IDAssets-February-2024

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VOL 1 - ISSUE 02 | WINTER 2024 WWW.IDASSETS.NET FOLLOW US AT: Subscriptions Cover Interview: With Manu Choudhary co-founder of DeFinity Markets ALSO IN THIS ISSUE Top Stories: Latest industry initiatives and product news Regulatory Issues: UK Digital Asset regulation makes slow but steady progress Market Commentary: Interbank dealers and prime brokers help to bring structure to the digital asset ecosystem Special Report: Tokenisation of assets to herald next wave of financial innovation Trading Operations: Exploring TCA in Digital Asset trading DIGITAL ASSETS FOR THE PROFESSIONAL TRADING & INVESTMENT COMMUNITY

VOL 1 - ISSUE 02 | WINTER 2024 WWW.IDASSETS.NET FOLLOW US AT:

Subscriptions

Cover Interview:

With Manu Choudhary

co-founder of

DeFinity Markets

ALSO IN THIS ISSUE

TOP STORIES

3. Latest company and product

news items

MARKET WATCH

6. Important industry initiatives

and research reports

MARKET COMMENTARY

8. Interbank dealers and prime

brokers: helping to bring a

natural market structure to the

digital asset ecosystem

Crypto market participants are

largely enthusiastic about greater

involvement by interdealers and

prime brokers but opinion is split

on whether the structures of

the FX OTC interdealer market

should be replicated. Paul Golden

investigates.

REGULATORY ISSUES

10. UK Digital Asset regulation:

Slow but steady progress

The UK’s attitude to digital asset

regulation has been hailed as more

progressive than that of many

other major economies, even if

there remains frustration in some

quarters at the pace of progress as

Paul Golden discovers

COVER INTERVIEW

12.With Manu Choudhary, cofounder

of DeFinity Markets.

EXPERT OPINION

16. Large-scale cryptocurrency

Portfolio Management: Best

practices and algorithmic highfrequency

programming

Bally Maan outlines why managing

a large-scale cryptocurrency

portfolio necessitates a

combination of best practices and

advanced strategies.

FUND & INVESTOR SERVICES

18.Tokenisation of assets to

herald next wave of financial

innovation

Joe Morgan explores how the

tokenisation of digital and non

digital assets has come into focus

and the excitement it is generating

across the indiustry.

PROVIDER PROFILE

22.Archax: Standing at the

forefront of the institutional

digital asset industry

Archax is the first digital securities

exchange regulated by the FCA

in London. IDAssets spoke to the

firm’s CEO, Graham Rodford, to

learn more about the products and

services it offers and plans for the

future.

TRADING OPERATIONS

24.TCA in Digital Asset

trading: A challenging journey

that presents significant

opportunities

Christian Gressel discusses the

application of Transaction Cost

Analysis (TCA) in the Digital Asset

space and why it is becoming a

focal point for both traders and

intermediaries aiming to navigate

the complexities of cryptocurrency

markets.

COMPANIES IN THIS ISSUE

A.

AbEx Capital

AFME

Aktionariat AG

Archax

B.

B2C2

Bitpanda

Bitstamp

Bittrex Global

C.

Casper Association

CBI PJSC

p24

p7

p3

p22

p8

p11

p9

p19

p5

CEX.IO Markets UK

Chainalysis

CoinShares

Crossover Markets

Crypto Council for Innovation

Crypto Finance Group

Cypator

D.

DeFinity Markets

Deribit

Digital Assets Association

F.

FalconX

Franklin Templeton

Fuze

p9

p10

p7

p4

p10

p5

p8

p12

p8

p6

p4

p20

p5

G.

GCEX

GFO-X

K.

Kraken

L.

LGIM

LMAX Digital

M.

Mckinsey & Co

p4

p10

p21

OBC

p21

R.

R3

S.

SDX

T.

360T

Trakx

TP Icap

W.

Wintermute Asia

p3

p5

p10

p4

p5

2 Winter 2024

R3 launches new DLT product suite

R3, the enterprise distributed ledger

technology (DLT) and services firm, has

launched R3 Digital Markets. The new

suite of end-to-end digital solutions

helps firms to adopt and drive value

from digital assets and digital currencies

today, whilst preparing for the future

of regulated markets, from initial

exploration to full scale production.

To lead the roll out of the new suite,

R3 has appointed financial technology

leader and capital markets expert Kate

Karimson as Chief Commercial Officer.

R3 Digital Markets, powered by R3’s

Corda, is a new solution built to

connect financial markets. It is designed

to progress markets by driving the

adoption of best-in-class solutions,

industry standards, enabling efficiency,

cost reductions, and the safe integration

of DLT into core business operations.

Corda has been deployed by hundreds

of institutions operating at scale in

capital markets. The launch of R3 Digital

Markets will make it easier than ever for

regulated businesses to prepare for the

digital future while enhancing current

operations using Corda. R3 Digital

Markets champions interoperability, not

isolation, and ensures businesses are

fully equipped to manage both digital

and traditional assets effectively.

“R3 is laser-focused on progressing

capital markets infrastructure,” said

R3 CEO and Founder David E. Rutter.

“We’re designing long-term solutions

for a seamlessly connected financial

world. Corda built the foundation

for this, as the only production-ready

enterprise DLT solution built for

regulated markets. With the launch

of R3 Digital Markets, we’re further

David E. Rutter

progressing Corda’s mission to unlock

the true potential of digital currencies

and digital assets, bringing unparalleled

value to economies as they digitise.”

TOP STORIES

SDX converts Aktionariat Share

Tokens into bankable shares in its

regulated blockchain CSD

SIX Digital Exchange (SDX) has

successfully tokenized private shares

of Aktionariat AG on its regulated

blockchain-based Central Securities

Depository (CSD), with Berner

Kantonalbank (BEKB) serving as

the issuer agent and custodian. This

transaction demonstrates that shares

issued on the Ethereum blockchain

can be transformed from ledgerbased

securities into intermediated,

bankable securities on a regulated

platform. This will facilitate custody

and increase transferability of digital

securities available to investors in private

companies. SDX’s CSD provides secure

bank custody and eliminates the need for

shareholders to manage their private keys

for ledger-based securities. These digital

assets can be stored alongside traditional

assets, such as listed shares, ETFs, and

structured products, allowing investors to

use their existing bank security deposit

accounts. Additionally, issuers can benefit

by attracting investors who do not wish

Alexandre Kech

to maintain public blockchain custody

solutions for their private securities.

Nicola Plain, CEO of Aktionariat states:

“With this transaction, the involved

players from the traditional finance world

are proving that they are open to the

integration of assets that were originally

issued on an open, permissionless

blockchain. An important step towards

building a bridge between decentralized

finance and traditional finance.”

“The success of this initiative is expected

to pave the way for future collaborations

with BEKB, Aktionariat, and their

respective customer bases. It also aligns

with SDX’s strategy to engage with

private market ecosystem partners and

the Swiss SME investor community,”

adds Alexandre Kech, Head Digital

Securities at SDX.

Winter 2024

TOP STORIES

FalconX and TP ICAP form strategic

partnership

FalconX, the digital asset prime broker

has announced a strategic partnership

with Fusion Digital Assets, TP ICAP’s FCA

registered UK-based wholesale spot

cryptoasset exchange. The integration

with Fusion Digital Assets provides

FalconX with access to competitive

pricing and liquidity from TP ICAP’s

wholesale clients within a robust

and secure framework, combining

FalconX’s premier institutional crypto

native franchise and institutional-grade

custodial capabilities provided by Fidelity

Digital AssetsSM with the extensive

experience and established reputation

of TP ICAP, a world-leading markets

infrastructure and data solutions

provider. As the cryptoasset class

continues to evolve, it is increasingly

important for institutional digital asset

prime brokers and their clients to

interact with liquidity at venues and

exchanges operated by major financial

market infrastructure providers.

Austin Reid

“Collaborating with Fusion Digital

Assets is another significant step

in our ongoing efforts to bridge

traditional financial markets and the

growing cryptoasset ecosystem,” said

Austin Reid, Global Head of Revenue

and Business at FalconX. “This will

enhance liquidity for our clients and

foster an environment that propels

growth and innovation in the digital

asset industry. It underscores our

commitment to providing secure,

efficient, and seamless access to the

global digital asset market for our

clients.”

“Bringing a player of FalconX’s

pedigree onto Fusion Digital Assets

is another step forward in the

growth of our exchange,” said Tom

Flanagan, Global Head of Execution

and Liquidity Management at TP ICAP

Digital Assets. “Our aim is to offer

clients a unique liquidity experience

in a secure environment. FalconX’s

integration and support of Fusion

Digital Assets advances our aim.

We look forward to extending our

diversified liquidity to FalconX and

their franchise.”

GCEX partners with Crossover Markets

GCEX a regulated digital brokerage

has partnered with Crossover Markets

Group, Inc., a digital asset technology

firm focused on meeting the unique

liquidity requirements of institutions.

Through this partnership, GCEX

clients will have access to Crossover’s

execution-only crypto electronic

communication network (ECN) for

the purposes of executing spot

cryptocurrency transactions.

GCEX will provide brokerage services

for spot cryptocurrency transactions

and access to deep liquidity through

its professional 24/7 service. The

offering is tailored to institutions

looking to partner with a regulated

brokerage through either GCEX’s

crypto-native platform – XplorSpot – or

via API, enabling further adoption of

digital assets across institutions and

professional traders. Lars Holst, Founder

& CEO, GCEX commented, “With the

increasing demand for digital assets,

we are delighted to be partnering

with Crossover, providing even greater

opportunities for our institutional clients

to access deep liquidity in digital assets.

We are excited about the synergies and

Lars Holst

opportunities that this partnership will

bring.”

Commenting on this partnership,

Anthony Mazzarese, Co-Founder and

Chief Commercial Officer, Crossover

added, “We are excited to welcome

GCEX to the CROSSx ECN as our newest

venue participant. Crossover’s focus

on speed, throughput and operational

efficiency will help GCEX achieve tighter

spreads and a lower cost to trade

across their client base of institutional

and professional investors, and this

partnership will further enhance spot

crypto liquidity.”

GCEX Group enables institutional and

professional clients to access deep

liquidity in FX and CFDs on digital

assets, as well as digital assets spot

trading and conversion, and offers a

broad range of Forex brokerage and

crypto-native technology solutions.

4 Winter 2024

Commercial Bank International and

Fuze sign digital assets MoU

Commercial Bank International

PJSC (‘CBI’), a corporate and retail

bank headquartered in Dubai,

and Fuze, one of MENA’s leading

digital asset infrastructure providers,

have announced the signing of a

Memorandum of Understanding. The

agreement will allow both parties to

jointly explore digital assets innovation,

under the comprehensive regulatory

frameworks of the UAE.

The agreement between CBI and

Fuze provides the foundations for

innovative new use cases that leverage

the potential of blockchain and digital

assets, including investments and

payments. Leveraging CBI’s extensive

and robust track record in business and

personal finance, with Fuze’s cuttingedge

digital assets infrastructure

and expertise, the two parties will

collaborate to develop a suite of

digital asset and blockchain products.

Driving this agreement is an underlying

demand from customers for safe and

regulated digital assets platforms. The

collaboration emphasises responsible

innovation and as a regulated business,

Fuze is committed to structuring

compliant products that foster trust and

confidence in the UAE’s digital asset

ecosystem.

Mohammed Ali Yusuf (Mo Ali Yusuf),

CEO and Co-Founder of Fuze, said:

“We’re thrilled to support CBI in

connecting customers with future-facing

financial products through the power of

blockchain infrastructure. Collaborating

with CBI marks a significant milestone

for digital assets in the UAE.

We look forward to supporting the

Bank in providing greater financial

accessibility and empowerment for their

customers through powerful digital

assets and cryptocurrency use cases”.

The cooperation between CBI and

Fuze will support the UAE’s flourishing

digital assets ecosystem, which is rapidly

evolving into one of the world’s most

robustly regulated and supportive

environments.

TOP STORIES

360T launches crypto NDF offering with

Wintermute Asia and Crypto Finance

360T is initially supporting access to

Crypto NDFs on Bitcoin (BTC) and

Ethereum (ETH), leveraging existing OTC

FX workflows to help streamline the

adoption of these new products by its

diverse client base globally.

“We are very pleased to have supported

the first bitcoin NDF trade on our

platform, offering a proven, reliable and

safe platform to facilitate Crypto NDF

products alongside OTC and listed FX,

Short-Term Money Market products, and

Commodities,” said Sebastian Hofmann-

Werther, Head of EMEA at 360T.

“By launching our crypto offering with

non-deliverable derivatives products, we

are allowing our diverse, global client

base to engage with the crypto market

without the need to build or invest in

Distributed Ledger Technology (DLT)

infrastructure,” said Ralph Achkar, Head

of Digital Currency Strategy at 360T.

Representatives from the counterparties,

Wintermute and Crypto Finance also

Sebastian Hofmann-Werther

expressed their enthusiasm: “We’re

pleased to see an experienced and

established technology provider like

360T addressing institutional investor

demands and look forward to increasing

our participation on the platform,” said

Evgeny Gaevoy, CEO and Co-Founder of

Wintermute Group.

Whilst Stijn Vander Straeten, CEO of

Crypto Finance Group, shared similar

sentiments commenting, “We strongly

believe that the crypto space has attracted

significant attention from institutional

investors, and the emergence of regulated

trading platforms will catalyse increased

engagement from these entities. As

pioneers in this space, we are proud to

have paved the way for this development

and look forward to working with 360T

as it develops and expands its crypto

offering.”

Winter 2024

MARKET WATCH

The Digital Assets Association launches

The Digital Assets Association (DAA)

which is dedicated to fostering responsible

development and adoption of institutional

digital assets, has announced its official

launch. By bringing together financial

institutions, fintechs, technology

providers, and legal and regulatory

experts, the DAA aims to bridge the gap

between traditional finance and the

transformative potential of tokenized

real-world assets (RWA). The launch of

DAA represents a key step forward in

the financial industry to facilitate greater

collaboration between industry players

and key stakeholders. The DAA committee

is made up of a passionate group of

industry leaders who believe in the

future of digital assets, from early-stage

innovative companies to notable financial

players and service providers.

The inception of DAA was spearheaded

by the leaders of DigiFT, a regulated onchain

exchange for RWA, which actively

fosters the growth of an ecosystem for

digital assets while providing unwavering

support for industry development;

Onfet, a blockchain-based technology

company aimed at enhancing operational

efficiencies; and Tranchess, a tokenized

asset management and derivatives

tracking protocol. Together, the

organizations aim to drive the growth of

a digital assets ecosystem and support

industry development.

A COLLABORATIVE

ECOSYSTEM FOR THE FUTURE

OF FINANCE

Recognizing the immense potential of

asset tokenization to unlock liquidity,

streamline transactions and democratize

access to previously illiquid assets,

the DAA will provide a platform for

stakeholders to come together and

navigate the landscape with shared

expertise to:

• Share knowledge and best

practices: Through working groups,

conferences, and online resources,

the DAA will facilitate knowledge

exchange on diverse topics such as

regulatory frameworks, technological

advancements, and market insights.

• Develop industry standards: The DAA

will work with its members to establish

common ground on critical issues such as

Digital Assets Association Exco. (From left to right) Chia Hock Lai, CEO, Onfet; Danny Chong,

CEO, Tranchess; Daniel Lee, Head of Web3, Banking Circle; Tze Ching Chang, CEO, Bright

Point International Digital Assets; Henry Zhang, Founder & CEO, DigiFT; and Dr Steven Hu,

Head of Digital Assets, Trade & Working Capital, Standard Chartered]

tokenization protocols, risk management

frameworks, and data governance.

• Advocate for responsible adoption: The

DAA will engage with policymakers

and regulators to promote responsible

legal and regulatory frameworks that

foster innovation while mitigating risks.

• Empower tomorrow’s leaders: The

DAA’s Talent Development Initiative

aims to bridge the skills gap, nurturing

a diverse, future-proof workforce

through training, mentorship, and

industry placements.

Financial institutions, fintechs, technology

providers, and legal and regulatory experts,

who are keen to contribute to shaping

the future of digital assets can apply

for membership through DAA’s website

(https://digitalassetsassociation.org/).

Mr Henry Zhang, Founder & CEO of

DigiFT, said: “As the first regulated

exchange for on-chain real-world assets,

approved as a Recognized Market

Operator with a Capital Markets Services

license by the Monetary Authority of

Singapore, we recognize the industry’s

need in charting a trusted path

towards on-chain assets. The launch

of DAA is meant to be that platform

that empowers the financial services

ecosystem to unlock the full potential of

tokenization.”

Mr Chia Hock Lai, CEO of Onfet, said

“Institutional digital assets including

RWA tokenization are an important

component of the future of finance. The

Digital Assets Association can unify the

market, promoting responsible practices

and building efficient, institutional-grade

digital assets for all. ”

Mr Danny Cheong, CEO of Tranchess,

said: “In the dynamic landscape of digital

assets, our association stands as a beacon

for progress. We’re dedicated to advancing

the industry through education,

collaborative efforts, and the responsible

tokenization of real-world assets, ensuring

a sustainable and inclusive future.”

Mr Daniel Lee, Head of Web3 at Banking

Circle, said: “RWA will act as a bridge

for traditional finance to decentralised

finance, however, there would be many

regulatory and technological challenges.

I hope that DAA will be able to facilitate

discussions and engagement with

regulators to resolve these issues”

Ms Chang Tze Ching, CEO of Bright

Point International Digital Assets, said:

“At BPI, we are committed to staying at

the forefront of technological innovation

and view the adoption of blockchain

and digital assets as the next step to our

mission of delivering value to our clients. “

6 Winter 2024

UK proposals for stablecoins should incentivise

DLT-based capital markets

The Association for Financial Markets in

Europe (AFME) has issued a statement

in response to the UK Financial Conduct

Authority and Bank of England

consultations regarding the regulatory

framework for stablecoins.

James Kemp, Managing Director of

Technology and Operations at the

Association for Financial Markets in

Europe (AFME), said: “The UK’s plan

to bring stablecoins into the regulatory

perimeter is a positive step towards

creating a safe and sound system for

cryptoassets, and towards promoting

confidence in DLT-based capital markets.

However, AFME has concerns around

the proposed design of a number of

James Kemp

the rules, which in their current form

will have negative consequences for

wholesale markets and participants.”

SPECIFICALLY, AFME

SUGGESTS:

• The territorial scope of regulated

custody activities should not deviate

from current market practice. We

disagree with the proposed expanded

territorial scope to capture relevant

cryptoasset activities undertaken from

outside of the UK. This proposed

treatment would represent a

significant departure from the way the

territorial scope for regulated financial

services activities (including the

custody of security tokens) is currently

determined under the UK framework.

• Cryptoassets qualifying as specified

investments (including security tokens)

should be treated as such throughout

the regulatory framework and not be

subject to a proposed separate regime

for custody. The FCA’s approach to

regulating the custody of cryptoassets

should distinguish between the

custody of cryptoassets qualifying

as specified investments (including

security tokens) and the custody

of other cryptoassets (including

stablecoins). Existing FCA rules should

be maintained for the custody of

cryptoassets that meet the definition

of specified investments (including

security tokens) and tokenised

deposits.

• To facilitate and incentivise the issuance

of regulated stablecoins, the criteria

for FCA-regulated and BoE-regulated

stablecoins should not be overly

restrictive. We view that the criteria for

backing assets should be broadened

beyond short-term government bonds

and cash-deposits for FCA-regulated

stablecoins and central bank deposits

for BoE-regulated systemic stablecoins

and should at a at a minimum include

high-quality liquid assets.

• It is imperative that wholesale

financial institutions should be able

to easily access and use overseas

issued stablecoins (e.g. USDC). We

believe that the FCA should reconsider

the proposed requirement for a

UK payment arranger in relation to

wholesale payment chains or at a

minimum delay its implementation

until international frameworks and

markets mature.

MARKET WATCH

2023: Digital Asset fund flows annual report

Acording to CoinShares research, Digital Asset investment

products saw US$2.25bn of inflows for the full year in 2023,

marking it as the 3rd largest year based on data back to 2017,

surpassed by 2020 at US$6.6bn and 2021 at US$10.7bn.

Importantly the inflows were 2.7x the inflows seen in 2022,

marking a dramatic turnaround for the asset class. Much of the

recovery was in the final quarter where it became increasingly

clear that the SEC was warming up to the launch of Bitcoin

spot-based ETFs in the United States. Total assets under

management (AuM) has risen by 129% over the year, ending at

US$51bn, the highest since March 2022.

Bitcoin was by a wide margin the greatest benefactor from

improving investor sentiment, with US$1.9bn of inflows,

representing 87% of total flows. Its dominance in flows is

the largest in history with the prior peak being 2020 where it

received 80% of the flows and the lowest being 2017 at just

42%. There does not seem to be a discernible trend here, with

the most likely cause being hype around and SEC ETF approval.

Winter 2024

MARKET COMMENTARY

Interbank dealers and prime brokers:

helping to bring a natural

market structure to the

digital asset ecosystem

Crypto market participants are largely enthusiastic about greater involvement by

interdealers and prime brokers but opinion is split on whether the structures of the

FX OTC interdealer market should be replicated. Paul Golden investigates.

Interdealers and prime brokers allow

institutions to keep their funds at a

non-exchange custodian and be capital

efficient for routing orders to various

venues as well as providing services such

as OTC trades, hedging, derivatives,

and potentially margin/leverage. For

institutions, operational risk is a major

barrier to crypto market entry. Many spot

exchanges are heavily retail focused and

place a lot of risk onto the client - dealers

and prime brokers understand and can

manage that risk.

The presence of these providers should

boost institutional investor appetite as

these investors already understand the

Luuk Strijers

“Instead of opening accounts

with 10 exchanges,

a firm can open an account

with one prime

broker and get access to

all 10 markets..”

offering and mechanisms of these market

facilitators from other asset classes.

PRIME BROKERS

Luuk Strijers, chief commercial officer

at Deribit says there are a number of

benefits to having multiple prime brokers

on his platform. “Instead of opening

accounts with 10 exchanges, a firm can

open an account with one prime broker

and get access to all 10 markets almost

instantaneously at competitive rates,” he

says. “Instead of exposure to 10 different

platforms, the investment firm now only

faces one firm. The presence of reputable

or large prime brokers would also ensure

stricter adherence to compliance and

regulatory standards.”

As long as most of the volume remains

retail driven - and the exchanges are

the conduit for those real volumes - the

pressure on interdealer infrastructure

remains low. However, prime brokers

would be a welcome addition as credit is

a key inhibitor to industry development.

That is the view of Thomas Restout,

Group CEO at B2C2, who believes that

with more interdealers and prime brokers,

fluidity in the market will compress

margins. “It may also increase adoption

and give confidence to large institutional

players,” he adds.

Interbank dealers and prime brokers bring

a natural market structure to the digital

asset ecosystem, facilitating institutional

participation through an understood

workflow says Ayal Jedeikin, CEO and

founder of Cypator.

“Prime brokers introduce efficiencies

by reducing counterparty risk while

interdealers bring a set-up that is

conducive for large participants to

frictionlessly face each other,” he adds.

“We have seen leading crypto native

participants make a shift to this model,

wherein counterparty risk is significantly

reduced and efficiencies are gained in

collateral management.”

REPLICATING EXISTING

STRUCTURES

According to Bitpanda CEO, Lukas

Endersdorfer, replicating structures which

are built into existing capital markets

infrastructure will be vital to increase

Thomas Restout

“An increase in

interdealers and prime

brokers drives adoption

and confidence among

large institutional

players”

8 Winter 2024

crypto trading would reduce counterparty

risk and add credibility and legitimacy to

the market.

Ayal Jedeikin

“Prime brokers introduce

efficiencies by reducing

counterparty risk while

interdealers bring a set-up

that is conducive for large

participants to frictionlessly

face each other”

crypto asset adoption for traditional

banks and financial service institutions.

He believes issues such as post-trade

settlement instead of pre-funded trading

need to be resolved by establishing prime

brokerage offerings.

Meanwhile Patrick Bärtschi, head of

business development at Bittrex Global

accepts that interdealers and prime

brokers are typically highly regulated and

well-established institutions with proper

risk management and expertise and that

embedding this type of infrastructure into

Patrick Bärtschi

“As crypto is still

dominated by retail

investors the prime broker

model may not be the best

solution at present for a

variety of reasons.”

“However, as crypto is still dominated

by retail investors the prime broker

model may not be the best solution at

present for a variety of reasons such

as the higher costs involved, and the

increased complexity for retail investors

in dealing with prime brokers as well as

the reduction in control and oversight of

associated trades,” he says.

“Services need to be offered in a nonconflicting

and independent fashion so it

will be a natural transition for institutional

digital markets to move to an OTC-style of

trading model, cleared either bilaterally or

through a central clearer,” says Jedeikin.

CONVERGENCE WITH FX

The convergence with FX markets will be

strong as the basis of these markets is

very similar - fragmented geographically

and by exchange numbers and with

fungible assets, agrees Restout. “It will be

OTC-driven as exchanges become harder

to trade on,” he suggests.

Crypto and FX markets have a similar base

of trading 24/7 and therefore it is not

surprising we have seen a similar clientbased

crypto OTC offering emerge in the

last few years according to Danny Bailey,

senior institutional sales lead at Bitstamp.

“As more institutions trade crypto there

will be more of an interdealer appetite,

although this will take time and require a

robust risk management and regulatory

framework,” he says.

But there is also a view that brokers

are anathema to crypto natives who

understand the value of self-custody and

control and that the infrastructure used

to run these systems will be crypto native

and much more efficient and stable than

what exists in traditional financial markets.

There is no question that crypto markets

would benefit from both legal and

regulatory definitions. However, so

much of the ecosystem’s overall structure

is derived from functionality that is

baked into the core programming of its

flagship networks. For instance, Bitcoin

and Ethereum provided a blueprint and

a launch pad respectively for the vast

majority of projects that came to populate

the ecosystem.

Danny Bailey

“As more institutions

trade crypto there will be

more of an interdealer

appetite, although this

will take time.”

In turn, the development of automated

market maker technology has

accelerated the use of decentralised

exchanges that connect participants

directly without third party

intermediaries, a phenomenon unique

to the crypto space. Unlike securities,

which derive their value from being

either a portion of theoretical profit

or tangible debt, cryptocurrencies are

generated a priori and operate with

unique tokenomic properties.

“Though similarly decentralised

and prone to volatility, the crypto

ecosystem is conversely highly

transparent relative to OTC markets

through the constant production of onchain

data,” says Rich Evans, CEO CEX.

IO Markets UK. “Coupled with crypto’s

fast transaction times, it becomes clear

that any attempt to force these markets

into a pre-existing mould would only

diminish these features and potentially

weaken the space.”

These distinctions help explain why

the crypto ecosystem is not beholden

to the same constraints as an OTC

market. In fact, there is an argument to

be made that crypto markets present a

technologically advanced alternative to

these established systems. “FX OTC is

typically traded away from centralised

markets,” concludes Strijers. “However,

we believe in the potential of centralised

liquid order books where large size can

be traded and that some size is too large

for regular order books.”

Winter 2024

REGULATORY ISSUES

UK Digital Asset regulation –

slow but steady progress

The UK’s attitude to digital asset regulation has been hailed as more progressive

than that of many other major economies, even if there remains frustration in some

quarters at the pace of progress as Paul Golden discovers.

In October 2023, HM Treasury published

its response to the consultation and

call for evidence on the future financial

services regulatory regime for crypto

assets. The report noted that 79% of

respondents were ‘mostly supportive’

of the UK government’s approach to

digital asset regulation.

A report by the All Party Parliamentary

Group for Crypto & Digital Assets

published in June 2023 supported

the view that digital assets are best

regulated within existing financial

services regulations, although it also

warned that the UK needed to move

within a finite window of opportunity

(12-18 months) to ensure early

leadership in this area.

ACTIVE ENGAGEMENT

“It is clear that UK regulators are

putting considerable resources

into supporting blockchain-based

technology and are actively engaging

with the industry to introduce legal

structures that provide the foundation

for a thriving crypto industry,” says Ryan

Shea, crypto economist at Trakx.

Meanwhile Bivu Das, Kraken UK

managing director is effusive in his praise

of the UK government and regulators,

suggesting that they are taking crypto

adoption seriously and creating a practical

framework to enable growth which has

lead to steadily increasing demand from

UK investors.

GFO-X considered a range of factors

when determining where to establish

operations, including the legal, political

and regulatory environment, access to

capital markets, talent pool and presence

of trading, market infrastructure and

ancillary support services explains CEO

& co-founder Arnab Sen. “London

continues to be the pre-eminent location

where all these factors coalesce,” he adds.

Shea accepts that creating legal

structures that encourage investment

without stifling innovation is tricky,

especially when the myriad of use cases

for crypto and blockchains is still being

explored. “As a result, the UK is taking

a gradual approach to implementing

crypto legislation so that it can learn by

experience,” he says. “This may not be

as speedy as some in the crypto industry

would like but at least they are heading in

the right direction.”

The UK is passing legislation and

outlining regulatory frameworks

which are pragmatic and allow for

continued innovation within the digital

assets ecosystem according to Laura

Navaratnam, UK policy lead at the

Crypto Council for Innovation. “However,

some industry participants have been

critical of the UK regulators for what

has been perceived as a more cautious

approach,” she adds.

Jordan Wain, UK policy lead at

Chainalysis acknowledges, for example

that it might be next year before the

necessary regulation takes effect, while

London continues to be a pre-eminent location for access to capital markets, talent pool and presence of trading infrastructures

10 Winter 2024

elieves should be subject to the same

requirements as unbacked crypto assets.

The decision not to prohibit the use of

algorithmic stablecoins only strengthens

the view that the UK is crypto-friendly

and making the necessary judgements to

position itself as the jurisdiction of choice

for crypto and blockchain technology.

Ryan Shea

“It is clear that UK

regulators are actively

engaging with the

industry to introduce legal

structures that provide

the foundation for a

thriving crypto industry.”

Kate Leaman, chief market analyst at

AvaTrade warns that talk of stricter rules

might change the perception of the UK

in terms of crypto investments.

BRINGING FORWARD

LEGISLATION

HM Treasury has stated that it intends to

bring forward legislation enabling the

FCA to regulate fiat-backed stablecoins

by early 2024. The next phase of

regulation will cover algorithmic or cryptobacked

stablecoins, which HM Treasury

Bivu Das

“Risk disclosure continues

to be an important topic in

the UK crypto ecosystem

and we can see this in

the financial promotions

regime that has been

applied to crypto.”

That is the view of Jean-Baptiste

Graftieaux, CEO of Bitstamp, who says

algorithmic stablecoins provide a number

of benefits including lower transaction

costs, faster settlements and higher

liquidity while noting that they are also

vulnerable to de-pegging.

Navaratnam says regulators globally have

tended to view stablecoins that employ

algorithms as a risk area without proper

consideration and that focusing on the

deployment of an algorithm as a de

facto source of instability is misguided

as it overlooks the risks from undercollateralisation.

“While algorithmic

stablecoins can pose risks, those risks

are distinct from those of other types of

stablecoins and we hope that in future

rulemaking, stakeholders will calibrate

rules accordingly,” she says. “Regulators

should consider the appropriate

requirements to allow for responsible

innovation by way of algorithmic

stablecoins while also ensuring

soundness and safety, for example by

having collateralisation requirements.”

Wain expects regulations covering the

use of stablecoins for payment to have

been clarified in the UK by the end of

this year and the necessary amendments

to have been made to existing payment

services regulations as long as the

expected general election doesn’t cause

too much disruption to the legislative

schedule.

RISK DISCLOSURE

Das believes it is possible to create a

robust framework around issuance and

maintenance of algorithmic stablecoins

built around reliable products that

provide a greater level of price stability

over the long term. “Risk disclosure

continues to be an important topic in

the UK crypto ecosystem and we can see

this in the financial promotions regime

that has been applied to crypto,” he says.

“A key component of this regime is the

need to transparently label assets that

Laura Navaratnam

“Regulators should

consider the appropriate

requirements to allow for

responsible innovation

by way of algorithmic

stablecoins...”

claim to be ‘stable’ to ensure consumers

understand the risk profile of the specific

stablecoin they hold.”

According to Leaman, the UK

government’s approach to stablecoin

regulation is reasonable because it focuses

on the more commonly used stablecoins -

ensuring they are safe and reliable - while

allowing room for different types of digital

currency to exist and evolve.

In any case, Shea warns that it is far

from clear what sort of rules a regulator

would wish to impose to ensure that

algorithmic stablecoins were safer to

use. “Maths and code are no respecter

of national borders so algorithmic

stablecoins could be deployed

anonymously and without an associated

geographic footprint,” he observes.

“This means UK regulators could not

readily identify the person(s) behind an

algorithmic stablecoin or hold them to

account.”

Additionally, crypto users have the ability

to interact with decentralised exchanges

using anonymous self-custodied

wallets via location-masking VPNs. “In

our view, the UK decision not to ban

algorithmic stablecoins simply reflects the

technological limits facing regulators,”

continue Shea. “At some point in the

future - assuming global crypto rules are

agreed and implemented - the situation

may change, but for now it is just a

reflection of the underlying reality.”

Winter 2024

INTERVIEW

DeFinity

Markets:

Facilitating

seamless trading

across the entire

spectrum of

the digital asset

revolution

Manu Choudhary

12 Winter 2024

DeFinity Markets operates an institutional digital asset ECN for Cryptocurrencies

and wholesale Central Bank Digital Currencies (CBDC). In addition to supporting

decentralised financial services for FX clearing, DeFinity is a layer-2 protocol with a

focus on interoperability, utilising existing blockchain frameworks such as WeOwn,

Ethereum, Polkadot, Binance Smart Chain and Cardano. We spoke with Manu

Choudhary, co-founder of the firm to discover more about it.

Manu, please tell us a little

about your career within the

financial markets so far.

I started my career in financial markets

at HIFX, an FX broker, back in 2003.

Subsequently, I progressed to roles at

two UK investment Banks, spending 3

years at Barclays Capital and 12 years

at Lloyds Bank, primarily focusing on

FX sales and derivatives structuring

for large corporate and institutional

clients. In 2015, I had the privilege of

participating in the Lloyds Bank FinTech

mentoring program, where I served as a

senior mentor for startups in London.

Over the following years, I observed that

my aptitude for non-linear innovation

was highly valued by the fintech

companies I collaborated with. This

realization prompted me to consider

a more entrepreneurial path than

traditional banking. In 2019, I received an

invitation to join DMALINK, one of the

Fintechs I had been mentoring, marking

a pivotal point in my career trajectory.

DeFinity Markets was cofounded

by yourself, Michael

Siwek and Ashwind Soonarane

and you are also all directors of a

well-respected FX ECN, DMALINK.

Why did you take the decision

to launch the new company

and move into the Digital Asset

space?

signatures that could not be forged. The

implications for this were mind-blowing

and it was obvious to me that it was just

a matter of time before all OTC markets

were digital. So, the push into digital

assets was driven by me and was my

ulterior motive for joining DMALINK in

the first place.

What range of products and

services does DeFinity Markets

offer?

DeFinity Markets provides a

comprehensive range of offerings,

including anonymized streaming

liquidity for the most liquid digital

assets, as well as USDT available on

all 14 Layer-1s and USDC across all

12 Layer-1s. Additionally, our services

encompass fiat on and off capabilities,

along with deliverable FX, which can be

executed via API, Voice OTC and GUI.

What types of client does

DeFinity Markets cater to?

We are an institutional only platform

so our clients are banks, hedgefunds,

traditional buyside, crypto funds and

foundations.

What do you see as the main

drawbacks and inefficiencies of

existing crypto exchanges and

how is your platform engineered

to be different from them?

The biggest issue with the existing

cohort of crypto exchanges is the

concentration risk of having custody

of fiat, custody of crypto and trade

execution within the same venue. Above

and beyond the structural issues, most

of these exchanges have regulatory

oversight in slightly questionable

jurisdictions. Having said that, we are

working with the next generation

of exchanges, that are regulated in

Europe and have remedied some of the

structural imperfections of the legacy

exchanges.

What are some of the key issues

facing institutions and concerns

they may have when it comes to

trading and investing in Digital

Assets and how has DeFinity

Markets gone about addressing

these?

With the SEC’s reluctant approval of

the 11 spot Bitcoins ETFs last month,

I first came across Bitcoin in 2012, but

after reading the whitepaper, it seemed

to me that this was probably just a

state surveillance tool developed by

the NSA (for context see SHA-256). It

took another 5 years before the penny

dropped and I actually understood the

true scale of the innovation. The true

genius of Bitcoin was the fact that

this was the first time in history that

humans were able to create digital

DeFinity Markets provides a comprehensive range of offerings

Winter 2024

INTERVIEW

Michael Siwek and Ashwind Soonarane are also co-founders of DeFinity Markets

the credibility of the asset class has

improved exponentially and the

barriers to entry have been reduced.

However, 30-150 basis points as an

annual fee for an ETF seem high

to me. I think this is going to drive

a natural migration of institutions

looking to buy, hold and trade

themselves.

We built our platform specifically

for institutions and partnered with

a European Investment bank to

intermediate PB credit to permit digital

asset trading on our venue. This is

a truly groundbreaking model, that

we believe will redefine digital asset

trading and drive volume.

In what ways has DeFinity

Markets also tried to take away

and apply important lessons

learned in the world of FX?

I spent the best part of two decades

working in FX so we have taken much

inspiration from TradFi and introduced

an ECN-style execution system for spot

crypto trading. The rationale for this

approach was to create a transparent

and equitable trading environment by

minimizing intermediaries and fostering

direct market access. Above and

beyond this, the ECN model eliminates

information asymmetry, ensuring

that institutional traders encounter

competitive, impartial pricing.

In the last edition of IDAssets

we talked about the benefits of

separating Digital Asset custody

from trading. Why did you decide

to adopt this segregation model

as well?

This segregation model was

strategically adopted to enhance

security, transparency, and overall risk

management within our operations. By

separating these functions and broadly

being custody agnostic, we not only

optimize the integrity of both custody

and trading processes, but ensure

that our users have the freedom to

either self-custody of use an accredited

custodian of their choice.

We built our platform specifically for institutions

14 Winter 2024

DMALINK has built a reputation

for utilising state of the art

technology. In what ways is the

technology stack behind the

DeFinity Markets platform a

differentiator from many other

firms in this space?

We have been pioneers in the use of

Deep Learning AI and in partnership

with Axyon AI built the worlds first

Crypto Anomaly detector as a risk

engine. The Anomaly Detector is used

to automatically identify unusual

behaviours in asset prices, stemming

from undisclosed information,

correlated effects from other assets, or

structural shifts in an asset’s behaviour.

These anomalies serve as valuable

risk management tools by signalling

potential upcoming volatility events

before they happen.

Do you see the way Digital

Assets will be traded by

institutions evolving in a

similar way to FX where we

are now seeing a mixture of

OTC and listed venues, or are

there always likely to be key

differences between the two

markets?

Much like the FX market, the digital

asset space will likely see institutions

engaging in both OTC transactions

for customized deals and the use of

listed venues for standardized and

more liquid assets. There are however,

structural differences between FX

and digital assets, meaning that

institutional trading practices will likely

adapt.

What new products and services

are in the pipeline at DeFinity

Markets which we can expect

to see being launched over the

coming months?

We believe that digital assets are the

future, but currently there are some

material obstacles that limit true

institutional adoption, however, these

can be remedied by implementing

the legal framework of TradFi. Using

this, we have we have 2 new radical

With the SEC’s reluctant approval of the 11 spot Bitcoins ETFs last month, the credibility of

the asset class has improved exponentially

We believe that digital assets are the future and DeFinity aims to serve as the conduit for

institutional adoption

infrastructure plays, namely Crypto

Repo Trading and Digital Asset Cross

Custodial Settlement, which we believe

are both billion-dollar ideas.

How much growth potential

does the Digital Assets market

represent for the institutional

community and their key

providers like DeFinity Markets

and what will it take to really

unlock it?

After the recent rally in Bitcoin, the

current total market cap of the crypto

market is just under $2 trillion dollars.

When I talk about digital assets, I don’t

just mean crypto, what I really mean are

the bond market and loan market, which

have market caps of $133 and $226

trillion respectively and for which all new

issuance will be entirely digital by the end

of the decade. The growth potential is

substantial, with the primary impediment

being the lack of efficient mechanisms to

access this market. DeFinity aims to serve

as the conduit for institutional adoption,

facilitating seamless trading across the

entire spectrum of the digital asset

revolution.

Winter 2024

EXPERT OPINION

Large-scale cryptocurrency

Portfolio Management.

By Bally Maan

Bally Maan

Cryptocurrency investment has witnessed

explosive growth over the past decade,

attracting a diverse range of investors,

from individual traders to institutional

giants. As the market continues to evolve,

so too does the complexity of managing

large-scale cryptocurrency portfolios. To

navigate this dynamic landscape, investors

are turning to algorithmic high-frequency

programming and implementing best

practices in portfolio management. In this

article, we’ll explore the key considerations

and strategies for effectively managing a

large-scale cryptocurrency portfolio.

BEST PRACTICES

1. Diversification and Risk

Management: Diversification remains

a fundamental principle in portfolio

management. In the cryptocurrency

space, diversification involves spreading

investments across different digital

assets, reducing the risk associated

with any single coin’s volatility. A welldiversified

portfolio typically includes

a mix of established cryptocurrencies

(e.g., Bitcoin and Ethereum) and

promising altcoins.Risk management

is equally crucial. Large-scale investors

should set clear risk tolerance levels

and employ stop-loss orders to

mitigate potential losses. Additionally,

employing a robust risk management

strategy, such as position sizing, can

help protect the overall portfolio.

2. Research and Due Diligence:

Thorough research is paramount

in cryptocurrency investing. Largescale

investors should analyze not

only the technological aspects of a

blockchain project but also its team,

community support, use case, and

market sentiment. Staying informed

about regulatory developments in the

cryptocurrency space is essential to

avoid unexpected legal issues.

3. Automation and Algorithmic

Trading: A specialist area of

mine!Algorithmic trading involves using

automated systems to execute trades

based on predefined rules. Large-scale

investors can benefit significantly from

algorithmic trading strategies in the

crypto market. These strategies can be

designed to exploit price inefficiencies,

execute high-frequency trades, and

manage a portfolio with precision.Some

popular algorithmic trading techniques

include arbitrage (taking advantage

of price differences across different

exchanges), market-making (providing

liquidity to the market), and trend

following (buying or selling based on

price trends).

4. Data Analysis and Machine

Learning: Cryptocurrency markets

generate vast amounts of data,

including price movements, trading

volumes, social media sentiment, and

news events. Large-scale investors can

employ machine learning models to

analyze this data and derive insights

for decision-making. Machine learning

can help predict price trends, detect

anomalies, and optimize trading

strategies.

ALGORITHMIC HIGH-

FREQUENCY

PROGRAMMING

Algorithmic high-frequency

programming refers to the use of

algorithms and computer programs to

execute a large number of trades within

very short timeframes, often measured

in milliseconds. In the cryptocurrency

market, where volatility is high, and

price movements are rapid, highfrequency

trading (HFT) strategies can

offer several advantages:

1. Speed and Efficiency: HFT algorithms

can execute trades at speeds that are

impossible for humans to match. This

allows large-scale investors to capitalize

on fleeting market opportunities and

react to price changes instantly.

2. Liquidity Provision: HFT algorithms

can act as market makers, providing

liquidity by continuously placing buy

and sell orders. This not only reduces

spreads but also earns profits from the

bid-ask spread.

3. Risk Mitigation: HFT algorithms can

incorporate risk management features

such as stop-loss orders and dynamic

position sizing to protect the portfolio

from adverse price movements.

Analysing the PnL over a large portfolio

of cryptocurrency.

4. Scalability: High-frequency trading

strategies can be scaled to handle large

portfolios efficiently. As an investor’s

portfolio grows, the algorithms can

adapt to accommodate increased

trading volumes.

However, it’s essential to note that

HFT in the cryptocurrency market is

highly competitive, requiring advanced

infrastructure, specific expertise that

is hard to come by and continuous

monitoring. Latency, server location, and

order routing are critical factors that can

impact the success of high-frequency

trading strategies.

CONCLUSION

Managing a large-scale cryptocurrency

portfolio necessitates a combination of

best practices and advanced strategies.

Diversification, thorough research, and

risk management are foundational

elements of successful portfolio

management. Additionally, algorithmic

high-frequency programming offers

a way to navigate the fast-paced and

volatile cryptocurrency market.

As the cryptocurrency space continues

to evolve, investors should stay informed

about new developments, regulations,

and technological advancements.

Whether through manual portfolio

management or algorithmic trading,

adaptability and a deep understanding

of the market remain key to success in

this exciting but challenging asset class.

16 Winter 2024

FOR THE DIARY

Digital Assets Asia 2024

27th March 2024

This event is designed to encourage engagement,

knowledge-sharing, and networking among attendees.

It provides an effective way to explore the complexities and

opportunities of tokenisation including interoperability,

blockchain analysis, AML, taxation, CBDCs, stablecoins, asset

management, digital identity, and many more.

digitalassetsasia.net/

Digital Assets Forum

London, 15th April 2024

The Digital Assets Forum, hosted by the European

Blockchain Convention, is an exclusive event that brings

together key institutional players in the digital assets

world. The forum will feature insightful panel

discussions, dedicated spaces for 1-on-1meetings, and an

exhibition area.

eblockchainconvention.com/digital-assets-forum/

Digital Assets 2023 Slideshow by Khristel Aldana

AIMA’s Digital Assets

Conference 2024

New York City, May 2nd 2024

Be a part of the conversation and hear from industry

experts, as well as network with over +250 of your industry

peers from around the world.

aima.org/events/aima-digital-assets-conference-2024.html

The Crypto and Digital

Assets Summit

London, 8th and 9th May 2024

The Crypto and Digital Assets Summit returns in Spring

2024 as the pre-eminent gathering for traditional financial

institutions, regulators and Digital Assets entrepreneurs.

This two-day Summit will feature a series of keynote

interviews, networking opportunities and debates

as industry leaders share how they will navigate the

challenges and uncertainty facing the crypto industry.

crypto.live.ft.com

Winter 2024

FUND & INVESTOR SERVICES

Image by shutterstock

Joe Morgan

18 Winter 2024

Blockchain first captured the

imagination of capital markets’

participants in 2017 during an epic

Bitcoin bull run that saw the world’s

biggest cryptocurrency surge to

$20,000 at the end of the year. As

Bitcoin talk metamorphosed from

message boards on the fringes of

the dark web to polite coffee table

conversation, some expected an

earthquake of disruption in so-called

TradFi. Everything from exchange

trading to accounting and compliance

systems were in the sights of an army

of super coders whose imagination

of what to do with decentralised

ledger technologies knew no bounds.

This never actually happened of

course. While Bitcoin has once again

spectacularly hit a record high – and

crashed – before rising once again

from the ashes of high-profile frauds,

scams and bankruptcies, the use of

blockchain in traditional financial

markets has remained distinctly lowkey

and niche.

Tokenisation

of assets

to herald

next wave

of financial

innovation

By Joe Morgan

Nevertheless the latent power of

the blockchain to disrupt traditional

financial markets is making a

comeback. This time it is the

tokenisation of digital and non digital

assets that has come into focus.

Larry Fink, chief executive officer at

BlackRock, the world’s largest asset

manager, believes that the tokenisation

of securities will herald the “next

generation” for financial markets.

Ralf Kubli, board member of the

Casper Association, a nonprofit

entity that oversees the evolution

and decentralization of the Casper

Network, highlights “the excitement

for tokenization for institutions which

love to trade” while corporations and

high-net worth individuals will benefit

from more liquidity for their assets. In

an exclusive interview with IDAssets,

Kubli highlights how tokenization

allows for an expansion of tradeability

assets that live on the respective

balance sheets of different market

participants.

“Institutional investors will benefit from

tokenization of financial assets in many

ways,” says Kubli. “Capital providers

will be able to select from vastly more

choice when investing in financial

assets, say certain categories of

Winter 2024

FUND & INVESTOR SERVICES

Ralf Kubli

“Institutional investors

will benefit from

tokenization of financial

assets in many ways”

debt. Why? Because the promise of

smart financial contracts which include

the payment obligations and cash flows

of all parties to the financial contract,

will result in efficient price discovery and

post-trade automation that will allow

the construction and re-balancing of risk

return adjusted portfolios at currently

unachievable cost levels.”

A $5 TRILLION MARKET

In a report titled, Tokenization: A

digital-asset déjà vu, McKinsey & Co,

the consultancy firm, highlight how

tokenisation can enhance levels of

automation in financial markets as a

result of a capacity to embed code in

a token. The programmability of digital

tokens provides the ability to engage

with smart contracts, a computer

program or a transaction protocol that

is intended to automatically execute,

control or document events and

actions according to the terms of a

contract or an agreement. Furthermore,

tokenization can enable digital and

non digital assets which currently

reside on the balance sheet of financial

institutions to be tradeable and liquid,

24 hours a day, seven days a week.

According to Bernstein Research, a

sell-side research and brokerage firm,

tokenization could amount to an

overall market size of as much as $5

trillion by 2028, led by stablecoins,

private market funds, securities and

real estate. A report on tokenisation

published by Bernstein also cites the

development of Central Bank Digital

Currencies (CBDC’s), cryptographic

versions of a nation’s currency that

would reside on private, permissioned

blockchains, as a potential catalyst for

the tokenisation of assets in traditional

financial markets.

“Over the next five years, we expect

a swell in the stablecoins and CBDC

tokens in circulation, led by China’s

CBDC program,” analysts led by

Gautam Chhugani write in the

Bernstein report. “Stablecoins and

CBDC tokens, coupled with yield

farming in decentralized markets, will

compete with bank deposits as an

investment or saving instrument.”

TRAILBLAZERS LEADING

THE CHARGE

In 2023 Franklin Templeton launched

the Franklin OnChain U.S. Government

Money Fund (FOBXX), the first tokenised

money market fund deployed on

Stellar, a leading layer one blockchain.

The fund invests at least 99.5 per cent

of its total assets in US government

securities, cash and repurchase

agreements collateralized fully by

government securities or cash. Investors

obtain access by purchasing one share

of FOBXX, represented by one BENJI

token. Token holders store their assets

in digital wallets provided via the Benji

Investments app.

“For money market funds, each day there

is some corporate action that is taking

place in a fund. Interest rate accrual . . .

dividend payout . . . Each time an action

happens, the transfer agent updates the

records,” says Sandy Kaul, head of digital

asset and investor advisory services at

Franklin Templeton, in an interview with

the Financial Times. “The benefit of doing

this on blockchain has been you’re only

updating one transaction record, not

multiple [records].”

FOBXX says the fund aims to maximise

investors’ income while preserving

shareholders’ capital and liquidity, and

it aims to maintain a stable $1.00 share

price. The fund surpassed $270 million

in assets under management (AUM) as

of March 31, 2021, according to a press

release issued by Stellar.

Across the pond, Edinburgh-based

Abrdn in the summer of 2023 became

the first UK asset manager to launch

a tokenised money market fund, the

Aberdeen Standard Liquidity Fund

(Lux) – Sterling Fund. The UK Treasury

has already established a Technology

Working Group to look at how

decentralised ledger technology can be

implemented in the asset management

space. The Technology Working Group

has published a blueprint for regulated

funds in the UK to put the assets that

they hold on to the blockchain. These

guidelines will enable asset managers

authorised by the Financial Conduct

Authority (FCA) to tokenise funds,

providing the fund’s managers continue

20 Winter 2024

IN 2023 FRANKLIN

TEMPLETON

LAUNCHED THE

FRANKLIN ONCHAIN

U.S. GOVERNMENT

MONEY FUND (FOBXX),

THE FIRST TOKENISED

MONEY MARKET

FUND DEPLOYED

ON STELLAR, A

LEADING LAYER ONE

BLOCKCHAIN

to provide valuations and settlement

through the same processes and

timeframes. Funds should also contain

assets defined as “mainstream”.

Michelle Scrimgeour, chief executive

at Legal & General Investment

Management and chair of the working

group, describes the publication

of the report as a milestone in the

implementation of tokenisation within

the fund industry of the UK. “Fund

tokenisation has great potential to

revolutionise how our industry operates,

by enabling greater efficiency and

liquidity, enhanced risk management

and the creation of more bespoke

portfolios,” he says.

Michelle Scrimgeour

“Fund tokenisation

has great potential to

revolutionise how our

industry operates, by

enabling greater efficiency

and liquidity, enhanced

risk management and the

creation of more bespoke

portfolios”

‘UNBREAKABLE

CONNECTION’

Kubli says that to identify the

opportunities in the tokenisation of

assets it is important first to categorise

the three basic types of assets that

reside on balance sheets in traditional

financial markets: Financial assets,

such as bonds and equities, tangible

assets such as land, real estate and

commodities, and intangible assets

such as Intellectual Property (IP).

“Financial assets and many intangible

assets are digital in nature which means

that blockchains are ideally suited to

represent and secure ownership of the

underlying digital asset,” he says.

Kubli points to an “unbreakable

connection” between, for example, a

token representing a bond or a token

representing a patent ownership,

resulting in a completely new way of

transferring value in a peer-to-peer

fashion. He says existing markets such

as derivatives set a precedent for the

tokenisation of assets, given that they

dwarf the size of the underlying assets

in the spot markets. Furthermore,

market participants will be able to

rely upon the legal systems governing

markets to “allow for the recovery

of the underlying if necessary,” says

Kubli. According to R3, an enterprise

distributed ledger technology (DLT)

firm, market participants will actually

benefit from better management of

counterparty and credit risk as a result

of tokenisation.

CHALLENGES TO ADOPTION

Still, tokenisation currently remains

at the very fringes of capital markets,

currently attracting a small fraction of

liquidity: A mere $500 million worth of

digital bonds were issued in the year

up to September 12, 2023, according

to S&P Global Ratings. A key challenge

on the path towards tokenisation of

digital assets remains the fragmented

nature of blockchains that use differing

programming languages and protocols.

According to Mckinsey & Co, the

challenge of bridging competing

blockchains that use different

protocols can be overcome

by technologies that achieve

interoperability between different

blockchains, effectively enabling two

separate blockchains to interact with

each other. However, interoperability

can also increase risks in blockchain

infrastructure. “This introduces new

risks (such as bridging protocols

between blockchains), fragmentation

of liquidity, and challenges in

harmonising data across systems

to deliver necessary reporting,” the

Mckinsey & Co report concludes.

Global regulators and the financial

services industry must also come to

understand that “a bond is a bond is a

bond”, whether it is written on a piece

of paper, lives in an excel spreadsheet,

in a core banking system, at a Central

Security Depository (CSD) or in a

token on a blockchain, according to

Kubli. “The nature of the underlying

instrument does not change, just

because its expression is in a new

format,” he says. “I am afraid until this

is broadly understood, we will not see

much progress in the debate about

regulation of financial assets in natively

digital form on chain.”

Nevertheless, Kubli predicts that the

transition to tokenisation may be

“sudden and with a bang” in markets

that are well suited to the introduction

of blockchain technology such as IP or

commodities such as gold where the

importance of the provenance of the

underlying asset is pivotal. Time will tell

of course. After the US’s Securities and

Exchange Commission (SEC) approved

the first US-listed ETFs to track Bitcoin

earlier in January, it might be foolish

to bet against the tokenisation of

digital and non digital assets. Change

could come faster than many expect

with bountiful opportunities for early

adopters.

Winter 2024

PROVIDER PROFILE

Archax:

Standing at the forefront of

the institutional digital asset

industry

Archax is the first digital securities exchange regulated by the FCA in London.

Targeted at institutions, Archax also has its FCA brokerage, custody and

cryptoasset permissions. We spoke to the firm’s CEO, Graham Rodford, to learn

more about the products and services it offers and plans for the future.

accessing blockchain-native assets

through a regulated framework. Our

core clientele includes institutions

such as asset managers, hedge funds,

family offices, and banks, who require

an institutional-grade, regulated

counterparty providing multi asset

services in the blockchain domain.

Archax’s solutions are built

using existing, proven and

resilient infrastructure. What

advantages does that have?

By utilising existing, proven, and

resilient infrastructure, Archax swiftly

delivers financial products to our

clientele. This approach considerably

reduces development time and costs,

ensuring our platform’s scalability and

robustness.

Graham Rodford

Graham, please tell us a little

about the products and services

that Archax offers and the types

of institutions you are providing

these for?

At Archax, we act as a custodian,

exchange, and broker, forming a

distinctive ‘digital asset ecosystem’. Our

offerings encompass product creation

through our in-house tokenisation

engine, distribution, fundraising in the

primary market, and comprehensive

trading in the secondary market.

Bridging traditional and digital finance,

we assist our partners and clients

in transitioning traditional financial

products onto the blockchain or in

It further allows us to innovate whilst

adhering to the stringent security and

regulatory standards crucial in finance.

Leveraging a solid foundation enables

us to provide a service that is both

familiar and efficient, essential for

building trust and fostering growth

in the rapidly evolving digital assets

market.

How have you engineered

your platforms and systems

to integrate more seamlessly

into existing institutional

infrastructures and workflows?

22 Winter 2024

Archax’s platforms and systems are

meticulously designed for seamless

integration into current institutional

infrastructures and workflows.

Our API connectivity facilitates the

efficient incorporation of digital

asset trading and custody into

existing operations, minimising the

need for significant adjustments.

Archax strives to provide

safe, secure services through

comprehensive regulatory

frameworks and is London’s

most regulated digital asset

exchange, brokerage and

custodian solution provider.

How important is your policy

of adhering to stringent

regulations going to be in

growing your business and

attracting new clients?

Our commitment to stringent

regulatory compliance distinguishes

Archax as London’s most regulated

digital asset exchange, brokerage,

and custodian. Being regulated

by the FCA in the UK underscores

our commitment to safety and

security, a pivotal aspect in attracting

institutional clients and expanding our

business.

Our adherence to regulations,

including our FinProms service,

ensures that we provide a secure

environment for financial services to

prosper in the UK and globally.

As well as listing global digital

issuances, Archax is developing

its own range of liquid digital

structured products which will

trade on its exchange. Can you

tell us more about that?

Archax is developing a diverse

marketplace of liquid digital

structured products for trading on

its exchange. This product spectrum

includes everything from crypto spot

markets to stablecoins, tokenised

money market funds, digitally

native vehicles, ETP wrappers, and

tailored investments through capital

protected notes, all constructed

on our regulatory-compliant,

insolvency-remote custodial

infrastructure.

The Archax crypto exchange has been designed specifically with demanding professional

investors in mind

In this edition of IDAssets we

are exploring Tokenisation and

the opportunities it represents

for the institutional trading

and investment communities.

What’s been holding up the

potential of Tokenisation and

what work has Archax been

doing to solve the issues and to

accelerate its adoption?

The potential of tokenisation has

been hindered not only by the costs

associated with digital product creation

for institutions and the absence of

liquidity for on-chain products but

also by a lack of legal clarity across

fragmented markets and challenges

with interoperability. The regulatory

landscape for digital assets remains

uneven across jurisdictions, creating

uncertainty for institutions looking to

embrace tokenisation.

Furthermore, interoperability issues

between different blockchain platforms

can complicate the seamless exchange

and management of tokenised

assets, potentially stifling market

growth. Archax addresses these

multifaceted challenges by creating

cost-effective tokenisation pathways

that navigate through regulatory

complexities, promoting alternative

liquidity solutions, and working on

interoperability standards.

Through collaboration with other

industry leaders and open dialogue

with regulators, we are aiming

to accelerate the adoption of

tokenisation encouraging a clearer

global regulatory framework, fostering

market liquidity, and enhancing

the seamless interaction of diverse

blockchain ecosystems, thus paving the

way for a more integrated and efficient

digital asset market.

Archax has also been working

with partner firms across the

industry. Why are collaborative

efforts like yours so important

to the evolving Digital Asset

marketplace?

Collaborative efforts are crucial

in the digital asset marketplace, a

sector where innovation and the

establishment of new frontiers are

paramount. Archax has cultivated a

network of partners, from tokenisers

to legal advisors, facilitating significant

advancements like the execution of

real-world asset trades in token form,

demonstrating our commitment

to moving from concept to actual

implementation in the digital assets

space.

Archax is creating a compelling

ecosystem for institutional and

professional users. What’s your

ultimate vision for the company

and the role you would like it

to play in this fast-growing and

exciting new industry?

Archax aspires to be at the forefront of

the financial markets’ transformation

through technology, serving as the

backbone for new financial markets

encompassing instrument creation,

trading, custody, and settlement. Our

vision is to play a central role in this

dynamic and rapidly growing industry,

impacting every aspect of financial

markets with our innovative solutions.

Winter 2024

TRADING OPERATIONS

TCA in Digital Asset trading:

A challenging journey that presents

significant opportunities

By Christian Gressel, Head of Sales and Business Development at AbEx Capital

As the digital asset sector continues to mature, the demand for a better

understanding of execution costs increases. Consequently, the application

of Transaction Cost Analysis (TCA) in this space is becoming a focal point

for both traders and intermediaries aiming to navigate the complexities of

cryptocurrency markets.

Christian Gressel

The drive towards more refined

TCA methodologies underscores an

industry-wide pursuit of efficiency,

transparency, and a deeper

understanding of the different types of

costs associated with trading activity in

general and digital asset transactions in

particular. This pursuit is not merely a

technical challenge but a foundational

aspect of building trust and reliability

in the rapidly evolving digital asset

ecosystem. AbEx Capital, a recognized

innovator in ultra-low latency trading

and algorithmic agency execution,

is committed to bridging the gap of

A critical aspect of any TCA is the identification and analysis of hidden costs

tools available in traditional markets

and those in digital asset market to

empower clients with unmatched

insight and confidence, enabling them

to excel in navigating the complexities

of the digital asset landscape.

THE EVOLUTION OF TCA IN

DIGITAL ASSET TRADING

In traditional financial markets, TCA has

long been established as a crucial tool

for assessing and optimizing the costs

of trading. It provides a comprehensive

view that encompasses not only

direct expenses like commissions and

fees but also indirect costs such as

slippage, market impact and hidden

costs through last look and extensive

hold times. However, the transition of

these analytical tools to accommodate

the nuances of the crypto market

structure has been slow, with many

participants not yet focussing on the

specific inefficiencies and opaqueness

that characterize digital asset trading.

Digital assets are distinguished by

their inherent volatility, decentralized

nature, and continuous trading cycles.

This complexity is compounded by the

fragmentation of the market across

numerous exchanges and liquidity

sources, each offering different trading

protocols, fee structures and liquidity

levels. This market structure is ideally

suited for the application of Transaction

Cost Analysis (TCA), yet the high levels

of returns and growing pains of the

24 Winter 2024

industry have not made it a priority yet

but requires a sophisticated analytical

approach that can adapt to the fastpaced

and unpredictable nature of

digital asset trading.

ADDRESSING THE HIDDEN

COSTS OF DIGITAL ASSET

TRADING

A critical aspect of any TCA is the

identification and analysis of hidden

costs. These costs, often overlooked in

digital assets, can significantly affect

trading outcomes. Among these, the

variability of fill rates and the lack

of transparency of hold times stand

out as substantial factors influencing

trading cost. Fill rates—a measure of

how much of an order is executed at

the anticipated price—can vary widely,

affecting traders’ ability to execute

strategies cost-efficiently. Similarly,

hold times—the delay between

order placement and execution—can

introduce significant opportunity costs

for takers, often overlooked, especially

in a market where prices can shift

dramatically in seconds.

The challenge of addressing these

hidden costs lies in the development

and implementation of tools capable

of providing actionable insights. These

tools must be designed to navigate the

complexities of the digital asset market,

offering a detailed breakdown of costs

and their impacts on trading strategies.

This level of analysis is crucial when

assessing the quality of any execution

strategy and is instrumental for

providers of agency algorithms when

looking to optimize their models in a

highly volatile environment.

THE ROLE OF ADVANCED

ANALYTICS AND REAL-TIME

DATA

The advancement of TCA in digital

assets is intrinsically linked to the

utilization of sophisticated analytics

and quality of market and trading data.

In a market where conditions change

instantaneously, the ability to analyse

data in real-time as well as in full detail

historically is invaluable. Advanced

analytics, including machine learning

algorithms and predictive modelling,

can offer traders and in most instances

their algorithms used, foresight into

potential market movements, allowing

for the adjustment of strategies in

The advancement of TCA in digital assets is linked to the utilization of

sophisticated analytics and quality of market and trading data

response to emerging trends and

anomalies.

Moreover, the integration of these

analytical tools with real-time market

data empowers algorithmic trading

engines with a comprehensive

understanding of the current trading

environment. This integration is pivotal

for assessing the immediate impacts

of trades on market conditions and for

understanding the broader implications

of trading strategies on market

dynamics.

ENHANCING

TRANSPARENCY AND

REGULATORY COMPLIANCE

The push for enhanced TCA in

digital asset trading also aligns with

broader industry goals of increasing

transparency and ensuring regulatory

compliance. Transparent reporting

on transaction costs and execution

quality not only aids traders in

strategy optimization but also builds

trust among market participants.

Furthermore, as regulatory bodies

around the world begin to pay closer

attention to the digital asset space,

the role of TCA in demonstrating

compliance with market fairness and

transparency standards will become

increasingly vital.

THE FUTURE OF TCA IN

DIGITAL ASSET TRADING

Looking ahead, the evolution of TCA

in digital asset trading is poised to

play a central role in the maturation of

the market. As the industry continues

to grow, the demand for in depth

methodologies that can handle the

unique challenges of digital assets

will only increase. The development

of these methodologies will require

a concerted effort from all market

participants, from traders to platform

providers, to regulators.

The future of TCA in digital asset

trading promises not only more

efficient and transparent markets

but also a deeper understanding

of the complexities of digital asset

transactions. As the industry moves

forward, the integration of advanced

TCA tools into trading strategies and

engines will undoubtedly shape the

landscape of digital asset trading,

paving the way for a more stable,

trustworthy, and efficient market.

In conclusion, the journey towards

sophisticated TCA in digital asset

trading is both a challenge and an

opportunity. It represents a critical

step towards achieving the levels of

market efficiency and transparency

seen in traditional financial markets.

As the digital asset sector continues

to evolve, the advancements in TCA

will undoubtedly play a pivotal role

in shaping its future, ensuring that it

remains a vibrant and integral part of

the global financial ecosystem.

Winter 2024

i

INFORMATION & RESOURCES

ADVISORY, CUSTODY & INVESTOR SERVICES

Anchorage Digital

https://www.anchorage.com/

Atato

https://www.atato.com/

Bitcoin Suisse

https://www.bitcoinsuisse.com/

Bitpanda Custody

https://custody.bitpanda.com/

Copper

https://copper.co/

Digital Currency Group

https://dcg.co/

Fidelity Digital Assets

https://www.fidelitydigitalassets.com/

Metaco

https://www.metaco.com/

WEBSITE OF THE MONTH

Decoding Digital

Assets

msci.com/research-and-insights/visualizing-investment-data/

decoding-digital-assets

Zodia

https://zodia.io/

EXCHANGES, TECHNOLOGY & PLATFORM

PROVIDERS

Archax

https://www.archax.com

Bitfinex

https://www.bitfinex.com/

Bitstamp

https://www.bitstamp.net/

Binance

https://www.binance.com/en-GB

RESEARCH

Institutional Adoption:

Trends in Digital Asset

Markets

Bosonic

https://bosonic.digital/

Coinbase

https://www.coinbase.com/

Circle

https://www.circle.com/en/

theblock.co/post/191550/institutional-adoption-trends-in-digitalasset-markets-commissioned-by-polygon

FalconX

https://falconx.io/

Finery Markets

https://finerymarkets.com/

Fireblocks

https://www.fireblocks.com/

GCEX

http://gc.exchange/

Gemini

https://www.gemini.com/uk

LMAX Digital

https://www.lmaxdigital.com/

Lukka

https://lukka.tech/

Onyx

https://www.jpmorgan.com/onyx/onyx-digital-assets.htm

Solaris

https://www.solarisgroup.com/en/services/digital-assets-custody/

Talos

https://www.talos.com/

EDUCATION & TRAINING

Tokenization talks

Tassat

https://tassat.com/

ar.ca/tokenization-talks

26 Winter 2024

BOOK OF THE MONTH

Digital Assets: Your Guide

to Investing and Trading in

the New Crypto Market

In his third investment

book, former crypto asset

fund manager Jonathan

Hobbs, CFA, provides a

compelling case for adding

bitcoin and other digital

assets to your broader

investment strategy.

But perhaps more

importantly, he focuses

on how you can manage

risk in a market that

never sleeps, and not get

‘wrecked’ by the extreme

volatility that crypto

trading and investing so

often entails.

amazon.co.uk/Digital-Assets-Investing-Trading-Crypto/dp/B092CB6116

Unleashing the Power

of Digital Assets with

Tokenization

Tokenization is the process of representing real-world

assets, illiquid assets, or data as unique digital tokens

on distributed ledger technology and is gaining serious

momentum in the financial world.

r3.com/blog/unleashing-the-power-of-digital-assets-with-tokenization/

BLOG OF THE MONTH

IS THE DIGITAL ASSET CUSTODY INDUSTRY READY

TO GROW UP?

youtube.com/watch?v=O3SkL1BBRV8

PREDICTIONS FOR INSTITUTIONAL DIGITAL ASSET

ADOPTION IN 2024

youtube.com/watch?v=09eQ6DuREy4

VIDEO VAULT

Charles Jago

Editor

charles.Jago@idassets.net

+44 1736 740 130

Andy Webb

News editor

andy@idassets.net

+44 1736 740 130

Susan Rennie

Managing Editor

susie.rennie@idassets.net

+44 1208 821 802

Charles Harris

Advertising sales

charles.harris@idassets.net

+44 1736 740 130

David Fielder

Distribution manager

david.fielder@idassets.net

+44 1736 740 130

Tim Hendy

Digital & Web services

tim@thstudio.co.uk

+ 44 1209 217168

Matt Sanwell

Design & Origination

matt@designunltd.co.uk

+44 7515 355960

Larry Levy

Photographry

larrydlevy@gmail.com

Michael Best

Subscriptions

michael.best@idassets.net

+44 1736 740 130

SJB Media Ltd

Suite 153, 3 Edgar Buildings

George Street, Bath, BA1 2FJ

United Kingdom

Tel: + 44 (0)1208 82 18 02 (switchboard)

Tel: + 44 (0)1736 74 01 30 (Sales & editorial)

Fax: + 44 (0)1208 82 18 03

Printed by Headland Printers

Published Quarterly: ISSN 2977-098X

Although every effort has been made to ensure the accuracy of the information contained in this publication the publishers can accept no liabilities for inaccuracies that may

appear. The views expressed in this publication are not necessarily those of the publisher. Please note, the publishers do not endorse or recommend any specific website featured

in this newsletter. Readers are advised to check carefully that any website offering a specific Digital Asset product and service complies with all required regulatory conditions and

obligations. The entire contents of IDAssets are protected by copyright and all rights are reserved.

Winter 2024

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28 Winter 2024

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