade Hot, as Kingdom Trust likes to say.
WE: So, you’ve just signed Kingdom Trust and Prime Trust as custodians on the network.
RI: Correct, anybody that wants to trade over the network can put assets at one of these US-regulated, insured entities and take our platforms and trade with anybody else with no risk and instant clearing and settlement. We also do true cross-exchange trading, clearing and settlement. An exchange can join our network and once they’ve put a portion of their client omnibus assets in their own account as a custodian on our network, we can literally take their order book and cross it with any other liquidity on the network, both dark and lit. We can put streaming liquidity into their book and make it actionable by their clients as well.
WE: Which means…
RI: What that means is, as more exchanges join, those exchanges are actually able to have liquidity crossing between each other, which is kind of the point, bridging all that liquidity and making aggregation actionable with a single collateral account at a custodian on our network. It also means institutional investors can access exchange liquidity without holding any assets directly at the exchanges and having them as a counterparty risk. We’ve got our first two meaningful custodians on board and there are a lot of big-name firms coming to market soon, in fact Fidelity just announced their crypto custody offering. So that’s where we are – in an onboarding and ramping phase.
WE: What’s the response so far?
RI: There are companies that stuck crypto into their existing FX platforms, which was great, except for the problem that none of those solutions had a way to clear and settle transactions. Clients have signed up, because they love the front ends, but without clearing and settlement their scope for growth is limited. They’re coming to us now and asking us whether we can handle the clearing and settlement. We’re in talks with various firms as to whether we can support them on the back end.
WE: Sounds as though you’re building a new market structure?
RI: In a way, what we’re building is better than the traditional market structure. Because of the tokenisation of the collateral assets onto the blockchain layer that makes the assets and ownership chain cryptographically provable, and because of the real-time collateral management, we can do things that couldn’t be done before. You could have anybody that wants to – whether credit-based or balance sheet-based – come in and provide leveraged financing in a very clean, neat way because you have provable collateral that’s available on a blockchain for interaction in real time. We can programmatically enforce all the margin and liquidation requirements along with automatic fee collection and payment on our platform in a way that nobody else does at the moment. You could think about it as enabling an institutional crowdfunding of the rest of the prime services.
WE: This is a multi-asset class solution. Would you say crypto is a distinct asset class?
RI: Crypto is a distinct asset class, yes, but the non-security tokens have more familiarity with FX as an asset class. Having said that, it is a peculiar asset class unto itself, and for no other reason than the fact that it doesn’t have broad institutional support yet, so it has unique risks and properties like any emerging market.
WE: Finally, your main focus is eliminating risk…
RI: What we do is, we eliminate the risk and at the same time make aggregation of any crypto liquidity actionable with a single collateral account held safely at a regulated custodian with pure technology – without using our own balance sheet or becoming a counterparty to the trade. Other platforms just add crypto to their existing trading tools and require direct relationships and full risk to each counterparty. We also make trading crypto assets fast enough to support HFT, which is required to scale crypto markets to institutional levels, generally.
WE: Rosario Ingargiola, thank you very much.