Unchained - How Tagomi Makes Large Crypto Trades Cheaper and More Efficient - Ep.118

Episode Date: May 7, 2019

Jennifer Campbell and Kevin Johnson, cofounder and COO, respectively, of Tagomi, describe how Tagomi helps institutional players make larger crypto trades more efficiently and at the best price possible, plus analyze how that was executed. They contrast it with the pre-Tagomi process for doing large crypto trades, how their software, which functions as a sort of "Kayak.com" for crypto trading, works on the backend, and how they keep funds held on exchanges secure. Plus, we compare today's crypto trading infrastructure to the early days of electronic trading in traditional financial markets, and look down the road at how they'll accommodate trends such as staking and decentralized exchanges. For more, check out the full show notes on Forbes.com: http://www.forbes.com/sites/laurashin/2019/05/07/how-to-make-large-crypto-trades-without-moving-the-market/ Thank you to our sponsors! ConsenSys/Ethereal: Head to Etherealsummit.com with my discount code LAURA20 to get 20% off tickets to Ethereal Summit New York, May 10th to 11th at Pioneer Works in Brooklyn. CoinDesk/Consensus: Since 2015, Consensus has been recognized as the most influential blockchain and digital assets event of the year. Hot-button topics such as adoption challenges, privacy,blockchain innovation, capital formation and more take centerstage as experts and pioneers give voice to the new developments and innovations occurring around the globe. Don’t miss this three-day experience! Register today: www.consensus2019.com. Use promo UNCHAINED300 to save $300 on your pass. CipherTrace: https://ciphertrace.com/unchained Episode links: Tagomi: https://tagomi.com Twitter: https://twitter.com/tagomisystems Forbes article on Tagomi: https://www.forbes.com/sites/jeffkauflin/2019/02/15/crypto-finance-grows-up-tagomis-new-tools-could-draw-institutions-into-the-crypto-market/#6c9bf98c13a0 Bloomberg video featuring Jennifer and Greg: https://www.bloomberg.com/news/videos/2019-03-04/meet-tagomi-the-end-to-end-crypto-solution-video Bloomberg article on comparisons to early days of electronic trading in equities: https://www.bloomberg.com/news/articles/2018-12-17/former-goldman-electronic-trading-head-sees-parallels-in-crypto WSJ Article on Tagomi: https://www.wsj.com/articles/peter-thiel-backed-venture-to-help-big-investors-bet-on-bitcoin-1525176121 Tagomi receiving BitLicense: http://fortune.com/2019/03/27/bitcoin-peter-thiel-tagomi-bitlicense/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone, welcome to Unchained, your no-hype resource for all things crypto. I'm your host, Laura Shin. In case you didn't hear, Melton Demiris of coin shares and Jalach Jobon Putra of Future Perfect Ventures and I are all teaching a crypto workshop at Omega Institute in Rinebeck, New York, from September 20th to 22nd. Plus, there will be yoga, healthy food, and Omega's beautiful 250-acre campus. If the idea of spending a few days in nature, enjoying healthy activities, and talking crypto sounds fun to Check out the show notes for the link to sign up. Also, Unchained is now on YouTube.

You can find the most recent episodes there every week on the Unchained podcast channel. And if you're not yet subscribed to my weekly newsletter, go now to Unchainedpodcast.com to sign up. Head to ethereal summit.com with the discount code Laura 20 to get 20% off tickets to join Laura and hundreds of the brightest minds in blockchain at Ethereum, New York, May 10th to 11th at Pioneer Works in Brooklyn. Cipher Trace makes it easy for exchanges and crypto businesses to comply with cryptocurrency anti-money laundering laws. Avoid illegal sources of funds and maintain healthy banking relationships. CipherTrace is helping you grow the crypto economy by keeping it safe and secure. My guests today are Jennifer Campbell, co-founder of Tigomi and Kevin Johnson, C-O-O-O of Tigomi. Welcome, Jennifer and Kevin.

Thanks for having us, Laura. Great to be here. How did you come up with, well, actually, why don't we start with Jennifer? How did you come up with the idea for Togomi? So before this, I was working at Union Square Ventures, which is a venture capital firm in New York, probably most well known for investing in Twitter very early on, but also spent a lot of time in the crypto space. So they invest in Coinbase in 2012, invested in other crypto projects like Filecoin and Algarand and Blockstack, to name a few. And so I spent most of my time there looking at the space. I guess over time I became the go-to person when, you know, someone wants to say, well, someone wants to buy, you know, let's say a million dollars of Bitcoin. I'd be the go-to person they'd ask, like, you know, so how do I buy a million dollars of Bitcoin?

And, you know, I'd send some to some of the exchanges, sometimes the ATC desks, sometimes to other folks that I knew in my network. But there really wasn't a great solution for folks who were buying in size. and a lot of them, because they were more sophisticated investors, had, you know, really expected something a little bit better. You know, they wanted best execution. They wanted to understand how their trades were routed, all of which didn't really exist in this space. And so my co-founder Greg previously was head of electronic trading at Goldman, and he was a partner there for 10 years. And we spent a lot of time together looking at the space and thought, you know, there really could be a better solution here.

And so we decided to start to go me. And you mentioned this phrase, best execution. I know that has like a very particular meaning. So can you describe what that is? Yeah. So we think of best execution as, you know, the ability to survey liquidity across many different markets in order to find, you know, if you're buying Bitcoin, the lowest price possible.

And that means you're usually having, you know, fast electronic access to those markets and having your, you know, capital and ability to fund those accounts ready to go in advance. So it's essentially like a. way to give people a bird's eye view so that way they can get the best price possible, which is especially important when you are deploying a million dollars in these markets, which are pretty small. Is that the thinking there? Yeah, that's definitely right. In traditional markets, you know, best execution is really important. It's something that institutions care a lot about. They spend a lot of time sort of, you know, after trades are done, analyzing, did I get the best price

possible. They'll look at, you know, market data. You know, they'll compare trades over time. It's really a process. And it's, you know, it's, it's, it's, it's, uh, it's something that a lot of major institutions really focus on. And in crypto, you know, we sort of have a very young market, but we do think that as larger institutions move into the space, they're going to have the same questions, the same concerns. They're going to want to understand, you know, how did their broker route their trade? Did they get the best price? Was there information leakage? Was there some kind of adverse impact? Um, so we're going to apply those same kinds of principles that we learned from traditional markets to the crypto space.

Yeah. So why don't you tell us, what does Takumi do? Yeah, so we have a couple different things that we do. You know, first and foremost, we have built a smart order router, as it's called, which essentially allows us to monitor market data coming from all the different exchanges or market makers that we connect to to understand, you know, what are the prices that are available on those venues. And then when we get an order from a client, let's say to buy, you know, a large amount

of Bitcoin. We'll take a look at all those different order books and say, what's the right way to break up this order into smaller pieces and send orders to each of the markets to get, you know, sort of a piece of the best price Bitcoin on each exchange. And what that means is then sort of the weighted average price of all that Bitcoin that will buy will be the lowest possible for that client. You know, it's much better than if you were to just go to one exchange at one time, because if you were to eat up all that liquidity in one place, you'd end up paying a higher average price. So it's really important that you have access to lots of markets, It's you route your orders simultaneously to all the venues and you get the best prices across

the entire street. Then the other thing that's important is after the trade, kind of going back and analyzing that, you know, seeing, did I do the right thing, doing post-trade reporting, being able to explain the analysis to your client, which is really, you know, we think it's critical. It's something we do as an agency brokerage and we want to be very transparent with, you know, why we did what we did. And Jennifer, you did describe this very briefly, but can you describe more in full, how it was that prior to Togomi or without Tegomi, how people do things like make very large purchases

of Bitcoin? Sure. So before Toggiomi, there were really two main options. One, you could go to one of the retail exchanges. And so for a lot of these larger clients who are buying in size, there's a large liquidity cost to buying in size. So that means that while the price of Bitcoin is $1,000, if you want to buy $10 or $100,000, if you want to buy 10 or $100 of Bitcoin, it's still $1,000.

But if you want to buy, say, 500,000 or a million dollars of Bitcoin, the price is actually, you know, maybe $1,200 or something like that. And so the price gets higher as your order size goes up. And so how you execute that trade really matters. If you buy Bitcoin and the liquidity cost is, you know, 5%. Well, that means you have to believe that, you know, Bitcoin goes, you know, up 5% before you actually want to get into the market. So that execution cost is really important for some of these more institutional clients. So, you know, that wasn't a great solution just because

the space was so fragmented. You'd have to go to, you know, five or ten different exchanges. You'd have to sign up and get selfies at each of these 10 exchanges. You know, an institutional client just isn't going to do that. Or, you know, even for the average person, that's a lot of operational work, a lot of hassle, to get all those accounts and trade all across all of these exchanges. And the selfie is for the know-your-customer procedures? That's right. Know-your-customer, K-Y-C, AML, anti-money laundering. And so it was just a lot of operational work just to get a trade zone. The other option was to go to these OTC desks, which sometimes is a great solution, but also a lot of these clients are looking for best execution. So they want to understand how

your trade was executed, how it was routed, like, why did they get the price they got? And you don't really get that with an OTC because you're, you know, they're not an agent. You're, you know, you're buying from their balance sheets. And so they have a set price. There's a bit, you know, sometimes there can be a pretty big spread there. And so some clients, you know, are looking for a different solution. And with Togomi, how does a large purchase of crypto work? So, It would feel like, you know, you would wire a million dollars to get me. You only have one counterparty, which is to get me. But we would smart route that across all the different exchanges and liquidity pools and market makers and other liquidity sources for you.

You don't have to have accounts or have money on any of these liquidity pools. And then we smart route that. And then you'll have your Bitcoin in your account at the end of the day. and it would really feel like you're interacting with just one counterparty, except we're ratting across all the different exchanges for you. So, you know, one analogy I use that's quite simple is, you know, imagine that, you know, say, Cracken or Coinbase or BitStamp is Delta or United, but, you know, we're Expedia or, you know, Kayak or something like that.

And so, you know, you just have, you can go to Expedia and buy, you know, coins from, you know, Coinbase or Cracken or Gemini, but, you know, there's just one place you can go to get all of those exchanges in one place. Who are your clients or what types of clients do you have? So it's a pretty broad range. To date, we launched in December. And so we've mostly been focused on more of the institutional clients. Our clients have been hedge funds, RIAs, other broker dealers who want to sell Bitcoin to their clients. But there's also, you know, a lot of high numbers, high numbers individuals and also clients who just want to use to

give me because they feel like it's a better experience, and they're not really an institution. So, you know, we're going to be expanding to more people, but in the first couple months, we've only been taking the really large institutions. And so, and most of them are from traditional finance, or are the larger players in the crypto world? I'd say it's a mix. I'd say half, you know, a lot of crypto funds and then half, you know, more RIA. these other traditional broker dealers who want to offer points to their own clients.

What is their typical trade size? You know, it varies a lot. It's hard to say what a trade size typically is because every time they trade, it's broken up into a really small, tiny trade. So if you want to do a, let's say, $30 million trade, you're not going to do that all at once. You know, you're going to break that up into bits, little bits of, you know, maybe 30 cents or a dollar each and then spread that out across all the different

exchanges. And so, you know, it's hard to say, was that, you know, was that a $30 million trade? Was that a 10 cents trade? Because a lot of our algos will split up your trade into much smaller trades. So, but I'd say, you know, between 25K to in the tens of millions, we've seen a pretty broad range. How much do you or, well, yeah, how much do you make off of each trade? and how do you make the money off of each trade? So we just take a flat commission on top of each trade. There's no monthly cost to the software. There's no yearly fee or anything like that.

It's just a flat commission on top of your trade. Oh, and it's not, there's no like scale based on volume or anything like that? Oh, there is. Yeah, so it ranges from, you know, up to 25 bibs depending on your volume. And which exchanges do you connect with? we connect with all the exchanges that have us d uh so uh you know the top 10 there and then also market makers and other liquidity sources as well so i know i don't know if you saw that long bitwise report about a kind of real versus um fake volumes on the exchanges but has that influenced

which exchanges you decided have decided to integrate with um so it hasn't influenced us at all um but It's actually been very helpful. So, you know, previously when a lot of times, you know, clients would log into our platform and then I'd show them, you know, the volume for the day. And when they saw that metric, they'd be really surprised and say, what do you mean? That's the real volume. And, you know, coin market cap has something that says, you know, 20X the volume. And we'd have to explain, no, that we, you know, we curate all our own data and we think

that's the actual volume you can actually integrate. interact with and actually execute on. And they'd be very surprised. And so, you know, that's been really helpful for us, you know, and explaining, you know, why that number is so much lower. Oh, that's interesting. Okay. So you had, yeah, I was going to ask you like how you decide which exchanges to integrate with, but it looks like you were using your own data to make those decisions about kind of where there was enough liquidity and stuff like that. Is that how you did that? That's right. So when we looked at where the liquidity was, we ended up with a very similar set of exchanges. But it was a little bit hard to explain to clients why that number was so much lower than, you know, what they thought it was because everyone had gone to, you know, coin market cap and seen, oh, the, you know, numbers in the billions or.

And then, you know, the number we actually had was, you know, a fraction of that. And so it's been really helpful for us. Yeah. Looking at that report, just the visuals. on it, we're just so clear. And yeah, I was just looking at it. I was like, okay, this is like one of those cases where a picture is definitely worth a thousand words. So you guys also custody your customer's funds, yes? Yes. And so which custodians do you work with? Yeah, so we evaluated probably two dozen different custody providers when we were building out our process. We ended up

focusing on the ones that we thought had really great security, really great features. and for the most part have some kind of trust license. So we work workplaces like, you know, Coinbase and Bickgo and Gemini. And we're always interested in seeing, you know, what other new technologies are out there as we expand the coins that we list, as we look to add features like staking or other things to our system. So, you know, as an agent, we're very happy to, you know,

keep monitoring the market for what's best for our clients. And we'll always make sure we get the best technology, the best security, and the best features for, for our clients. Do you spread out the customer's funds across multiple custodians, meaning that even one single entity's funds will be spread out? Why do you use multiple custodians? Yeah, that's a great question. So we generally do spread it out, you know, for risk purposes, not keeping all the eggs in one basket. And then the reason, other reasons for using multiple are, you know, different custodians have different coins that they list. They have different features

in terms of, you know, do they offer staking, what's their service level agreement for how fast a withdrawal can happen? What type of storage is it? So we think it's prudent just to be able to have multiple and to be able to offer all those different features to our clients. Do your clients have any concerns about the fact that they don't hold their own private keys? Yeah, definitely some of them. You know, if you're a different kind of fund, sometimes it's important. But, you know, Tigomi is able to accommodate many different structures. So we're more than happy to use our cold-walt solution or if somebody has their own custodian they've already worked with, we can always white list a withdrawal address. And after the execution is done, we can always

send it to their own storage system of their choice. We're happy to work with the clients to figure out what's best for them. And if that's what they need, then that's what we'll do. Oh, okay. So it sounds pretty flexible on that part. It's like you can custody for them if they want that. And then if they don't, then they don't have to use that service. Yeah, that's right. We're trying to mimic what you would feel in a traditional brokerage in equities or futures, right? If you call up your broker and say, I want to buy a million dollars of Apple stock, you know, they don't send you a box in the mail with a bunch of stock certificates at the end of the week. You know, they hold on to that for you.

You know, so we're trying to get more people into the industry by providing the same types of products and services that they're used to having in traditional products. And that means, you know, like Jennifer said, not having to connect to all the exchanges, not having to worry about how to smart order route, and then custody and treasury management is another facet of that. They don't need to worry about where their stocks are held. They don't need to worry about moving money around. So Togomi has figured out ways to handle that in the crypto space. For example, if you have a prime broker relationship with Goldman Sachs,

you don't also need an account with at the Bats exchange or the NICC, right? And so that's the same with Togomi. We follow similar workflows as, you know, if you would, if you were to have a prime broker relationship in traditional equity markets. And how do you make that possible on the back end? Really, it's a combination of, you know, strong technology that was built, you know, with experience that we have from traditional markets. It's both a combination of being able to quickly route orders to the right markets where the best prices are. And then, you know, building out the sort of settlement and clearing infrastructure that allows us to handle moving. moving capital between exchanges, you know, pulling back the, you know, the Bitcoin that we buy

for clients into our own storage system, our own wallets, and sort of managing, managing that balance throughout the day. So we've built systems that allow us to do this quickly and efficiently, efficiently. And that's really what I think differentiates us from, you know, some of the other software providers that are out there. So we have a veteran team who's built this multiple times before as a team in multiple markets. And so, you know, it's really textbook solutions that you know, clients expect and, you know, we think the crypto space will adopt. It seems like you have to have accounts on all these exchanges and then you must pre-fund at least some of these trades. Is that correct? Yeah, it's actually a mix. So, you know, we, the crypto market

is evolving and it's changing all the time. So we have to meet the market where it is, which means that a lot of the major sources of liquidity require pre-funding for trading. So if an exchange requires that we work with that. But there are also counterparties out there that will have post-trade settlement arrangements. So we have some liquidity sources that do that as well. So Togomi figures all this out for the clients while we provide best execution. And so really, you know, managing that liquidity and that access that we have is really the main service we provide to clients. That's really where the secret sauces, I would say. And for the cases where you do have to keep funds on exchanges, as we all know, the history of crypto is,

littered with exchanges being hacked and customers losing their coins. So how do you keep the funds that you have on exchanges secure? Yeah, it's a great question. It starts off with a rigorous review of which exchanges we connect to, making sure that, you know, their security and KIC systems make sense. And then we make a risk-based assessment. You know, we say, okay, what what's the right balance of, you know, our liquidity desires and our desire to, you know, minimize counterparty risk wherever possible? You know, there's really, there's really no perfectly safe way to do this. I think when you're trading on a centralized crypto exchange, there is that temporary risk that you take when your funds are there. But again, we try to minimize that up front. We make sure we don't have too much in any one place in any given time.

And that's what one of the main services that Degomi provides for our clients is constantly keeping an eye on that, constantly making sure we're minimizing risk while still trying to get the best execution possible. And I believe so far you've raised $27.5 million is some of that you've raised $27.5 million, is some of that used as working capital to pre-fund those trades, or do you have another source of liquidity? So we don't have additional liquidity apart from that. You know, it's mostly the client's funds that we're using. You know, we have other financing arrangements where we can, you know, provide additional backstops into that. So really, it's a matter of sort of balancing all that liquidity at the same time. But client funds are always, you know, fully funded. There's a full

reserve there. We're never in a situation where we don't have access to all the clients' funds that that they have with us. And which cryptocurrencies do you support? We have Bitcoin, Ethereum, Lightcoin, and Bitcoin Cash, but we'll be adding quite a few more number of coins in the next couple months, so stay tuned. And how do you decide which ones to add? Yeah, so there's a couple factors we look at. You know, client demand is obviously important.

And then we take a look at, you know, our ability to technically trade each coin, what exchanges is it listed on. And then it's also, you know, taking a look at the regulatory requirements and all the jurisdictions that we have clients. So it might be different state by state, for example, in the U.S. or country by country around the world. So we'll always work with our legal team to assess how that works. For example, in the U.S., the big question is, is it a security or not? In other jurisdictions, it might be a little bit different. So we look at all three of those factors when we decide what to list. Oh, wow. So in the U.S., it could differ from state to state, which assets. I'm just trying to think,

what's an example of an instance where customers of one state might be able to trade a crypto asset, but customers of another state wouldn't? Yeah, it really comes down to things like money transmitter licenses. So different states have different rules and regulations around that where we've got licenses in many different states, certainly the biggest ones in the U.S. But places like New York have additional requirements for cryptocurrencies, for example. So we did recently get our bit license in New York, which allows us to take New York clients. But generally, the process for approving new assets there takes a little bit more time.

And you'll see this with other exchanges, too. If you look at Coinbase, you'll see that some assets are able to trade in California, but not New York, for example. So that's pretty normal. But again, we're always keeping an eye on what's available. And we're always making sure our clients know what they can do in their jurisdictions. And over the longer term, let's say that digitized, securities really become a thing. Do you see you take only adding assets like those? Yeah, definitely. So we've been proactive there, you know, talking to the SEC and FINRA,

figuring out what does it mean to be a sort of a registered broker dealer in the crypto space. A lot of us, you know, have our licenses from previous jobs and understand how to set up those types of institutions. And so we're working very closely with the regulators and other, other partners in the space, other, you know, exchanges, you know, different companies, that are working on listing tokens and working with issuers, other ATSs, custodians. So all these things are necessary to really bring security tokens to our clients. And like I said, we think we're at the forefront of that, making sure as soon as those approvals start coming through from the SEC, we'll be ready to add those to the platform. Luckily, a lot of the technology we've already built is the same to support those things.

It's really a matter of getting the right licenses and regulations in place. Yeah, I feel like that's the refrain I'm hearing from a lot of. of a lot of these startups right now. What kind of trading volume are you seeing? So it's been increasing all the time, you know, depending on client demand on any given day. Like Jen said, we have a lot of different styles of clients, you know, different needs. But it's definitely been growing since we launched in December. As we saw in 2013 and then again in 2017, when there's a crypto bull run, it happens at a breathtaking pace. So how does Tigomi plan to accommodate these sometimes unprotected?

predictable run-up events. Yeah, so really the key there is to be ready to make sure we're onboarding clients now as the sort of the crypto winter is thawing, getting their accounts ready, getting, getting all the exchanges connected, so that when clients are ready, you know, they're ready to quickly, you know, deposit money or coin and trade with us. And then pretty much everything after that is electronic. You know, we have an automated system for trading. There's not a lot of human intervention that's needed to to trade once the funding is, is

completed. So we think we'll be ready for that as soon as it comes. And about that pre-funding question that I asked early about having the money ready at exchanges, is that something that would affect your ability to scale? Or in that case, would you just require that the client, why are their funds first? Yeah, generally our requirement is that the client just funds with us. The process for moving to exchanges is fairly quick. We're working with a lot of partners in that space, both on the banking and on the wallet side. Technology is always getting better. there. So we think we have a pretty good setup now and it'll keep improving overtime. All right. We're going to discuss the bit license and other trends in crypto after the space

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May 10th and 11th at Pioneer Works in Brooklyn. Back to my conversation with Jennifer Campbell and Kevin Johnson of Tagami. Let's just make sure people understand where Tagomi sits in the market compared to some other similar players. can you explain how you're differentiated from the ODC desks and other types of software that facilitate trading on crypto exchanges, market makers, et cetera? Sure. So I think there's three main buckets.

One, like you said, are the software-only solutions. So what that means is that, you know, first of all, you have to have your own accounts at each of these, let's say, 10 exchanges. And then you have to send a wire into each of these 10 exchanges and split your balance sheet up between each of those 10. And then it'll show you where the good trades are, and you know, you can buy and sell in one aggregated interface. But then to, you know, collect your coin at the end of the day, you then have to log back into each of the accounts and then send them back to your own wallet. And so there's a lot of operational hassle there that is just really not familiar to some of these more sophisticated investors. But, you know, even if you're just the average clients, you know, it's a lot of work. I think the second category is, like you said, the OTC desks.

And, you know, there's sort of a place in time for some of these OTC desks. You know, if you want to offload a lot of risk instantly, the OTC desks will do that for you. But for a lot of these larger clients, say, if they're trying to buy, let's say, you know, $200 million of Bitcoin over the course of a year, well, you know, they really need an algorithm to do that for them, you know, over a period of time. And so the OTC desks aren't a great place there. And also for clients who want best execution, you know, essentially that means best price. You can think about it that way. But, you know, they need a different solution to show exactly how we executed their trades, why we did what we did.

And they need a lot more detail around, you know, why was that price, the true market price that you showed me. So I'd say those are the two broad categories. And you guys, you're not making market. either like you're not trading or anything like that. It's just all for clients. We're not making markets, exactly. And so there are also some desks that are agency only. But what that means really is that you have to pre-fund your trades, but they only actually route you to market makers. There isn't another product in the space that will actually

smart route you to multiple liquidity pools and, you know, aren't also market making against you as well. So we have mentioned the bit license. I kind of was pretty impressed because you guys were recently approved for one, but as far as I understand it, I think it took quite a bit longer for some of the older companies in the space to receive theirs. Do you have any sense of why yours was approved so quickly, or maybe you started applying before you launched? Or what was it started?

No, actually, we applied in the late summer around August. Well, we just have a team that, you know, has really gone through a lot of these applications before. They're really familiar with all the problems. processes, you know, the security requirements, you know, all the operational procedures. And so we just, you know, sort of had everything lined up. You know, the team was just sort of really familiar with all the background checks, et cetera. And so it was a well-understood process for our team. And because we did talk about how the bit license in particular is one example of a reason why the offerings from state to state would differ.

and I know you're probably not going to want to answer this directly, but I'm just curious to know, like, from a startup's perspective, what you think the bit license is adding or not adding to the experience of being an entrepreneur in the space? Well, I think it adds protections for, you know, New York clients to ensure that, you know, any company they interact with who has a bit license has really thought about every single potential edge case and nuance and. And, you know, it's a product that can really trust. And so I think, you know, that definitely adds some value to the, you know, to the space. But do you find it like particularly onerous? I mean, you guys are a pretty young startup. And yes, you have good funding. But I'm just, I just wonder what that experience is like for entrepreneurs who have to, especially in this case where you're trying to service traditional financial players who, you know, definitely will. want to be compliant. Right. I do think, you know, it can be an expensive process. And, you know, that's part of the reason we raise 15 million in our very first round. And, you know, just because we wanted to get all those licenses, it was part of our business plan. And so earlier, Kevin said that having the bit license enables you to service New York customers. Is there, are there any other things

that enables you to do that you couldn't do without it? The main two things would be taking New York clients and then operating out of New York. So we are able to have a presence there, able to take clients from there, which is obviously important when we're servicing traditional institutions. You know, the New York City is the financial capital of America, for sure. And, you know, our goal is to not only service, you know, crypto-native firms, but also traditional asset managers and really try to make cryptocurrencies an asset class for all types of investors.

Jennifer did reference Greg to SARS' background. a little bit earlier, and obviously she spoke about hers. But, you know, when I think of teams in the crypto space, I really do feel like this is one of the areas. They're one of the teams where I can look and say, oh, wow, it's very clear how their background has led them here. So can you just give an overview of the experience of some of the other people on your team? And maybe Kevin, you could just lead with, describing your own background. Yeah, definitely. I've been involved in trading, whether it's electronic or quantitative for my whole career. I've worked at places like Citadel, 2 Sigma, and then Getco and KC, G. That's actually where I met Greg. So always been working with,

you know, how do we make trading efficient and more quantitative and electronic as the industry has changed? And then I got into cryptocurrencies really as a hobby. You know, I was mining Ethereum into my basement for a while and doing a lot of trading on the side. And so when I had an opportunity to work with Greg again and kind of take my finance knowledge. apply it to my hobby. It was something I couldn't pass up. And you'll find a lot of the people on our team have similar backgrounds. They've worked at, you know, places like, you know, Citadel or 2 Sigma or KCG in the past. And they, they understand, you know, how electronic markets, you know, improve experiences for clients. And then they understand that, you know, cryptocurrencies can

certainly benefit from more efficient markets and better pricing for clients. So given your background, how would you say the financial infrastructure of the crypto space compares to that of traditional finance, at least for now? Yeah, that's a great question. It's pretty different. But there are some similarities, and a lot of the solutions we have from traditional finance need to be applied to crypto. Certainly, you know, taking a look at best execution and smart order routing and, you

know, ensuring we get the best prices for clients is, you know, something, you know, we know how to do and we're trying to apply to the crypto markets. Where it differs is, you know, in a lot of the operational aspects that we talked about earlier, you know, how do you handle exchanges that require pre-funding? How do you store assets for clients after you have them? How do you figure out cold storage versus hot storage? You know, also figuring out what can you trade in different jurisdictions, what is a commodity, what's a security. Those are what make it different. But I think over time, we're going to take all of those learnings from traditional finance and continue to apply them to crypto in order to make sure

that this can be an institutional asset class. And how would you compare the early days of electronic trading and traditional finance to the early days of electronic trading now in crypto. Yeah, it's actually probably pretty similar. So, you know, as the equity markets grew up, you know, you have floor traders yelling at each other across a room. You start to have more dealers come into the space, providing additional liquidity. Things eventually happen more over the phone and then eventually on screens on electronic platforms. And, you know, as you got farther into the 90s and 2000s, you know, the rise of electronic market makers who, you know, really ended up being the dominant liquidity providers and kind of took over for a lot of the dealers

in most cases. Certainly, even in mature financial markets, there's a room for both liquid, efficient electronic market makers as well as dealers, which you tend to find are that the dealers focus on, lower volume, lower liquidity, harder to source assets. And then if you're looking for something that's really liquid and highly traded, like if you want to buy Apple or Facebook stock, you're going to go to an exchange, you're going to go through a broker that's electronic. and Algo, and you're going to end up interacting with a high-frequency electronic market maker. That's the most efficient way to buy liquid instruments. And what we've seen is that over the last couple years, certain crypto assets are moving

into that category, right? Certainly Bitcoin and Ethereum and some of the other or liquid assets are traded on plenty of exchanges. There are now electronic market makers quoting in those venues. And so it makes sense then to take the same process of, you know, building an electronic smart order router to source all that liquidity for clients. So this might be a stupid question, but just listening to you talk, I just realized, I'm not sure if I understand the difference between an electronic market maker versus a bot, which I don't know if you saw. There was like this paper that came out last week that was talking about bots on exchanges, front running, sorry, on dexes, front running people, but I just realized I'm not really sure what the difference is. Yeah, definitely. So I think the way to think about it is you have to understand what's the reason for the trading. You know, if the person's, whoever writes,

the bot, if their primary focus is providing liquidity, if they're constantly providing two-sided markets on exchanges in order to capture spread, that's what a market maker is. And that's what a lot of the, you know, either traditional finance or now crypto, high frequency market makers are doing. They're trying to be flat. They're trying to collect spread. And they're trying to provide, you know, a great tight market and liquidity to natural customers. Trading bots can mean a lot of things. Bots can be market makers, but bots can also be, you know, what you'd call removing liquidity. They can be making a bet on a direction of an investment. So, you know, they might look at a momentum or a reversion signal or, you know, they might

be scraping Twitter feeds for sentiment. You know, they're actually going to make a bet. So bots can both provide liquidity as well as take liquidity. It just sort of depends on what their ultimate investment strategy is. Oh, I see. So it's more like of an umbrella term and then electronic maker, that can be one category of bot. Yeah, that's right. People trade for different reasons.

Some people trade because they want to invest. Some people trade because they want to speculate. And some people trade because they're providing liquidity. So trading is trading. But it all comes down to what's your model, what's your alpha, what's your, what's your style of interacting with the market? All right. So something else that I was curious to ask you guys is a lot of people say that crypto is about democratizing access to finance. So why do you think it's important to also recreate some aspects of traditional finance in these markets?

Yeah. I definitely agree with, you know, crypto's goal of, you know, decentralizing different institutions that have, you know, rent-seeking middlemen at the same time, you know, it's really important to realize that anything that touches our monetary system needs to have, you know, rules and regulations and go through different types of controls. You know, so in different jurisdictions, especially in the U.S., obviously regulators, you know, want to protect investors.

There's, you know, lots of rules around how to trade equities. You know, you need to be a broker dealer to trade directly on exchanges. There's lots of great rules that help protect end users to make sure they get best execution. And we've seen a lot of those play out over the years. I think eventually crypto will be subject to the same kinds of things, making sure that markets aren't manipulated, making sure that retail customers especially ultimately get the best prices possible. And that's really just to protect the client. So we should expect that regulators always are trying to make sure that people don't get ripped off,

aren't exposed to fraud or manipulation. And would software like yours, so obviously we can see that it's making markets more efficient for kind of the bigger players, but is it then also having a similar effect for everyday people that are just buying, you know, like 10, not even 10, but five bitcoins or something? Yeah, absolutely. So a good example of that is, you know, in a really efficient market, no matter what exchange you go to, the price will generally be the same. Right. So when you want to buy Apple stock from your e-trade account, you're going to get a very similar price for a small order, whether it gets routed to the NISI or to the NASDAQ or to a wholesaler. And so you kind of count on that as a retail investor. You don't want to think about which exchange am I trading on. In crypto, right now, the current state of the market is that it's very fragmented. And the reality is because not everybody has access to all the markets, because there's not a lot of,

you know, smart order routing going on from an institutional standpoint, there's plenty of price discrepancy. Now, you know, in addition to the bots that are trading and making markets, there are also bots conducting arbitrage, which actually do provide a good service in the market. They help make sure that those price differentials disappear over time as there's more liquidity and more access to the markets. So that's, that's ultimately what's going to help make sure that retail clients, when they go, you know, to buy on Coinbase, that it's the same price they would have got if they would have bought on Gemini or on BitStamp. So that's actually sort of a natural progression of the market, bringing in institutional clients, having electronic market makers, having people conducting

arbitrage, ultimately all of those things in an ecosystem, make it so that when a retail client shows up at anyone exchange, they actually get what would be the best price for a small order. Ultimately, I see to give me as a bridge between the centralized and decentralized world. So, you know, back to your earlier question, you know, once you get into the centralized world, you know, going from Bitcoin to some other application, you know, that's very easy for everything to be decentralized. But to bridge the centralized and decentralized worlds, you know, there necessarily has to be some centralized solutions. And so I think that's okay. You know, it's just the bridge. And so, you know, that's what I'd say. Yeah, it's sort of like Coinbase being the bridge.

Yes, it's centralized, but how are you going to get people's money into the space if you don't have something like Coinbase? Right. So both of you obviously have been watching these markets for a long time. I'm curious to know what trends you've noticed in the way crypto trades over the years. Like, you know, what were the markets like at first and how are they now? And like, or, you know, obviously because we had that big bull run in 2017 also, you know, what was that period like? Like, you know, if you were to make, you know, observations about the trends in the trading of crypto, what would those be?

Well, I think the biggest change is the shift in market structure, right? So when you started off, you had, you know, people calling on the phone or Skyping to buy and sell. And now you have a lot more of the traditional market makers in the space who are making spreads, you know, really bringing spreads down. It's really narrowing. You know, there's a lot more electronification of a lot of the markets. And it's less dealer, much more less dealer oriented than it used to be. That's really shifting. And so I think at least in terms of market structure shift, that's,

I think that's the biggest difference for me. Kevin, do you have anything to add? Yeah, I definitely agree with all that. You know, we've seen, you know, the market kind of take off in 2017 as people were rushing to buy into ICOs. You know, a lot of that was very sort of retail driven. I think it's actually a good thing that the markets come back down to Earth a little bit. You know, I think what we're seeing is, you know, higher quality projects surviving.

And then as more investors get access to the market, you know, through either, you know, commodities that are efficiently traded on markets or security tokens that are properly registered and are able to be traded through brokers, that's going to bring more investment in the space. And then, you know, cryptocurrencies ultimately will be, you know, not only a utility in and of themselves, but also a platform for other digital assets. So I've seen that change over the last couple of years. And I'm excited for this next phase of growth. And as you see more professionalization come to the crypto space, do you have any predictions about how that's going to affect the players who have so far succeeded in crypto?

I think the people that have been successful through the bull and the bear market will continue to provide important services. I think we'll all continue to grow as the market changes. I think all the major exchanges are continuing to upgrade technology and provide new great services for their clients. Firms like Togomi are now providing the additional services that institutions really require to access the market. So we partner with a lot of people to make sure that the industry keeps evolving.

and improving so that it can be an asset class that institutions can get into. And just out of curiosity, do you see a place for OTC desks in the future? Always, for sure. You know, like Jen said, there's different styles of trading and different needs from a client. If you have a large trade and you want a risk price, and OTC desk makes a lot of sense. Also for less liquid assets, you know, that might not trade on many exchanges, you know, that they might be a great destination there. You know, I think, you know, Togomi will focus on the liquid products that are traded

electronically on exchanges. And as more assets become more liquid and with more volume, we'll continue to add support for those assets on Tagami. So I know you guys haven't been live for very long, but I was just curious for a while now. There's been this notion that institutional money is sitting on the sidelines, but that a wall of institutional money is coming in. And I can't help laugh because I think I've been hearing these phrases since like 2017, although maybe a little bit less So now it is for good reason, probably. So, you know, just out of curiosity, like even in the short time you've been live, would you say that the types of financial institutions and traders that are interested in your product,

are they changing at all? I think we need to broaden the term institutional a little bit. And so I think in mainstream media, when we talk about institutions, immediately everyone thinks about the bulge bracket banks like Goldman or Barclays or another bank like that. And for those folks, I think it's going to take some time for them to enter the space. We're having a lot of conversations with folks like that, but it feels like a much longer education process. There are a lot of other folks who are also, I would say, institutions, but they're much more nimble and agile. So for example, you know, bigger hedge funds, RIAs,

other broker dealers who trade quite a bit on our platform. And I'd say they're the largest category, really, who don't have all the requirements that these larger bulge bracket makes have and who are in the space already. Kevin, were you going to add something? I was just going to say that everybody's waiting for Togomi. We look like that broker that you're used to working with in different asset classes. We certainly have had a couple clients obviously come from the crypto background already, but there are some people that have never traded crypto before that come to to go in me and say, you know, now I can finally do this in a familiar way. You handle trading, best execution, and custody for me. So, yeah, I definitely agree with Jennifer, though, that, you know,

a lot of the traditional service providers in the space will, you know, are looking at crypto. They're interested in it. They're studying it. But the more nimble players, you know, some forward-thinking VCs and endowments and hedge funds are definitely getting into the space. Yeah, exactly. So our first client actually was a very traditional RIA who had never before been in the space. And, you know, what they said was, you know, I've been waiting a long time for a solution that was, you know, compatible with, you know, all the requirements I have. And so, you know, he did his first Bitcoin trade ever. And so that was very exciting for sure. Kevin referenced this earlier briefly, but one of the trends that's starting to pick up,

to pick up in the crypto space is staking. Although none of the assets you offer now are currently sticking coins, Ethereum is actually working toward becoming a proof of stake. coin, is that something that your clientele has an interest in? And if so, do you plan to offer them some way to stake their assets? Yeah, absolutely. That's something that's definitely a requirement, you know, for Ethereum when it's available and for a lot of the other assets that we're looking at. You know, the same way you want to get, you know, interest on your cash deposits at your bank, you know, you need to make sure that your assets that have, you know, some kind of additional feature are working for you, whether that means staking or even things like, even for a coin like Bitcoin, being able to lend out your

coin in order to get additional interest. These are all features that our clients definitely want, and we're working on ways that we can provide those services to our clients by working with different lenders, different custodians, different technology providers. This is definitely going to be an important thing for us. And it's really something else that can differentiate to Gomi. Because we're acting as your as your sort of one-stop shop for trading crypto and we handle wallets in custody for you, we can do all of these other neat things for our clients without them having to go and set all this infrastructure up themselves. So then, as we know, Coinbase custody is launching its staking solution and we'll also offer governance. So is that the kind of situation where if you have a relationship with

Coinbase custody, you would use their sticking service? Or do you plan to also do things like run your own nodes and participate in these networks? Yeah, well, definitely look for great partners in the space to help us implement these things. You know, there's a lot of things we're focusing on. So having lots of different custodians that we can look to that provide these services or other infrastructure providers, you know, are all things that we'll look to to do this for our clients. Another trend is decentralized exchanges.

Do you ever see Tagami using those? Yeah, absolutely. I think that's an exciting space for us to look at over the next couple months, especially as liquidity grows on them. There's lots of other considerations we need to think about, though, for trading on Dex's. We need to obviously have a great system of wallace that we can interact with. I'm excited for additional assets being moved on to things like the Ethereum blockchain. Projects like WBT or Stable Coins are all critical to making Dex is an interesting place for us to trade.

So we're definitely looking into that. And just so I understand the appeal of using a Dex, because so at the moment they're quite low liquidity, but the appeal would be that then you don't have the risk of losing customer funds. Yeah, that's right. Dexas have a couple features, and it's worth breaking them out. One feature is the fact that they're non-custodial in that you generally don't need to give up access to your private keys to trade on them. The other thing that most Dexas have is that they're decentralized in that, you know,

they don't necessarily have some single party who's deciding what can or can't be listed. So it's important when you're looking at Dexas to understand which features are you getting, because, you know, some dexes out there provide the sort of non-custodial aspect, but they still provide, you know, some kind of gatekeeper for listings or some kind of KYC. So the term decks is probably used a little too widely now. A lot of these are just non-custodial exchanges, but even that's an improvement to not have to worry about the risk of losing your funds or getting hacked. Okay, yeah, I was just realizing, yeah, in your case, the regulatory issues would also factor in to which exchanges you would use. Yeah, that's right. When we look at exchanges, we want to understand, do they do KYC? Do they have a listing policy? So Dexes are useful to us because of the non-custodial aspect. But we'll, you know, we do to some extent want to understand who are we going to be interacting with. So those are all considerations for trading on Dexes. So we'll look at all those things before we make a choice.

Stable coins are another big trend. How might you take advantage of those? Absolutely. We're looking at integrating those into the platform. We've done some initial testing with that already. Stable coins will be our gateway to, certainly to Dex's, as well as to different exchanges around the world. We focused on exchanges like Jen said that do U.S. dollar trading to begin with, and that requires banking relationships and, you know, additional considerations for onboarding. So being able to move into stable coins will open up the places we can trade and open up the door to things like Dexas. Because then you don't need only fiat to crypto exchanges, you can use crypto to crypto exchanges? Yep, that's exactly right.

A lot of our demand initially was for fiat to crypto. These are institutions that are trying to invest dollars into cryptocurrencies. But over time, as people build up those crypto assets, they're going to want to trade them for other crypto assets. And as you know, the base pair for most altcoins is Bitcoin or one of the stable coins. So once you're sort of part of the crypto ecosystem, you're going to be looking for that coin to coin liquidity.

Yeah, and I imagine simply for speed, that would be, you know, I imagine once people enter your system, they might want to keep their, the US dollar value of their money in a digital asset, rather than, because just the slowness with the banking system, I would imagine, would be a disadvantage. Is that correct? Yeah, that's definitely right. You know, if they're looking to withdraw quickly from our system, you know, stable coins are a fast way to do that for sure.

We're also working with a lot of great banks, though, that provide faster Fiat services as well. So I expect both to improve over time. So I'm sure you guys are busy adding new features to Togomi. What are some of the things that your clients can look forward to in the future? Well, I think shorting, margin, and lending are things that are definitely on the roadmap. And we hear clients ask us about those things all the time. And so, you know, we're really excited to be building out those features.

and stay tuned. You know, we'll have some, we'll be adding those features quite quickly in the next year. And for the lending, how would that work exactly? Is that something where you would have other investors provide that capital? It can happen a couple different ways. You know, there are a lot of great partners out there that we're starting to work with that can either lend us coin so that our clients can short or that we can pledge our clients collateral to get interest on that.

And then over time as we grow, you know, there's opportunities for us to do that between our own clients as well. Making sure, of course, that we follow all the regulations in different states related to that and that the clients understand, you know, exactly what we're doing on their behalf. All right. Well, it's been so great having you on Unchained. Where can people learn more about you and Tigomi? Go to tigomi.com and sign up for our product. All right. Well, thanks so much for coming on the show. Perfect. Thanks, Laura.

Thanks for having us. Thanks so much for joining us today. to learn more about Jennifer, Kevin, and Togomi, check out the show notes inside your podcast player. If you are not yet signed up for my email newsletter, go to Unchainedpodcast.com right now to get my thoughts on the top crypto stories of the week. And be sure to check out our new channel on YouTube.

Unchained is produced by me, Laura Shin, with help from Rayling Gallup Polly, Fractual Recording, Jenny Josephson, Daniel Nuss, and Rich Struffolino. Thanks for listening.