Blockchain and Crypto Lead at Cinnober Says Crypto Exchanges Must Adapt to Market Demands

A fintech company based in Stockholm, Cinnober, has recently unveiled a shocking statement: crypto exchange must grow or die. This fintech company, Cinnober, was founded a decade before Bitcoin and has plenty of experience in the market. The company provides tech solutions for traditional stocks and commodity exchanges.

However, the company has been recently approaching the crypto market. For instance, it has made a partnership with Bitstamp to use the TRADExpress platform with others like the London Metal Exchange.

Cinnober is looking for potential partners in the crypto industry and its main targets are companies that are already being targeted by the institutional investors in the industry. According to Eric Wall, the crypto and blockchain lead at Cinnober, the most suitable companies are the ones looking to participate in an active way in the changes that the industry is going through.

According to the executive, while the company also serves retail-only companies, their ideal customer is the one looking to cater for institutional investors instead of the retail ones. Wall defends the idea that institutional investors are crucial for the survival of any crypto company because the future requires adjustments and they are very important.

According to him, crypto exchanges are very immature at the moment and, from the perspective of the financial markets, they lack basic knowledge of how to operate, so they will have to change a lot into the future.

To attract the big money of the industry, the institutional investors, the exchanges will definitely need to provide the same level of functionality that traditional stock and commodity companies do and there is a long way until they get there.

In order to attract these investors, the companies will have to grow a lot and understand more about compression, netting and clearing than they already do. They will also need to be compliant with the rules as these investors will only really become interested in them this way.

For instance, he cited that exchanges generally operate on a pre-funded basis as they only allow users to trade as much as they have on their accounts while the more traditional exchanges of the mainstream financial market act in a very different way and they use clearing houses and other things.

Wall explains that the market is very inefficient at the moment and that there are no clearing technologies being used. Their goal, he affirms, is to help a crypto exchange become a “real exchange” with a clearing module. This is what the company will do together with Bitstamp.

They will completely replace the matching engine of Bitstamp by something superior and then they will recreate the structure to be more akin to the one from the traditional exchanges. This would transform it into a real clearing house.

The main argument of Wall is that this is the most important time for exchanges and that only the most established ones will survive. Whether they get the cutting-edge technology to improve their business or they will end up losing to another company that already did it. It’s “grow or die”, he affirms.

He cites Fidelity Investments, Goldman Sachs, the Intercontinental Exchange (ICE) and Citi as companies that will enter the market soon and that will have the structure that is needed to be competitive and more sophisticated than most of the companies now.

Cinnober Has Been Exploring The Crypto Market For a While

According to Wall, the company has been exploring the crypto space and its technology for a while now even before most of its clientele has even heard of Bitcoin (or any crypto, for that matter). As early as 2015 the company already built a trading system for a Swedish company called Cryex, which never went live because it was not able to get a license.

At the moment, the company is working together with a number of crypto companies to take them to the “next level” and help them to deliver better clearing services that will help to cater to institutional investors.

Is growing up the only way to survive? That we do not know, but the crypto market is very unforgiving and many exchanges already went down because they did not make enough efforts.

Publication date: 
11/09/2018 - 17:18