Disruptive Technologies

Consensus Begets Competition in Digital-Asset Infrastructure

Organizations old and new vie to replicate the controls and safeguards of traditional financial markets

Friday, July 30, 2021

By Jeffrey Kutler


Like other leading market operators - and the investment community they serve - Deutsche BÖrse Group has been watching the emergence of crypto assets and setting strategy for jumping into the fray. Those who provide “plumbing” for trading, clearing, custody and settlement could go a long way toward servicing, and managing the risks of, the growing ranks of institutions eyeing a new alternative asset class.

“Digital assets will transform the financial industry,” Thomas Book, Deutsche BÖrse executive board member for Trading & Clearing, has said. “There is increasing demand from established financial institutions who are looking to become active in this new asset class and want a trusted partner.”

The conviction is not the Germany-based BÖrse's alone. Through acquisitions, strategic partnerships, R&D and venture capital investments, bold digital-infrastructure moves are being made not only by “crypto natives” like Paxos in settlements, BitGo (acquisition pending by Galaxy Digital) in custody, and the recently introduced BlockFi Prime, but also by established exchanges (Intercontinental Exchange's Bakkt, for one); investment servicers including BNY Mellon, Northern Trust and State Street Corp.; as well as Fidelity Investments, Goldman Sachs, JPMorgan Chase & Co. and other firms. They are committing to long games that belie any near-term skittishness about bitcoin.

Deutsche BÖrse's steps include a partnership and co-investment with Frankfurt-based Commerzbank in 360X, to utilize blockchain in developing “digital marketplaces and ecosystems for existing real asset classes such as art and real estate.” “Our mantra is 'making things investable - bridging the gap between asset classes and capital markets,'” 360X CEO Carlo KÖlzer said in their April announcement. “We create transparent and liquid trading venues for assets that have not yet existed in digital markets.”

Deutsche BÖrse's Thomas Book: “On our way to building a trusted and fully regulated digital asset ecosystem.”

At the end of June, the exchange operator also known as DB1 agreed to purchase a two-thirds interest in Crypto Finance AG, a Swiss-licensed brokerage and asset manager, for a “moderate three-digit million” Swiss franc price. Thomas Book called it “an ideal strategic fit [that] will help us tremendously on our way to building a trusted and fully regulated digital asset ecosystem for institutional investors in Europe. Crypto Finance perfectly complements our recent offerings like 360X” - whose plans do not end with art and property - and centrally cleared crypto exchange-traded notes.

“Old and New Worlds”

“Since the beginning,” said Jan Brzezek, CEO and founder of four-year-old Crypto Finance, “our goal was to bridge the old and new worlds.” He views Deutsche BÖrse as a “neutral partner who brings trust, reputation and expertise in traditional financial market infrastructure. In combination with our proven expertise in crypto assets and the underlying technologies, we can now achieve our goals much faster. Together, we will enable thousands of financial institutions and professional investors in Europe to instantly enter this new asset class in a way they are familiar with.”

The bridging metaphor won't be exclusive to DB1.

Named on July 21 as U.S. CEO of the Bitstamp exchange, Robert Zagotta, formerly of Kraken and CME Group, said, “Bitstamp and the entire digital asset industry have an amazing opportunity and obligation to bridge the gaps between traditional finance and crypto in smart, innovative ways to get more people - from the crypto newcomers to large institutions - involved.”

Aquis Exchange-listed Valereum Blockchain is developing a non-fungible token (NFT) platform, “The Bridge,” between crypto and fiat-currency instruments. “The objective is clearly to link legacy markets with new opportunity in a way that is transparent, safe and accessible for both existing and the next generation of investors, coherent with the essential regulatory principles which will build trust in the platforms of the future,” said newly appointed executive director Patrick L. Young, a financial markets and fintech veteran, author, and publisher of Exchange Invest.

When Morgan Stanley in June made its first blockchain venture investment, co-leading a $48 million Series B round in tokenization pioneer Securitize, Morgan Stanley Tactical Value Investing co-head Pedro Teixeira said, “We make long-term investments in businesses and asset classes that are ahead of the curve. Our investment in Securitize is a sign that we believe in the growth and adoption of digital asset securities.”

Securitize CEO and co-founder Carlos Domingo said the company “developed incredible partners during our Series A round last year, both in venture capital and at major European and Japanese financial institutions. That they have been joined in our Series B by a major U.S. investment bank and the largest trust bank in Japan [Sumitomo Mitsui], as well as additional top VCs, demonstrates that confidence in the adoption of digital asset securities is increasingly mainstream.”

Morgan Stanley was also one of several strategic investors in a $200 million growth capital round that institutional bitcoin custody firm NYDIG announced in March.

BNY Mellon's Roman Regelman: “A tremendous opportunity for us to extend our current service offerings to this emerging field.”

New Business Unit

BNY Mellon claimed to get a jump on its peers in February with the formation of a Digital Assets unit “developing a client-facing prototype that is designed to be the industry's first multi-asset digital custody and administration platform for traditional and digital assets.”

The plan is “to deliver a secure infrastructure for transferring, safekeeping and issuing digital assets,” Mike Demissie, BNY Mellon head of advanced solutions, said in the announcement. “Consistent with our open-architecture approach, the unit will leverage BNY Mellon's digital expertise and leading technologies from fintechs and other collaborators to speed up product development and help our clients tap into the best available solutions in the market.”

Roman Regelman, the bank's CEO of asset servicing and head of digital, said, “Growing client demand for digital assets, maturity of advanced solutions, and improving regulatory clarity present a tremendous opportunity for us to extend our current service offerings to this emerging field. Pending further evaluations and approvals, we expect to begin offering these innovative and industry-shaping capabilities later this year.”

BNY Mellon has been designated fund accounting and administration provider for Grayscale Bitcoin Trust, effective October 1, and expects to add transfer agency and exchange-traded fund services when the trust converts to an ETF.

State Street Digital

In June, State Street Corp. followed a similar path with the launch of State Street Digital. Executive vice president Nadine Chakar, heading the division and reporting to chief operating officer Lou Maiuri, noted that it is building on a strong foundation in asset servicing and technology innovation, with the proprietary GlobalLink platform to be enhanced for crypto, central bank digital currency, blockchain, and tokenization.

“State Street has a major role to play in the evolution of digital market infrastructure,” says digital division and global markets head Nadine Chakar.

“We have been developing a number of digital capabilities and other solutions as well as partnering and investing in the infrastructure that forms the foundation of State Street Digital,” Chakar noted. “State Street has a major role to play in the evolution of digital market infrastructure, and this new division will help us bring our expertise and resources to the conversation. As digital currencies and tokenization not only gain momentum, but transform financial infrastructure and operating models, we can help our clients bridge the gap between the industry of today and the one of tomorrow.”

State Street was appointed administrator of Iconic Funds BTC ETN, a bitcoin exchange-traded product on DB1's Frankfurt Stock Exchange, and fund administrator and transfer agent of the VanEck Bitcoin Trust, one of a number of ETFs seeking approval from the U.S. Securities and Exchange Commission.

As of July 21, State Street was joined by BNY Mellon in the consortium backing the Pure Digital institutional cryptocurrency marketplace. “As more top-tier banks join our initiative, we move closer to having an efficient wholesale crypto market which will ultimately lead to a more stable and mature asset class,” said Pure Digital CEO Lauren Kiley, formerly of Morgan Stanley and part of a leadership team with extensive foreign exchange market experience.

Zodia Custody

Northern Trust made an early mark with blockchain technology in 2017 with a private equity market platform that was subsequently transferred to Broadridge, another prominent infrastructure player whose initiatives include the recently launched distributed ledger repo (DLR) platform for bilateral repo trades using smart contracts.

Last December, Northern Trust announced a partnership with Standard Chartered's SC Ventures to launch Zodia Custody, “an institutional-grade custody solution for cryptocurrencies.” Zodia has since obtained U.K. Financial Conduct Authority registration and assumed a role in a crypto trading collaboration among TP ICAP, Fidelity Digital Assets and Flow Traders.

“We combine the risk management, compliance, governance and security approach of a regulated financial institution with the cutting-edge innovation of crypto asset and key management technologies,” said Zodia CEO Maxime De Guillebon. “By doing so, we enable operational efficiency and speed of transaction without compromising on security or reliability.”

Commenting on the registration, Zodia's CEO said, "We give institutional clients the comfort that their and their investors' assets are kept in a manner that is aligned with the more traditional asset markets. This underpins our mission to increase the accessibility of the crypto asset market for a wider institutional audience."

Northern Trust and Standard Chartered described their positioning as “leaders in the development of digital asset infrastructure,” with SC noting that it “has invested in core technology provider Metaco and is collaborating with the Bank of Thailand and the Hong Kong Monetary Authority to explore distributed ledger interoperability for cross-border fund transfers.”

Northern Trust's Pete Cherecwich on digital custody: “A breakthrough in the evolution and support of institutional cryptocurrency markets.”

Pete Cherecwich, president, Corporate & Institutional Services, Northern Trust, said, “The introduction of digital custody backed by the know-how and experience of global banks is a breakthrough in the evolution and support of institutional cryptocurrency markets. Zodia's robust capabilities will make it possible for institutional asset owners, family offices and asset managers to invest in a range of cryptocurrencies as interest continues to grow in these emerging and innovative financial instruments.”

Settlement Service

Regulated blockchain infrastructure innovator Paxos Trust Co. initiated its Paxos Settlement Service in 2019, aiming to modernize and potentially disrupt incumbent processes like those of Depository Trust & Clearing Corp. - which itself bought a stake in Digital Asset Holdings and launched several blockchain initiatives. In June this year, Wedbush Securities signed on with Paxos, joining Credit Suisse, Instinet, Bank of America and others.

“U.S. equities settlement is opaque and relies on outdated technology,” said Paxos CEO and co-founder Charles Cascarilla. “The Paxos Settlement Service reduces risk, enables greater trading liquidity and provides ownership transparency, which will revolutionize securities markets.”

On July 22, the company announced Paxos Settlement Service for commodities, saying it had already settled more than $1.5 billion in trades. Facilitating simultaneous settlement of cash and commodities trades is “a first in the precious metals market,” Paxos said, with settlement for both traditional and digital precious metals trades in one system.

Paxos' platform “significantly reduces settlement risk and unlocks meaningful capital efficiencies,” says CEO Charles Cascarilla.

“Our platform significantly reduces settlement risk and unlocks meaningful capital efficiencies that improve intraday liquidity,” Cascarilla added. For commodities it “revolutionizes institutional settlement and opens this high-value market to more participants around the world.”

When Paxos closed a $300 million Series D funding in April, for a valuation of $2.4 billion, Cascarilla commented, “Demand for our enterprise solutions has accelerated much faster than we could have anticipated. It validates our approach to providing the most innovative and regulated enterprise solutions to replatform the financial system and create the digital economy of the future.”

In other digital-asset infrastructure developments:

-- Fidelity Investments, Galaxy Digital, PayPal Ventures and others joined in a $40 million Series A financing, completed in May, for Talos, developer of a full-trade-lifecycle platform, publicly launched last October, spanning liquidity sourcing, price discovery, algorithmic execution, reporting, clearing and settlement. The round was led by Andreessen Horowitz, whose general partner Arianna Simpson said: “We have reached an inflection point where widespread institutional adoption will progress only with robust, expansive, and institutional-grade market infrastructure in place. This is why we are big fans of the Talos platform. It was built by a team that deeply understands trading and investment platforms, and the technology solutions they've delivered to date reinforce a digital asset market structure that is in many ways superior to what you would find elsewhere in capital markets.”

Andreessen Horowitz's Arianna Simpson sees “an inflection point” making institutional-grade market infrastructure essential.

Talos was co-founded by CEO Anton Katz, former head of trading technology at AQR Capital Management, and chief technology officer Ethan Feldman, who had previously worked alongside Katz at Broadway Technology.

-- Boston Security Token Exchange (BSTX) in June said its proposed rulebook for an exchange offering “potentially faster settlement, proprietary market data transmitted via blockchain, and better market quality for early-stage companies that are thinly-traded” was put out for public comment by the Securities and Exchange Commission. BSTX is a three-year-old joint venture of BOX Digital Markets, which is a unit within BOX Options Market and BOX Exchange parent BOX Holdings Group, and tZERO Group, a capital markets blockchain business that began as part of The updated proposal “sets out a framework for a new exchange that we believe contains advances with major benefits for investors, exchange participants and small, early-stage companies, among others,” said Lisa J. Fall, BSTX's CEO.

-- Cryptocurrency exchange FTX, which has generated media buzz around its “crypto billionaire” founder and CEO Sam Bankman-Fried and its purchase of naming rights for a Miami sports arena, has joined the ClearLoop instant settlement trading network of, which has more than 300 institutional asset managers as clients. Two-year-old FTX's million-plus registered users range from institutional traders to family offices and “crypto-native investors.”

ClearLoop is touted as “the only digital asset custodian that minimizes counterparty risk by enabling asset managers to trade their balance on-exchange, while storing their assets securely offline and off-exchange.” According to a statement by Bankman-Fried, FTX's “range of products now available via Copper's ClearLoop network offers a best-in-class trading experience and the reduced level of counterparty risk required by many institutions in order to interact with crypto exchanges. Our collaboration with Copper will help us stay ahead of the pack.”


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