Startup Raises $23 Million To Make Crypto Trades Faster And Stealthier
18 August 2018 - 12:12AM
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Sfox aims to help institutional investors make crypto trades
faster, stealthier and at better prices. Above: an employee at
Dutch bitcoin broker Bitonic checks crypto prices.
Silicon Valley-based cryptocurrency trading platform Sfox has raised $23 million in new investment, led
by venture firms Tribe Capital and Social Capital. The 20-person
startup aims to help investors make large trades by routing their
orders to multiple places, enabling faster execution and better
prices. Khosla Ventures, startup accelerator Y Combinator, and
crypto investors Blockchain Capital and Digital Currency Group also
participated in the Series A funding round. Forbes
estimates Sfox has reached $15 million in revenue over the past 12
months.
Sfox CEO Akbar Thobhani, 41, is a software engineer who was one
of the first 15 employees at Airbnb and served as its head of
business development. He cofounded Sfox in 2014 with George Melika,
42, a software developer who built trading platforms at asset
management firm Nuveen. In 2009, Thobhani became interested in
crypto. His biography on Sfox’s website reads, “He started mining
bitcoins at MIT before it was cool.” Sfox’s platform first launched
in 2015.
The crypto trading landscape is highly fragmented, with hundreds
of exchanges and dozens of “over-the-counter” (OTC) trading desks,
where a trader can be matched directly with a buyer or seller to
complete a large transaction. Sfox aims to provide a single point
of access for institutional investors, like crypto hedge funds and
family offices, that move large amounts of money.
Its platform plugs into digital currency exchanges and OTC
desks—Thobhani says it’s connected to “almost every single one”—and
tries to get the lowest price for buyers (and the highest price for
sellers). It does that by using a “smart router” that scans the
different trading venues for prices and tries to lock in the best
deals. Thobhani says Sfox has been able to beat the average market
price for a crypto asset trade by 2.5%. By connecting to so many
different entities, Sfox also helps its customers access more
liquidity, upping the chances they can clear an order at their
desired price.
Sfox also lets clients make “stealth” orders. For example, one
of the problems with trying to make a large crypto asset sale on an
exchange like Coinbase Pro or Binance is that it can crash the
price, causing coins to sell at lower and lower values and reducing
the seller’s profits. Sfox says its “secret sauce” algorithms help
to hide that trade until it gets executed, preventing the market
from cratering.
To make money, Sfox charges transaction fees, which range from
0.25% to 0.75%, depending on the type of order. Over the past 12
months, it processed $5.4 billion in trades and brought in an
estimated $15 million in revenue.
Compliance is critical in any securities trading business, and
two years ago Sfox hired David Gutierrez as chief compliance
officer—he had previously been a senior compliance officer at
Capital Group, an investment management firm with $1.7 trillion in
assets. Gutierrez built Sfox’s compliance platform, which helps the
startup adhere to regulatory guidelines like “know your customer”
rules.
Sfox isn’t the only startup trying to court institutional crypto
investors. New York-based Omega
One, backed by blockchain consulting firm and startup incubator
ConsenSys, was founded last year. Its CEO, Alex Gordon-Brander,
previously worked in finance for more than 20 years, including five
years at hedge fund Bridgewater Associates, where he helped build
the company’s algorithmic trading infrastructure.
Omega One has more than 20 employees, and sources at the company
say it will launch an early product to a limited set of clients in
the next few weeks, with a full-scale launch expected by the end of
the year. Planned services include a smart order router, a dark
pool where investors can trade large orders without moving markets
and a custody solution. Last year, it postponed plans for an ICO to
focus on regulatory compliance, although it has raised an
undisclosed amount of private investment. Crypto startup Tagomi,
backed by Peter Thiel, is also reportedly working on a smart
order routing product.
What will Sfox do with its newly secured $23 million? One goal
is to pursue regulatory approval in more states. It’s currently
registered as a “prime dealer” in 22 states, but not yet New York,
where it will need to get approved for a BitLicense. Sfox will also
likely build a custody solution, which would let institutional
investors store their crypto assets with the company.
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