Fintech

Wall Street is warming up to crypto

Secure, well-regulated technology infrastructure could draw more large banks to crypto.

A gold bank with a "crypto" sign coming out of it surrounded by white banks

Technology infrastructure for crypto has begun to mature.

Illustration: Christopher T. Fong/Protocol

Despite a downturn in crypto markets, more large institutional investors are seeking to invest in crypto.

One factor holding them back is a lack of infrastructure for large institutions compared to what exists in the traditional, regulated capital markets.

That’s changing, as technology infrastructure for crypto starts to mature in areas ranging from security to data. One area that’s being built out is crypto trading as a service, with APIs and other products that developers and companies can use to set up crypto trading for their clients.

The latest sign of this maturation is EDX Markets, a new exchange for digital assets that’s being developed by Wall Street players like Citadel Securities, Virtu Financial, Fidelity Digital Assets, and Charles Schwab, as well as venture capital firms Sequoia Capital and Paradigm.

The digital exchange, headed by former Citadel Securities executive Jamil Nazarali, is roughly modeled on and built on the trading technology of Members Exchange, or MEMX, another exchange that’s being developed by similar companies as an alternative to large stock exchanges such as NYSE and Nasdaq.

EDXM’s custody and wallet technology is being provided by crypto custody and infrastructure company Paxos, the companies announced Wednesday

Paxos, which is a custodian regulated by New York state, holds customer accounts in fully segregated accounts and has signed up large consumer-facing clients to enable crypto trading. Its customers include PayPal, broker dealers such as Interactive Brokers, and others such as Nubank and Mastercard. Paxos has a conditional bank trust charter from the OCC and says it expects its chartered entity, Paxos National Trust, to open later this quarter.

Up until now big banks haven’t moved heavily into crypto because of accounting, risk, security, and regulatory concerns, as well as requirements by the Federal Reserve and a desire for more mature technology, said Walter Hessert, head of strategy at Paxos. “We still haven't seen any of the big bank holding companies in the U.S. bring one of these offerings to market,” he added.

EDXM, with its leadership and backing from Wall Street firms, could attract large banks into digital assets, he said. EDXM is “bringing traditional market structure and also traditional market participants to this liquidity offering through the exchange that is going to be really built to support and attract these types of bank holding companies and brokerages,” Hessert said. For example, EDXM plans to offer delivery settlement versus payment settlement, a settlement method that’s used in traditional securities trading.

EDXM is also different from some other crypto providers that are the market maker, exchange, and custodian all in one, which can be a conflict of interest and is typically not done in traditional markets, Hessert said.

More large liquidity pools such as EDXM will also increase transparency for the crypto market, Hessert said. Presently, crypto markets can be opaque, with large spreads and high volatility.

The competition to provide crypto trading, custody, security, and related technology for large institutions is intense. The resulting consolidation wave isn’t without some hiccups: Wyre canceled its deal to be acquired by Bolt for $1.5 billion last month. But more deals could soon come in this sector, since numerous providers offer overlapping services, analysts say.

Coinbase provides crypto trading APIs, custody, payments API, and related services, seeking to lure big and small customers alike. Coinbase has three related APIs — a general-purpose one for trading, deposits, withdrawals, and tax reporting; another for streaming market data; and a specialized FIX API for sophisticated traders. Coinbase, which recently announced a deal with BlackRock, has an advantage in routing orders to its own exchange or, for large customers using its Prime API, to other liquidity providers.

A number of other API providers like Prime Trust, MoonPay, Wyre, and Transak have emerged to offer quick and easy connections to crypto trading and other services, particularly for fintech and crypto developers building apps. Custody providers such as Anchorage and Fireblocks also offer crypto trading. And others are jumping in: Stripe has announced products for merchants to pay out in crypto or convert fiat to crypto.

“The convergence we’re seeing in the industry is people are moving up and down the value chain, because competition has heated up,” said Sara Xi, chief product officer at Prime Trust. “So the more you cover in the value chain the more revenue sources you have.”

DriveWealth, which provides stock trading as a service to customers such as Revolut and Cash App, has expanded into crypto and acquired a smaller firm, Crypto-Systems. The company can send crypto trades to multiple exchanges and liquidity sources to get best prices, said Duncan Wells, market strategist at DriveWealth.

Paxos provides custody, trading, and wallets for PayPal’s crypto offering. PayPal in July announced that its customers could send and receive crypto, not just buy and sell as before. While consumer interest in crypto may be down with the overall market, this latest move has quietly opened up a range of future new uses to PayPal’s large customer and merchant base.

“The on-ramps that have now been created through trusted products, it’s an order of magnitude more than where it was before PayPal launched these transfers,” Hessert said.

Fintech

Judge Zia Faruqui is trying to teach you crypto, one ‘SNL’ reference at a time

His decisions on major cryptocurrency cases have quoted "The Big Lebowski," "SNL," and "Dr. Strangelove." That’s because he wants you — yes, you — to read them.

The ways Zia Faruqui (right) has weighed on cases that have come before him can give lawyers clues as to what legal frameworks will pass muster.

Photo: Carolyn Van Houten/The Washington Post via Getty Images

“Cryptocurrency and related software analytics tools are ‘The wave of the future, Dude. One hundred percent electronic.’”

That’s not a quote from "The Big Lebowski" — at least, not directly. It’s a quote from a Washington, D.C., district court memorandum opinion on the role cryptocurrency analytics tools can play in government investigations. The author is Magistrate Judge Zia Faruqui.

Keep ReadingShow less
Veronica Irwin

Veronica Irwin (@vronirwin) is a San Francisco-based reporter at Protocol covering fintech. Previously she was at the San Francisco Examiner, covering tech from a hyper-local angle. Before that, her byline was featured in SF Weekly, The Nation, Techworker, Ms. Magazine and The Frisc.

The financial technology transformation is driving competition, creating consumer choice, and shaping the future of finance. Hear from seven fintech leaders who are reshaping the future of finance, and join the inaugural Financial Technology Association Fintech Summit to learn more.

Keep ReadingShow less
FTA
The Financial Technology Association (FTA) represents industry leaders shaping the future of finance. We champion the power of technology-centered financial services and advocate for the modernization of financial regulation to support inclusion and responsible innovation.
Enterprise

AWS CEO: The cloud isn’t just about technology

As AWS preps for its annual re:Invent conference, Adam Selipsky talks product strategy, support for hybrid environments, and the value of the cloud in uncertain economic times.

Photo: Noah Berger/Getty Images for Amazon Web Services

AWS is gearing up for re:Invent, its annual cloud computing conference where announcements this year are expected to focus on its end-to-end data strategy and delivering new industry-specific services.

It will be the second re:Invent with CEO Adam Selipsky as leader of the industry’s largest cloud provider after his return last year to AWS from data visualization company Tableau Software.

Keep ReadingShow less
Donna Goodison

Donna Goodison (@dgoodison) is Protocol's senior reporter focusing on enterprise infrastructure technology, from the 'Big 3' cloud computing providers to data centers. She previously covered the public cloud at CRN after 15 years as a business reporter for the Boston Herald. Based in Massachusetts, she also has worked as a Boston Globe freelancer, business reporter at the Boston Business Journal and real estate reporter at Banker & Tradesman after toiling at weekly newspapers.

Image: Protocol

We launched Protocol in February 2020 to cover the evolving power center of tech. It is with deep sadness that just under three years later, we are winding down the publication.

As of today, we will not publish any more stories. All of our newsletters, apart from our flagship, Source Code, will no longer be sent. Source Code will be published and sent for the next few weeks, but it will also close down in December.

Keep ReadingShow less
Bennett Richardson

Bennett Richardson ( @bennettrich) is the president of Protocol. Prior to joining Protocol in 2019, Bennett was executive director of global strategic partnerships at POLITICO, where he led strategic growth efforts including POLITICO's European expansion in Brussels and POLITICO's creative agency POLITICO Focus during his six years with the company. Prior to POLITICO, Bennett was co-founder and CMO of Hinge, the mobile dating company recently acquired by Match Group. Bennett began his career in digital and social brand marketing working with major brands across tech, energy, and health care at leading marketing and communications agencies including Edelman and GMMB. Bennett is originally from Portland, Maine, and received his bachelor's degree from Colgate University.

Enterprise

Why large enterprises struggle to find suitable platforms for MLops

As companies expand their use of AI beyond running just a few machine learning models, and as larger enterprises go from deploying hundreds of models to thousands and even millions of models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

As companies expand their use of AI beyond running just a few machine learning models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

Photo: artpartner-images via Getty Images

On any given day, Lily AI runs hundreds of machine learning models using computer vision and natural language processing that are customized for its retail and ecommerce clients to make website product recommendations, forecast demand, and plan merchandising. But this spring when the company was in the market for a machine learning operations platform to manage its expanding model roster, it wasn’t easy to find a suitable off-the-shelf system that could handle such a large number of models in deployment while also meeting other criteria.

Some MLops platforms are not well-suited for maintaining even more than 10 machine learning models when it comes to keeping track of data, navigating their user interfaces, or reporting capabilities, Matthew Nokleby, machine learning manager for Lily AI’s product intelligence team, told Protocol earlier this year. “The duct tape starts to show,” he said.

Keep ReadingShow less
Kate Kaye

Kate Kaye is an award-winning multimedia reporter digging deep and telling print, digital and audio stories. She covers AI and data for Protocol. Her reporting on AI and tech ethics issues has been published in OneZero, Fast Company, MIT Technology Review, CityLab, Ad Age and Digiday and heard on NPR. Kate is the creator of RedTailMedia.org and is the author of "Campaign '08: A Turning Point for Digital Media," a book about how the 2008 presidential campaigns used digital media and data.

Latest Stories
Bulletins