White Star Capital Digital Assets Fund - Newsletter #143
Building the next generation digital asset lender: why we invested in Trident's $8m seed round
Building the next generation digital asset lender: why we invested in Trident’s $8m seed round
White Star Capital Digital Asset Fund - newsletter #143
By Sep Alavi, General Partner, Digital Assets Fund, and Marthe Naudts, Analyst, Digital Assets Fund
As they emerge from stealth, we’re excited to announce our investment in Trident’s $8m Seed Round, co-led with New Form Capital. Trident Digital is an institutional digital asset lender that will restore market liquidity with a new standard of risk management.
Trident’s stellar team combines the expertise of Wall Street and digital assets veterans. Led by Anthony DeMartino, an experienced trader who spent over two decades at Barclays, UBS, HSBC, and Coinbase, the co-founding team is made up of COO Julia Moiseeva, a capital markets expert with a background working at Barclays, Morgan Stanley, and Merrill Lynch, CTO Amir Sadr, a 20-year veteran in trading, risk management, and quant finance across Morgan Stanley, Greenwich Capital, HSBC, and Brevan Howard, and CCO Toby Norfolk-Thompson, who brings two decades of expertise in senior fixed income trading/structuring with previous roles at Barclays and Coinbase.
Read more on why we invested below.
Cryptocurrencies, and the trading thereof, have sparked a new paradigm for financial markets. When the asset class was nascent and illiquid, institutional capital entered, enticed by the easier winnings of arbitrage trading to take advantage of the inefficient price matching between exchanges.
Since then, it has rapidly expanded into a $438bn trading industry underpinned by two broad trends.
As blockchain technology and supportive infrastructure became more efficient, advances in throughput and latency have enabled high-frequency trading and news trading strategies.
Concurrently, increasing numbers of utility and alt-coins along with ways to generate yield from their speculation has led to the development of specialised crypto exchanges and protocols offering new activities like lending and staking.
With that, retail and institutional trading activity spiked, meaning monthly spot market volumes grew rapidly from $210bn in May 2020, to $4.25tn in May 2021. In 2022, the top 10 centralised exchanges alone reached a total trading volume of $40.87 trillion, even after having dropped over 50% YoY.
This has given rise to a class of institutions dedicated to fuelling this trading activity, analogous in many ways to TradFi institutions such as market makers and hedge funds. Many of these market makers use borrowed funds with leverage to trade larger positions across crypto primitives. This, in turn, has given rise to a new class of institutional lenders.
These lenders fall into four broad categories:
Prime brokerages (e.g. FalconX, Hidden Road, Bequant)
Dealer Funding (e.g. Genesis, protocols directly funding liquidity of alt-coins)
Collateralised (e.g. Genesis, Wintermute, Cumberland, Jump)
DeFi (e.g. Maple, Ribbon, Solv, Clearpool)
The Black Swan of 2022
In May 2022, the crypto world was heavily shaken, as Terra, the second largest ecosystem in DeFi in terms of value locked, crashed. Its algorithmic stablecoin, UST, depegged and, along with its sister token, LUNA, entered a death spiral, erasing about $45bn in wealth in the process.
Many borrowers were wiped out, either from having outsized positions in UST/LUNA, or simply from collateral such as BTC and Eth plummeting to their lowest points since 2020. As contagion spread, eventually FTX and its sister trading firm, Alameda, unravelled as fraudulently managed and ultimately declared insolvency.
FTX, valued at $32bn in its last funding round, was one of the world’s largest centralised crypto exchanges. Alameda was a trading firm with around $14.6bn of listed assets as of June 2022. As later became clear, FTX was loaning out user funds to Alameda and using its own (illiquid) FTT token as collateral, essentially printing money so it could lend user funds to itself.
The contagion of these events inevitably led to crypto lender Genesis’ downfall as FTX’s largest unsecured creditor. In January 2023, with more than 100,000 creditors and at least $3.4bn in unsecured claims from the top 50, Genesis filed for Chapter 11 bankruptcy.
These extreme events demonstrated the problems at the core of the shadow lending economy and the limited risk management — not least the limited diversification of exposure, but also notably the opacity of real-time assets and liabilities of debtors and over-exposure to illiquid coins like FTT as collateral.
Nonetheless, the demand for borrowing remains high, and there is a pressing need in the market for a lending institution managed by seasoned executives with deep experience in liquidity and risk management to fill the gaping hole left in 2022.
Enter, Trident
Trident is a crypto investment bank that meets this demand with a regulatory-first approach, offering a lending conduit matching borrowers and lenders of crypto assets and fiat currencies, and a position management portal and liquidation engine to ensure all loan terms are met.
For lenders that lack the tools to monitor crypto risks and liquidations, this means they can finance strong counterparties under a strict risk framework. Trident’s portal will have real-time API pulls, which will trigger liquidator enforcement if a position’s health changes. Its monitoring system for loan values will alert borrowers via their chosen channel and will allow lenders to assess portfolio value and account composition in real-time.
By only allowing lending positions in top-rated coins, and limiting positions to those able to liquidate in three days maximum, the result for both institutional lenders and borrowers is a transparent and adequately risk-managed lending ecosystem.
Trident will also go to market with a safe yield product for fintechs, crypto native treasuries, and other institutions who have significant capital reserves and wish to increase their capital efficiency without the duration risk, liquidity risk, and custody risk that lie with other ostensibly ‘risk-free’ offerings. Trident’s offering will instead provide yields linked to the risk-free rate while ensuring all deposits are physically backed by treasuries. Their platform will include a loan record system, daily securities reporting, and constant position monitoring.
Trident is set to become the next generation of digital asset lending, prioritising capital efficiency, accessibility, and security. We’re excited to support Trident’s next stage of growth as they bring a much-needed product to market.
If you’re interested in connecting with the team and hearing more about their secured yield product, please reach out to sales@tridig.io
🔦 White Star & Portfolio Spotlight
Ledn Co-Founder discusses Javier Milei's Bitcoin-fueled victory in Argentina
The unexpected election victory of Javier Milei, a pro-Bitcoin Argentinean candidate often compared to "Argentina's Trump," has surprised many. Mauricio Di Bartolomeo, co-founder of Ledn and an expert in Latin America and Bitcoin, shares his astonishment at Milei's success. He also discusses Milei's platform, which includes reforming the Argentinian central bank, dollarizing the economy, and using Bitcoin to reduce inflation. This highlights the significant role that cryptocurrency can play in addressing economic challenges in Argentina.
Multis and Flare's guide to chart of accounts for crypto organizations
Multis and Flare have co-authored a comprehensive guide on the Chart of Accounts (CoA) for crypto organizations. This guide emphasizes the significance of a well-structured CoA in facilitating transparent financial reporting, simplifying analysis, and ensuring regulatory compliance. It covers CoA elements, types of accounts, and best practices, while also highlighting Multis' crypto accounting software and its partnership with Flare to streamline crypto accounting and compliance for businesses.
Boto integrates with Superfluid for no-code automation and custom notifications
Boto, a no-code automation platform, now integrates with Superfluid, empowering users to create custom notifications and automations for Superfluid streams, including subscriptions. This integration simplifies the setup of alerts for Superfluid stream activities and the automation of actions like NFT minting or notifications across different messaging platforms, all without the need for coding expertise.
Oamo postpones private beta launch to prioritize user experience and data control
Oamo's private beta launch, originally slated for a specific date, has been rescheduled for September 12th. This adjustment underscores Oamo's commitment to establishing a user-centric data economy, where individuals retain control over their data and reap its benefits without being treated as commodities. The postponement is geared towards enhancing the user experience, aligning with the "Permissionless" event.
DFNS executives to attend Korea Blockchain Week to discuss secure Wallet deployment
DFNS executives will attend Korea Blockchain Week in Seoul from September 4th to 8th. They will be available for discussions on wallet-related topics and to offer expertise in deploying secure, programmable wallets. Additionally, the DFNS CEO will participate in an on-stage discussion with Blockdaemon, Web3Auth, and Haechi Labs about improving wallet functionality.
LUNR is now live on ALEX DEX
LUNR is now available for trading on the ALEX DEX. Users are encouraged to explore the cryptocurrency's market intelligence provided by LunarCrush and engage in seamless trading on one of the most significant decentralized finance (DeFi) platforms built on the Bitcoin network.
Exclusible partners with Blockchain Festival's metaverse
Exclusible is thrilled to announce its partnership with the Blockchain Festival's metaverse. As part of this partnership, they invite everyone to join them in their House on the Water, where they will host various events throughout the festival.
🏦 Enterprises & Institutions
Microsoft boosts AI efficiency with a ‘Heavy Metal Quartet’ of compilers
Microsoft has introduced four new AI compilers named Rammer, Roller, Welder, and Grinder, developed in collaboration with academic institutions, to enhance the performance of AI models on hardware accelerators like GPUs. These compilers, based on Microsoft's extensive AI research, significantly improve compilation efficiency and offer substantial performance gains, positioning them as valuable assets in the evolving AI landscape.
Visa taps Solana and USDC stablecoin to boost cross-border payments
Visa is enhancing cross-border payment transactions by expanding its stablecoin settlement capabilities using Circle's USDC stablecoin on the Solana blockchain, known for its high-speed performance. This move positions Visa as one of the first major financial institutions to use the Solana network at scale for settlements and allows clients to choose USDC stablecoin settlement instead of fiat currencies, further showcasing traditional financial institutions' adoption of blockchain technology.
LSE Group goes blockchain for digital asset initiative
The London Stock Exchange Group (LSEG) is reportedly planning to launch a new digital markets venture that will utilize blockchain technology for trading traditional financial assets, marking a significant step toward blockchain adoption in mainstream financial markets. LSEG aims to enhance the efficiency, security, and transparency of financial transactions using blockchain technology but clarified that its focus is not on cryptocurrencies. The new venture, planned as a separate legal entity, is expected to launch within a year, pending regulatory approval, with discussions already held with various regulators, including the UK government and Treasury.
Google bets on ChainGPT's Web3 vision with a $350,000 grant
ChainGPT, has been accepted into the Google Cloud Web3 Startup Program and received a $350,000 operational grant. This program, launched in partnership with leading blockchain projects, aims to support promising startups in the Web3 space by providing operational infrastructure and tools to enhance their product development efforts. ChainGPT plans to utilize Google's computational resources, storage solutions, and team administration tools to optimize its AI models, storage capacity, and team collaboration, ultimately advancing its services in the crypto and Web3 industry.
South Korean banking giant partners with BitGo, opens doors to crypto
Hana Financial Group, one of South Korea's top financial conglomerates, has announced a partnership between its KEB Hana Bank and crypto custodian BitGo, set to commence in late 2024. This collaboration aims to enhance trust and consumer protection in South Korea's digital asset market, responding to the country's tech-savvy population and regulatory measures, including the introduction of a mandatory reserve fund for crypto exchanges.
⚖️ Government & Regulation
Binance is 'Way Ahead of the Game' on US regulations, says CZ
Binance CEO, Changpeng Zhao (CZ) remains confident in his company's strength amid ongoing regulatory scrutiny and legal challenges. CZ believes that Binance is well ahead in terms of regulatory compliance and suggests that critics are trying to compare Binance to a failed exchange, FTX, in an attempt to spread fear, uncertainty, and doubt (FUD). Despite the legal challenges, CZ believes that positive regulatory developments in various countries, including France, Hong Kong, and Japan, could eventually lead to a more favorable regulatory landscape for the cryptocurrency industry. He also emphasized the importance of communication and collaboration with regulators to achieve better regulatory clarity.
Business leaders are cautiously optimistic about AI regulation
Policymakers worldwide are grappling with the rapid growth of artificial intelligence platforms and the need to establish regulations for this emerging technology. While there is a push for adequate AI regulation, there is also a desire not to stifle innovation, similar to the challenges faced in the cryptocurrency space. Business leaders and experts believe that AI's influence on various aspects of business and society will prompt regulators to strike a balance that allows for innovation while ensuring responsible AI use.
Standard Chartered’s crypto firm Zodia Markets scores regulatory approval in Abu Dhabi
Zodia Markets, a crypto firm backed by Standard Chartered, has received in-principle approval from the Abu Dhabi Global Market to operate as a crypto broker-dealer in the Middle East. The company plans to expand its presence in the region, with key hires and the appointment of a senior executive in Abu Dhabi, citing the mature and established regulatory framework in the Emirates as a strategic advantage.
Potential crypto regulations in the US anticipated to be boosted by introduction of Bitcoin and Ether ETFs
Ryan Zurrer, founder of Vine Ventures and Dialectic AG, envisions a significant growth phase ("Cambrian explosion") in the crypto industry as he anticipates the availability of bitcoin and ether ETFs within the next six months. While coherent crypto regulation in the US may take about a year to materialize, the introduction of ETFs is expected to boost acceptance and promote more favorable regulations, despite potential anti-crypto proposals in the interim. Zurrer believes that the wealth generated by cryptocurrencies will influence politicians and lead to more favorable policies in the United States.
💰 Funding & Exits
GenTwo raises $15M in Series A funding round led by Point72 Ventures
Swiss fintech GenTwo has raised $15 million in a Series A funding round, led by Point72 Ventures, helmed by hedge fund luminary Steve Cohen. The Zurich-based firm will use the funds for international expansion and the enhancement of its financial engineering platform, including its PRO platform, enabling the securitization of various assets such as real estate, fine art, and digital assets.
D3 Global secures $5M funding to revolutionize internet interoperability and digital identity
Startup D3 Global has secured $5 million in a seed funding round, led by Shima Capital and with participation from Arthur Hayes' Maelstrom, among others. D3 aims to enhance interoperability between web2 and web3 internet versions and plans to acquire new Top-Level Domains to offer secure digital identities. The company is also launching an on-chain domain marketplace, tokenizing over 1,000 top-level domains, with backing from investors like Lightshift, Dispersion Capital, VentureSouq, Infinite Capital, and Identity Digital founder Paul Stahura.
D3 Global raises $4.6M to develop crypto-native CRM for enhanced marketing
D3 Global secures $4.6 million in seed funding led by Kindred Ventures to develop a crypto-native CRM aimed at enhancing marketing effectiveness using onchain data. This CRM will empower creators, developers, and brands to collect insights from customers and communities, enabling features like token-gated surveys, onchain activity analysis, and crypto rewards like NFTs.
Stroom Network secures $3.5M to launch Bitcoin 'Liquid Staking' on Lightning and Ethereum
Stroom Network has raised $3.5 million in seed funding led by Greenfield, a Berlin-based crypto investment firm. The funds will support team expansion and the launch of "liquid staking" for Bitcoin on the Lightning Network, along with the introduction of a corresponding Ethereum-based wrapped token, lnBTC. This will enable users to utilize their Bitcoin capital on both networks, earning routing fees on Lightning and exploring yield opportunities on Ethereum, effectively bridging Bitcoin and Ethereum ecosystems.
Ironmill secures $2.6M Seed funding to build a 'Verifiable Internet' with advanced cryptography
Ironmill has raised $2.6 million in seed funding, with gumi Cryptos Capital leading the round and contributions from LongHash Ventures, Superscrypt, Kestrel, among others. Their goal is to address the challenges of fake news, deepfakes, and online manipulation by creating a "Verifiable Internet" using advanced cryptography and zero-knowledge technology. This initiative aims to enhance privacy, security, authenticity, and integrity while potentially reshaping internet-scale computing infrastructure.
Coral Finance gains $500k investment from Momentum Capital on Nautilus Chain
Coral Finance, a derivatives trading platform operating on the Nautilus Chain, has recently received a $500,000 investment from Momentum Capital, as reported by Foresight News. This investment comes on the heels of Momentum Capital's earlier announcement of securing a $10 million investment from the Canadian BM Fund.
🚀 Project Launches & Updates
MetaMask launches a feature to sell ETH for fiat
MetaMask, has introduced a new feature allowing users to sell Ether (ETH) for fiat currency and transfer it to their bank accounts in the United States, United Kingdom, and parts of Europe. This follows MetaMask's previous feature that allowed users to purchase cryptocurrencies with fiat from various sources and reflects the platform's expansion into providing both buying and selling options for crypto assets.
Coinbase creates a new crypto lending service geared toward large investors
Coinbase has launched a new crypto lending service for institutional clients in the U.S., raising $57 million for the program as per a recent SEC filing. This service allows clients to lend money, primarily in crypto assets, with collateral exceeding the loan value, and Coinbase can then offer secured loans to institutional trading clients, aiming to fill the gap left by firms like Genesis and BlockFi that faced significant losses and bankruptcy last year.
Lufthansa airline launches NFT loyalty program on Polygon
Lufthansa, has introduced an NFT loyalty program on the Polygon Network. Passengers can use the Uptrip mobile app to turn their boarding passes into NFTs and collect NFT trading cards, with completed collections earning rewards like flight upgrades, lounge access, and frequent flyer miles. This move reflects Lufthansa's interest in embracing Web3 technologies, making them accessible to their customers, and following a broader trend of airlines exploring blockchain and NFT integration.
Binance launches new crypto on-ramp ‘Send Cash’ in Latin America amid crypto card service suspension
Binance is introducing Send Cash, a solution in Latin America designed to facilitate easier crypto-to-local bank transfers. Initially available in nine countries, including Colombia, Honduras, and Argentina, Send Cash will utilize Binance Pay's crypto payment technology and licensed providers to offer cost-effective digital asset transfers. This move comes after Binance discontinued its crypto card services in the region and aligns with efforts to address financial inclusion challenges in Latin America, where a significant portion of the population lacks access to traditional bank accounts.
🔥 Other Bits We're Excited About
G20 nations are actively discussing crypto regulation, says Indian finance minister
Indian Finance Minister, Nirmala Sitharaman, revealed that G20 nations are actively discussing the creation of a comprehensive framework for cryptocurrencies during India's presidency. India's leadership has emphasized the need for a global regulatory framework for crypto assets, acknowledging both potential risks and opportunities, and advocating for international collaboration in overseeing the cryptocurrency sector.
Bitcoin's use as margin collateral in crypto futures trading is growing
The use of Bitcoin (BTC) as collateral in futures trading has surged, accounting for 33% of total futures open interest, up from 20% in July, while cash or stablecoin-margined contracts still make up 65% of open interest, according to Glassnode data. This trend of BTC-margined contracts can lead to rapid liquidation cascades and increased market volatility, as falling BTC prices not only erode the value of long positions but also the collateral used, increasing the risk of margin shortfalls and liquidations. The shift towards BTC collateral may indicate a shortage of cash in the market, as traders seek to increase their exposure by leveraging their BTC holdings.