Crytpocurrency is making inroads into high finance, attracting the interest of hedge funds, investment banks and large family offices.
But for big financial institutions, buying and selling digital currencies remains far more difficult than trading traditional foreign exchange or other financial assets. Firms must deposit funds in digital wallets at a host of different cryptocurrency exchanges in order to take advantage of the best prices or to arrange trades between cryptocurrency pairs. There is often a lack of liquidity, and it can be extremely difficult to place trades without moving prices, resulting in lower profits. In Europe, many asset managers are also barred from conducting transactions with organizations that aren’t themselves regulated, making it impossible for them to trade crypto currency on many exchanges, especially in Asia.
Enter SheeldMarket, a Paris-based startup co-founded by a veteran Credit Suisse markets wizard that is seeking to make cryptocurrency trading as easy for big banks and hedge funds as trading stocks or FX. While the startup has customers across the globe, its trading platform has a special appeal to some European asset managers: the company is a regulated broker-dealer in the Europe Union, which means that by placing trades with the startup, these firms can access unregulated cryptocurrency markets they are not allowed to trade on directly. Today SheeldMarket announced that it has raised a $10 million early-stage financing round to help finance its growth.
The investment was led by Atomico, the London venture capital fund run by billionaire Niklas Zennstrom. Also taking part in the round were Semantic Ventures, another London-based venture capital firm, as well as angel investors Pascal Gauthier, the chief executive officer at digital wallet company Ledger, and Alexis Bonillo, a co-founder of social networking app Zenly. Atomico partner Siraj Khaliq is joining SheeldMarket’s board of directors as part of the deal.
SheeldMarket was co-founded in 2019 by three friends from Supaero, the prestigious French national aeronautics and space engineering school, who were interested in cryptocurrency and financial markets. Their initial idea was to create a cryptocurrency dark pool—a private exchange that does not post prices and which is geared towards institutional investors. Jacques Lolieux, a vice president at Credit Suisse who had been instrumental in setting up that bank’s Cross Finder product, a set of algorithmic trading tools that lets asset managers trade across a range of dark pools, joined the trio as a fourth co-founder.
Oliver Yates, one SheeldMarket’s co-founders and its chief executive officer, said the company soon found that there were not yet enough big institutions that were sufficiently comfortable trading large volumes of various cryptocurrencies to support an active dark pool, especially one operated by a startup. So the company pivoted to acting as a broker-dealer and trading specialist for asset managers that wanted to trade cryptocurrency on other exchanges.
SheeldMarket will still match buy and sell orders on its own systems if two orders happen to align, just as a darkpool would, but this is no longer the company’s primary business and it routes most orders to outside exchanges. It makes money by taking an all-inclusive fee based on the volume of trade, as well as by charging some smaller custodial fees. The company does not act as a market maker or trade any of its own assets, Yates says. It is regulated by the French financial authority, AMF.
Yates says SheeldMarket has quickly established a reputation among institutional investors for the wide array of cryptocurrency pairs it enables customers to trade on its platform and for offering more types of trading orders than rivals. The startup is also known for sophisticated trading algorithms. These, Yates says, allow customers to trade large amounts of cryptocurrency stealthily, so that the trades don’t affect the overall price on the exchanges much. “Some of our customers will trade 30% or 40% of the market cap of a specific token,” he says. Doing that manually on an exchange would result in huge price movements. “With our system they can control every basis point and control the execution.” On average, he says, SheeldMarket delivers a 50 basis point (or 0.5%) price improvement over the best prices that are publicly listed on cryptocurrency exchanges.
The company currently routes more than 2 million orders per month, with the average order being worth $150,000, according to SheeldMarket’s website. Yates says that while the company does not disclose total monthly volumes, some customers have traded “several billions of dollars” worth of cryptocurrency using SheeldMarket’s algorithms in a single quarter.
Benjamin Tsai, the managing partner at Wave Financial, a Los Angeles-based asset management firm specializing in cryptocurrency and other digital assets, said in a statement that his company has started using SheeldMarket because it allows Wave to execute very large trades across multiple crypto exchanges. He also said he liked SheeldMarket’s trading algorithms. He called the platform “a gamechanger” in terms of saving both time and trading costs compared to Wave trying to execute trades manually on its own.
This story was originally featured on Fortune.com