On The Brink with Castle Island - Brandon Mulvihill (Crossover Markets) on the future of market structure in the USA (EP.601)

Episode Date: March 10, 2025

Brandon Mulvihill, the co-founder and CEO of Crossover Markets joins the show. In this episode we discuss: The shifting regulatory landscape in the USA and the impact that it is having on traditional financial institutions. How banks and broker-dealers are responding to regulatory progress. The battle for "Primary Market" in the United States. The future of market structure and the bifurcation of exchanges vs. brokerages. How Crossover is positioned in 2025. To learn more about Crossover Markets visit their website.

Today on the podcast, I sat down with Brandon Malvehill, the founder and CEO of crossover markets. In this conversation, we discussed the future of digital asset trading market structure in the U.S. and how the liquidity landscape is likely to evolve in the coming months. I think you'll enjoy this one. So without further ado, here's my conversation with Brandon Malvehill from crossover markets. Matt Walsh and Nick Carter are partners at Castle Island Ventures. All of these expressed by them or the guests on this podcast are solely their opinions and do not reflect the opinions of Castle Island Ventures. Guests and host may maintain positions in the assets discussed in this podcast. You should not treat any opinion expressed by

anyone on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of their personal opinion. This podcast is for informational purposes only. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage jobs. giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy

with a new round of constituted easing. You print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called a Bitcoin. Bitcoin. Brandon, well, thank you for coming back on the podcast. The world has changed quite a bit since the last time you're on this podcast. My pleasure. Really appreciate you having me.

I'm very excited to have this chat in Crypto Spring. Definitely. For those who didn't listen to the first podcast, Maybe we can just start with a quick introduction, overview of what crossover markets is and how you guys came to start the company? I'm Brett and Molda Hill. I am one of the three founders of crossover. I act as the CEO.

In crossover, what we've done is we've built the world's first ever execution only trading venue for institutions, meaning we're not counterparty to trades. In fact, we don't touch coin. Institutional participants transact on our cross-ex platform and face one of our credit sponsors, which I know we'll get into that concept in this chat. We also are the first ever crypto ECN in the space. And so we think from a differentiation standpoint that the ECN delivers quite a few advantages over the Central Limit Order book that is pervasive in the space. And at part, what we're up to, and our goal is ultimately to become the industry's primary

market for price discovery and risk transfer. And that's certainly a theme that we really want to get into later in today's chat. Awesome. Well, I guess the first question is just everyone had plans for the election. If it went one way, there's a certain set of plans. If it went the other way, I guess that's the world we're living in now. So maybe talk a little bit about that as an entrepreneur, how you guys were thinking about the regulatory environment and what the world looks like now. We thought it was going to be positive either way coming out of the election. Just kudos to you, Matt, and your team and your show, because we listen to the show regularly. and you guys had been talking about bipartisan support sometime, maybe last summer, last spring.

And so we felt like things would be good, but obviously with a Trump win, we thought things would be accelerated. And so coming out of the election, you just can't trivialize or understate how important this is to the entire ecosystem and to the industry. To give you kind of some tangible pieces of what we've seen, debanking has been a topic of conversation as of late. I know you guys have been talking about it for years. And I can tell you from experience, again, we're a company that's in the crypto marketplace. We don't in fact touch coins. So if you look at our balance sheet, it's simply dollars coming in and dollars going out. And yet with that, it was still very challenging for us to get a bank account over the last couple of years. And within

two weeks of the Trump win, you could name Tier 1 Bank, B, or C, and the inbound was tremendous. And so that's just one example, but institutional interest has been sky high where all of this is coming from or in part is that there's a real expectation that the U.S. is going to come out with a regulatory framework, the two big chapters are stable coins, and then market structure. And this positive change and this appetite to welcome crypto in the United States where the U.S. can really be the leading player going forward, I think, has created all kinds of momentum. I can see for your business, especially, it's just a huge development. We'll both to drill into that a little bit. So Sab 121 goes away, all of a sudden, the banks now can theoretically enter. What does that actually look like in practice for a bank to actually mobilize and get into the space? And we haven't seen a ton of public announcement yet, but it's still early.

What's your sense of the progress? I think the progress is tremendous. The first piece for a bank to come into the space and do the things that they would do in traditional asset classes is they need to get comfortable with touching the coin. One statement I'm pretty confident making is the blockchain itself and the nuance around custody are both innovations and they are new to financial services. When we think and talk about market structure and crypto, I don't personally see anything that's new. I see a copy and paste from traditional finance. So for a bank, what does this mean is for them to get involved, they need to get

with the idea of touching the coin, which means they need to be very comfortable with the custody piece. And obviously, we saw a hack 10 or so days ago with the by bit news. And so that obviously provides some level of discomfort. If you're a bank, you have to get very comfortable with cybersecurity and things of this nature. And once you are comfortable, then everything opens up. And then the opportunity not just to custody, but to trade crypto, becomes very real. And we at crossover definitely feel pretty strongly, and we've certainly had some conversations that support this, that the banks are going to come into the space and they are going to play a dominant role, market making and adding liquidity into the sector. And so we think that's going to be positive. And so where Sab 121 comes in is Sab 121, basically from a cost of capital perspective, made it prohibitive for a bank to even consider touching the coin and holding the coin. And so with that basically being shucked into the garbage can, now there's a realistic expectation that banks can come into the space. And we've seen, I think, Bank of New York and most recently Citibank and State Street

have gone on record saying that those two would like to custody crypto by 2026. And so that really is the foundation for everything. Once we know a bank is comfortable touching the coin, then it's reasonable to expect other things to happen, notably trading in the space. In terms of actually getting to market, if you're a bank and you haven't done anything yet, how would you actually get this to market if you're in their shoes? Would you have subcustody? Would you go buy a custodian? Would you buy an MPC team?

How do you think this will play out? I think personally through acquisition, I don't think this is a big shocking statement. M&A in general in financial services is expected to be up significantly. I think in crypto specifically we're going to see a handful of IPOs here in the U.S. later in the year, which is great. And I think for a bank to get involved, I think acquisition will be one of the dominant weapons, but also partnership, maybe two strategic investments. And so I don't know that banks are just going to license technology.

I think they'll probably partner up with some of the incumbent players, whether they're custodians or they're the actual infrastructure like a firebox. So we'll look to see partnerships and maybe strategic investments attached to those as a stepping stone to acquisition, but I think ultimately acquisition is going to be the dominant tool used. I tend to agree. I think that subcustody maybe as a first step will be the stuff that some of these banks take. We talk a lot about market structure. The market structure bill seems to me like it would be later this year, maybe early next year, stable coins coming first. That market structure bill doesn't necessarily get into the bifurcation of exchanges and custodians, but you

reference the buy bet hack, and that really calls into question whether that's something. the industry should be taking a lot more seriously. What's your take on just that bifurcation? Should those roles be separate? How do you see that evolving in the U.S. market? 100% they should be separate, especially when we think about institutional use cases. Think about right now life from the perspective of a market maker. You're a traditional market maker that's either involved in spot crypto trading today or about to be involved. I know Ken Griffin just made comments from Citadel a week or so ago, that they're going to get involved in the space. And so from their perspective, if you want to trade in crypto today and you want to trade

with 100 marketplaces, you're settling bilaterally with 100 marketplaces. And this is just terribly inefficient. Cost to capital will never be higher in crypto than it is today. And so we are very much champions of the concept of fungibility. And so this is the idea that a marketmaker like Citadel should be able to trade across 100 destinations, but net subtle with one player, which traditionally would be called a prime broker. We can get to the same point with the concept of clearing as well. And the dominant player in that space is a company called Hidden Road Partners. And so Hidden Road Partners has launched

an OTC prime brokerage business in Spot Crypto. They launched it several years ago, and I think that's been growing at great pace. To your point, you mentioned custody. Another way to think about this is you're one of the largest asset managers in the world and you want to trade crypto. What you're normally used to in any other market is you're normally used to the idea that you can go choose your custodian, and that might be typically a bank, but whoever. So custodian, A, B, and C. And then separately, you want to trade with a bunch of people that might be totally different names than your custodian. And then you may want to prime broke and net settle with a company. And these are all independent.

What you're after, normally what institutions are after, is they're after the collapsing of their fees. They want to trade more and they want to pay less on a yield basis. Because crypto was born in the retail space, retail customers and mid-market institutions normally care more about simplicity. So they like the vertically integrated model because for you and I, for example, when I open a stock trading account or I think about where I have my crypto, I don't want to have a custodian and then a broker and then a trading house.

I want a one-stop shop for all of those things. But for institutional support, it's a mandate. We need to separate custody. We need to separate clearing. We need to separate execution. And from a regulatory framework, the reason that this matters is the risk profiles of the players in each of those channels changes. And so things like capital adequacy need to be different, the focus, the emphasis on

certain rules need to be different for each participant. And ultimately, there will be participants who actually play more than one role, but while wearing different hats, they will have obviously multiple regulatory licenses to perform that activity. So we think it's an absolute mandate within the market structure framework that is coming. If it isn't actually pushed in the regulation, do you think it's just the market itself will dictate that those are the types of businesses that will succeed here because institutions will be less comfortable engaging with the alternative? Absolutely. Two things. I think one is institutional demand. And so when you hear Citibank and State Street coming out saying, we're going to custody crypto, now go back to that asset manager example,

where do you think they're going to custody? I think the banks are going to be one of the winners in that space. But again, when banks think about trading, they want to trade across a broad spectrum of places. And same with an asset manager. They don't want just one liquidity source. They need multiple for not only best execution, but also to collapse spread and keep their cost bases down. I think from a regulatory standpoint, and I should declare that I spent almost 20 years in the foreign exchange market before coming into crypto. So I'm definitely biased to the FX market structure. And FX was governed by the CFTC. And we are pretty assertive in our view that we really do think that the right place for the market structure framework would be with the CFTC for the reason

that crypto crosses borders the way currencies cross borders. One way we think about this is regardless of where an institution sits geographically, when they go to buy Bitcoin dollar, they're buying the same contract. This is true of Euro yen. This is not so true when you think about U.S. shares. Where your domiciled internationally actually plays a role into the contract that you're actually engaged in. We think the CFDC is the rightful place for where market structures should sit. The reason this matter is we think that the CFDC, if you look at MECA, for example, and for those listening in, MECA is the regulatory framework that the Europeans have put into place. The easiest way to describe MECA is that it's effectively a copy and paste

from MIFID. They've done a wonderful job. And I think that we could do the same thing in the U.S. I think we could copy and paste a lot of trad-fi framework, and specifically the CFTC's framework on spot currencies into the crypto world. And so we think the demand from institutions and kind of what we already have in traditional markets, we think are good enough to put out a proper framework in crypto. Really interesting to think about it because the CFTC, I don't think they have spot market oversight on any other modities. So it'll really be a first of its kind if it goes in that direction. I started my career in retail foreign exchange. Similar to crypto, this goes back to 2004, 2004, 2005, 2006. There was no regulatory framework. And it wasn't until the farm bill of all things on page 400 or wherever was written. It was the farm bill that basically gave the CFTC oversight on retail foreign exchange. And then the NFA obviously put in the framework. And so the CFTC has done a really, really great.

job on its governance of the stock currency markets, including the retail space as well. I think the one thing we do have to highlight, it's really not a copy and paste from just one market. There's pieces you could draw from equities that are happening in crypto, and I think a lot from the currency market in terms of the way it behaves. But it's also clear that there are obviously coins that are definitely securities. And so that does feel like it would sit naturally with this SEC. Our expectation would be if you're a venue like us, we would probably have to register and be licensed by the CFDC to operate the venue. But then if we were to have certain coins that were on offer that would be considered as security, then we might have to have dual registration. So that's also

something we think about and talk about. From a customer experience perspective, I guess that would be critical to not have to change platforms if you're trading a security token versus a commodity token. It'll be interesting to see how that actually manifests itself to the customer, because hopefully it would all just be in one kind of interface, you would think? I think so. It's hard to imagine why it wouldn't. For the same reason, there are online brokers where on the same interface you can buy a cash equity. This is pretty popular in continental Europe, for example. You can buy cash equities.

You can buy a futures contract. You can buy an FX contract. You could buy what they call a CFD. More recently, you could buy crypto all through one interface, even though behind the scenes, that data and information is being sent to different regulators. for the specific roles that functions where you hold your licensing. I think that should be pretty achievable. And again, I think that'll be driven by demand.

Clients are going to mandate that. No one wants to log out and lock back into something. I would think so. So talk about the goal of being the primary market in the U.S. I guess let's just start definitionally with what does that mean to you and how do you see that market evolving? For us, this is mission critical. And I think the best analogy to draw from here is to think about a bank.

So a market making, trading business line at the bank, when they come in and trade spot, where do they get price discovery from and where do they think about risk transfer? How are they deriving their prices? And then when they build up positions and they need to exit, what is the leading venue or top two or three places they look at to exit that risk? And to date, what happens if gun under our head, we have to name one venue that's primary market is most certainly finance, specifically due to the level of volume. that they do daily. What impact does this have on institutional users? Well, you can feel it in proximity.

So almost every market-making firm in crypto has some presence near Tokyo. Why? Because Binance is in AWS, Tokyo. So this is another indicator that Binance, it's reasonable to state that they're currently the primary market. Our belief is that no retail broker or retail crypto exchange is ultimately going to be the winner, the long-term sustainable recipe for primary market. And certainly we don't know that American banks are going to be opening accounts with finance. This is fundamentally a retail exchange from China. And so I just don't think that it's well positioned or may even care about themselves playing a role in primary market. One of the things that we think about is in crypto today, every crypto exchange is operating a vertically integrated model, which means they have the customer

captive. So if you buy Bitcoin dollar with Exchange A, you have to sell Bitcoin dollar with Exchange A. Once you buy, they're guaranteed two trades. You can't buy with Exchange A and sell with Exchange P. And so what happens is when you look at their actual matching engine, the actual vehicle, that is not the differentiator. That is not where the investment has gone at these crypto exchange. They're focusing on the peripheral advantages, things like the credibility of the institution, the safety of holding your coin as a custodian, maybe the interface itself on the mobile app or the charting package, you're not going to see a crypto exchange advertising how fast its throughput is, or its speed of execution, or the fact that it's sitting in bare metal and not in the cloud.

That's not what you see. On our platform, Crossex, we're execution only, meaning when an institution buys Bitcoin dollar on Crossex, if 10 minutes later they want to exit their position, they can, can do it anywhere else. They're not obliged to do it through us. So what does that mean? It means we're competing every second of every day to win market share. So when I say things like we finished 24 with our first year of live trading and we can say 99% of our orders were matched in six microseconds, we're processing over 7 billion quotes per day using about 1.5% of our current technical capacity. When I talk about our ECN execution advantages, and when I talk about these things,

they're not just words. I have to prove it because every institution who's connected never owes us a trade. I have to win that business based on spread compression and the way we think about market impact. And so we think that there's a strong correlation in order to be in the game for primary market, your execution venue needs to prove an open warfare that you can win market share if you don't hold the client captive. If you can prove that, then I think you've got a shot. And so we feel right now is one of the only, if not the only execution venue out there that can make those statements. I'll give you two other data points. As we've grown volumes, we have generated revenue on every trade since inception. So we haven't built. We haven't built

market share by cutting any corners. The second thing is we're one of very few venues, I believe, maybe the only, but one of very few, that charges both sides at the transaction. We charge the maker and the taker. We said when we started the company that our system and the way it behaves, technically provides value to both sides. And I'm comfortable now saying with those two statistics side by side that I think we can qualify and back that up, we can charge both sides because both side see themselves getting a value. That's fascinating. So if you think about primary market, and maybe let's just drill down to what the retail leg needs to look like to be the primary market. This market in the U.S. has really grown up with these vertically integrated platforms,

Coinbase, and Cracken really being the largest. How do you see just overall retail flow evolving in the U.S.? And I'd have to imagine that a big piece of that is going to be retail brokers that aren't active yet. And curious how you see that part of the market. To finish the thought process on primary market, go back to what Ken Griffin at Citadel said last week. If I read it correctly, he said that Citadel is going to enter Spot Crypto and they're going to start by pricing Coinbase and Binance. The question is, think about it from their perspective, Trade One. So Trade One, they're going to make a price to Coinbase. What are they using to think about what that price should be?

What we're saying, where the gap exists in the market, because we could talk for hours about this, is we're, whether you talk for five minutes or five hours or five days, the punchline is that right now there is not many companies that are well positioned to be in that race to be primary market. It is not a really well thought through concept. Now, to your question specifically about retail growth in the States, all signs are extremely bullish. I think there should be a lot of reason for optimism.

Ultimately, consumers, all of us, I think we all benefit when there's competition. And when there's competition, normally prices compress. Matt, you'll remember a day when we used to pay, what was it, 1499 and then $999 to buy a stock, and now it's free. I think that's a good example of what happens when you get competition. Coinbase, the obvious leader, has done a phenomenal job. You've got Cracking, California-based, and looking forward to maybe some positive news they have this year,

which would be great. You've got Robin Hood. Now you've got a traditional name like a Robin Hood who does equities. Q4, I think they put up 70 billion of volume and over 400 million in revenue, something of that magnitude. So just unbelievable results. And I think what's happening is that traditional online brokers are seeing that. And they're seeing not only the revenue success, but Robin Hood's stock is up five full since it was just a couple of years ago. And it's being driven because of their presence and the growth expectations of what they're

up to in crypto. And so it shouldn't be surprising to anyone that both Charles Schwab and E-Train have now announced that they have plans to enter the space. Interactive brokers has been in the space a little bit. I could see them maybe playing more attention. You've got traditional retail effects brokers like Owanda that haven't really put a lot of emphasis on this tasty trade. I think you're going to see a lot more online traditional brokers enter the space, which in turn creates competition. and I think that competition is going to be very positive for the consumer. And I guess the obvious question is, what does that mean for the future of venues in the U.S.? In a lot of ways, it feels like maybe the race hasn't even started yet just due to some of the

regulatory overhags? When we started the company, we've done a seed investment round in a series A and 12 of our 13 shareholders or our strategics. And one of the first questions people had was, wait a minute, another venue. Talk through your differentiation. One of the things that we do is if everyone would just, just stop calling it a crypto exchange and instead just call it a broker, it's a crypto broker, then it's easier to think through what's happening here because these retail exchanges are,

in fact, brokers, which is fine. And so very good business model. And again, for all the points I just raised, I think there's going to be a lot of benefits and improvements for the consumer because you're going to get more brokers offering the service. But brokers are not in the business of competing for primary market. They're not a venue the way, I think, of a venue. For example, example, if any of these crypto exchanges called Hidden Road and said, we want to take our exchange and have you prime broke it, not a DMA axis, truly where we now need to win market share solely on the merits of our technology, and I've seen some examples of this, I don't think they'd go anywhere. I think they'd really struggle with the central loan order book model and

the slowness of the technology. I think they'd struggle to play a big role. I'll give you two data points. Speed of execution. We execute in six microseconds. And so people go, why does that matter? The fair answer is to a taker of liquidity, probably doesn't matter at all, especially for retail clients buying something on a mobile app. They don't need a response in six microseconds. They're not going to notice the difference between micros and milliseconds. However, from the standpoint of a market maker, they now see on Crossex 300 to 400 price updates and the time finance moves once. are they more comfortable showing us a more aggressive price? Of course they are because they can change their mind.

We also from a throughput standpoint, everyone knows when you go on Binance, especially if you're a market maker, the more you trade, you can get effectively a cheaper fee. What people often don't talk about is the crypto exchanges struggle handling data. They have a throughput where they basically say you can only send us so many orders per second. Now, interestingly, the more volume you do, the more orders per second you're allowed to send to them. Order throughput is directly correlated to getting a smaller spread. This is called throttling.

We don't force throttling. We allow makers to send us as much data as they possibly can. And again, just like speed, why do we care? Because this is what compresses spread. I think the conclusion that I'm trying to draw is this is the level of sophistication that a venue needs to have. to operate independently and win market share. And so when I look at that space of, okay, so many venues are going to come into the U.S., I look at it through a different lens of, I think from a broker standpoint, we're going

to see a lot more brokers in the U.S. And I think they're going to see a lot more competition. In terms of folks that are kind of entering our domain as a true marketplace, a true standalone venue, I definitely think we're going to see increased numbers, but it's a much much harder moat. It's a much more difficult thing to stand up overnight. That makes sense, which kind of leads to my next question is, how do you think about the large exchange groups that are not in crypto today and how they're going to play the market? When we started the company, this is one of our big thesis statements. We felt strongly that traditional exchanges, and you can go

right down the list, your CME, ICE, LSEG, Deutsche Borse, TradeWeb, a CBOE, who's had a couple of starts and stops in the space. MyX, there's NASDAQ, you can go right down the list. We said from day one that these folks would come into the space, probably when there's regulatory clarity, and that when they come in this space, they're probably going to do what they normally do. They're going to buy. They're going to be very acquisitive. I started this podcast talking about debanking. The other thing we've seen, at least from inbound traffic, banks and traditional exchanges are certainly sitting up right in their chair. Absolutely, if they're not involved,

they're all building battle plans of how to get involved. P predicting timelines for exchanging is a little bit tougher. These are large institutions publicly listed. They don't work week to week month to month necessarily. But I think it's fair to say we're going to see traditional exchanges play a role in Spot Crypto. And aggressively, I think we're going to see a couple by the end of the year, if not a few.

but if we expand the timeline to maybe first half of 2026, I think we're going to see at least half a dozen traditional exchanges enter the space. That makes a ton of sense, and that would be very bullish. If you look at what this market could be, are there any other regulatory barriers that come to mind that we should be thinking about as an industry? I mean, one that I think about a lot is just the Basel rules and some of the constraints that maybe the banks might be under for certain lines of business outside of custody and plain vanilla trading.

You're hitting on really the most important theme probably, which again is related to the cost of capital. That can be very prohibitive. And when you look at, for example, capital adequacy, the UK and European and traditional financial markets have fairly long equations for how you come up with capital adequacy. The U.S. typically has a more straightforward program. So that's something to keep an eye on. I think the two things I would stay for this is that, again, championing the idea of the CFDC and the idea that, the idea that crypto crosses borders, it's important to know that crypto is a global thing. It's not domestic. It doesn't recognize borders. And so people like us and institutions that are

going to play a role in the space need to think about what it means to be regulated globally. This comes, I think, fairly natural to folks that were in the FX industry, because if you're in FX, you have to have a relationship with the JFSA in Japan and ASIC and Australia and the FCA and the UK and the U.S. regulators. But this is not a trivial thing because the way that Mika frameworks works may not be identical to what happens in Singapore or in Japan or in the U.S. And so I think that's the big topic is for people that are going to compete, they've got to compete globally. They've got to think about what that actually means to their business. I have something much more nuanced, though, for you that we can kind of kick around.

I think there's a potential for one big shocker in the crypto space from a regulatory standpoint And that is, in my experience, when you look at the growth of retail markets, be it in equities, or be it in foreign exchange, normally what happens is there's some practice related to execution that's not quite right. And the regulator comes in and figures it out. And then it finds all the companies. And then they stop that behavior. And then onward you go. In retail effects, the idea was positive slippage. So all of the brokers on stop orders, clients would get negatively slipped, that's fine, but on a limit order, if there was a positive slippage, the broker would keep it. So when regulations spread in retail effects in kind of the 2005 to

2010 era, global regulators caught this. They made examples, 2 million, 3 million, $4 million fines, and then that practice went away. I think crypto has one big disease that should be discussed, which is the exchange model itself, the central limit order book model, doesn't recognize liquidity providers and retail clients. There's only customers. It's everyone's swimming in one swimming pool. And so what happens is you have all these HFTs and market makers that are now in this pool. And so the question becomes if Bitcoin crashes 40% right now is we're on this,

who's getting out of their risk first? Is it the institution or is it the retail client? I'm pretty sure I know the answer. and I'm pretty sure it's really bad for the retail client. I'm sure if they want to exit their position, they're going to get out at exponentially worse prices because of this. To me, this is an inherent conflict of interest that would be deemed unacceptable in any other market.

I think it's going to take a while, but I do think the Western regulators are going to dig into that. I don't think that that practice is something that we should bank on moving forward. And just the way that these native crypto exchanges have built themselves, I think that that could be very, very problematic. Would you classify that as a best execution standard for crypto? How would we actually talk about that once that comes to pass? I absolutely think it fits within the best execution framework. And notably, it's around the

concept of a conflict of interest. Regulators, as we know, we saw it in Amica framework. I would expect it here in the U.S. Normally, the first driver of their focus is aimed at the protection of retail consumers. This is a practice that I think is fairly obvious, it's not to their interest. And it's not something we see in other markets. When market makers price, Sarl Schwab for equities, you have liquidity on one side and retail on the other. In retail for exchange, it's the same way. You have liquidity on one side and you have clients on the other. And there's numerous retail brokers in the crypto space that do operate that way. And those are normally traditional online brokers who have come into SPock crypto, and so they've got liquidity on one side of their tech and retail on the other.

There is precedent for doing it that way, but certainly this would fall under best execution in an inherent conflict of interest. It'll be interesting to see how that evolves, because it's not something anyone's talking about right now, but if this does start to institutionalize, there's no reason to believe that all of the concepts that exist in other asset classes wouldn't just be brought to bear here. That's right. Sometimes I get overly philosophical so I can spend hours. It's not nefarious. It's not something that these companies dreamt up to create a conflict of interest at all. But I do think it underscores that when you see a lot of the founders of the retail crypto exchanges speak, they don't see themselves as a financial broker.

They don't see themselves as a Charles Schwab. They see themselves as almost like an Expedia.com. When they use the word exchange, they're talking about it almost in those types of terms, not in exchange the way the CME would talk about themselves as an exchange. I think for them this would be alarming on one hand and I think very surprising. I don't think it's something that people have really thought through all that much. I think they just think that the way that this thing works operationally is totally fine. Better to get out in front of stuff like this so that the next version of Gary Gensler doesn't get his hands on it

and make everyone's life very difficult in four or eight years, however long. We'd love to close it off with just a little bit of a refresher on crossover. It sounds like you guys had a banner of 2024. for what does 2025 look like in terms of plans? We now have 70 institutions live on the platform. We're trading around $3 billion a month of spot crypto volume and growing. I think we averaged $1 billion, a little over one, one and a quarter per month last year. We're growing right now in the last, I think, three quarters, around 50% quarter on quarter and volume growth.

And as we add more institutional participation, we expect the volumes to compound. I went through some of our trading statistics we're awfully proud about in terms of speed execution and performance. We're going to do two things that we think are big. Number one is all 70 institutions we've onboarded are internationally domiciled. And so in Q2, we're going to enter the U.S. for the first time and try to stick a flag in the ground here and really play a dominant role. And so we've got big plans there more broadly and related to that is we are going to be adding to our distribution team and business development. and we're bringing someone on out in Singapore. And so we're going to expand into Asia while we're also trying to build out in the U.S.

Most of our business comes from the U.K. and the European area. So we'll continue that with our London office. Geographical expansion is one. And then the second thing is we're launching what I'm calling Crossex 2.0. So we have delivered a new architectural framework. It gives us a lot of advantages. But the two I would drive that I'm really excited about is, one, advanced order types. So we're going to be launching a series of Peg to Mid or what's some

called Midmatch. And so we're going to run a midmatch book. And I think that's going to be very powerful for certain players, HFTs, market makers, passive hedges from retail brokers who think about things like market impact, who've got risk and they want to move it to de-risk, but they don't want the market knowing that and reacting to them. So we think that'll be great and also custom order type so that advanced trading shops, if they have an idea of how they want to express their view on our platform and they want to give us an email sound by almost like a spec, we can actually build a custom order type intraweek, which we think will be pretty groundbreaking. The second thing, though, that is one of the things I've been most excited about in a long time is really what we can call

advanced best execution practices. And what we're doing is we're launching our advanced best bid offer and our smart order router. And so what we look at when we think about who is the best price, how do you get the bid in the offer? We look at price size and time. This is normal. This is what most exchanges and venues would look at. But now what we can do is we can overlay the historical data of fill ratio response

times and market impact of the market maker in real time. So for example, if you come in your top of book, but your response time is very low, or we see that you're not filling trades as much as we would like, there's a real cost to that. So the cost to your price is actually worse than what you're showing. And what our system does is automatically account for that. Where we get the home run ball out of this is we operate right now in bare metal

in Equinix LD4 in London, in Equinx NY4 in New York. We're also currently in the cloud in ADWS Tokyo, and later this year we'll look to go into either TYCQAX, in Tokyo or SG3. When you do that, this is true at every other market, when you have multiple matching engines, they are independent of one another. And so they have independent liquidity. And no one has ever tied these things together in financial markets.

We're hoping to be the first. Our CTO, our third co-founder, Vlad Risen, who's a double PhD in math and artificial intelligence, we're going to use AI to basically combine all of the matching engines to have one global matching engine. And so the relationship here is, if you look at something, for example, like response times, the latency between New York and London is around 70 to 120 milliseconds, not low or not higher. We know that it's pretty static over time. And so if you know this mathematically, then you can adjust. You can imagine there are moments in time where a taker in our U.S. engine might be better match with a market maker.

from our London engine. Having this SOR overlay onto our best execution allows us to eventually embed AI to combine all of our liquidity globally as well as the customer's credit. So we think that's going to be a home run. That's fascinating. Well, I love to hear stories about crypto and digital asset firms moving into the U.S., especially from American pro-fabber. So it feels like a new day over here. Night and day. Matt, you've been in the business a lot longer than us. We started fundraising in our seat round. I believe it was one month before three arrows and Celsius went down. So we've only ever known crypto winner. This is the first time we've seen the sun is out and shining and we're obviously couldn't be happier. Well, I'm excited for you guys.

Thanks again for coming on the podcast. This is fun. My pleasure. I appreciate it. Thank you, Matt. Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit castle island.V.C. To listen to all of our podcast episodes, please go to On the Brink-Podcast.com or just click on the tab in our website. Thanks for listening.