Despite the recent turbulence in the finance industry and the forecast of a crypto winter, not all companies are affected—some continue to push on and remain optimistic.
One of these is digital assets ecosystem Matrixport, which provides crypto financial services. It recently achieved a pre-money unicorn valuation, with over USD 3 billion in actively-managed digital assets in 2021. Matrixport also recently secured funding commitments of USD 50 million at a USD 1.5 billion valuation, showing strong investor confidence in the company.
Since achieving its unicorn status, the company has expanded both its digital prime brokerage business and its global presence with Matrixport Institutional, which serves clients in the US and Europe.
Today, the group serves more than 200 institutions across the globe, offering services such as spot OTC, lending, and asset management. It was named by CB Insights as one of the top 50 most promising blockchain companies in 2022.
Beyond providing financial services, Matrixport has also built a ventures arm named Matrixport Ventures, which supports innovation in blockchain and crypto. The arm manages collaborations with early-stage, high-potential Web3 innovators in categories such as open finance, the metaverse, and infrastructure applications. It currently has 18 projects in its portfolio.
KrASIA spoke with John Ge, co-founder and CEO, to learn more about how Matrixport is performing amid an uncertain crypto industry.
The following interview has been consolidated and edited for brevity and clarity.
KR: There have been a number of high-profile declines of crypto-related companies. Has this affected Matrixport at all?
JG (John Ge): While recent crypto industry shocks have seen the liquidation of some of our customer positions and a select number of clients have incurred losses, these developments posed no risk of solvency for Matrixport, and we continue to operate normally.
The impact has been limited due to our innovative product offerings. Each product has been designed to offer disclosure on how yields are generated from distinct underlying financial instruments. This means customer deposits are ring-fenced to ensure that assets are segregated and protected from other investment products.
We continue to build and prepare for the next upcycle. Our custody operations recently received an attestation report from Deloitte that verifies our implementation of industry best practices.
KR: Were there any concerns about the industry’s future potential?
JG: The recent capitulations of established players are, in some ways, our industry’s “Lehman moment”. They highlight the importance of segregating custody, clearing, and transaction settlement.
All the major blockchain networks continue to operate unaffected despite the market situation. That’s why I believe it’s certainly not the end for decentralized finance and crypto. By embedding robust risk management practices in our operations and investment philosophies, DeFi protocols will continue to function as a safeguard for funds, underpinned by its decentralized and transparent nature, and strengthen the use case for blockchain technology across the board.
Our confidence in the industry’s medium and longer-term outlook has not wavered, and we continue to do all that we can to support our clients and the industry.
As crypto matures, the degree of trust bestowed on centralized financial platforms such as exchanges will likely be reduced and finance will thus become more decentralized. In tune with this, regulators can step in to ensure that no single entity is permitted to manage all operational aspects while also keeping a close eye on the qualifications and technical certifications of centralized financial platforms.
KR: Have there been any dramatic changes in demand with the changing economic climate?
JG: Macroeconomic uncertainties have brought on a new wave of institutional investors in digital assets, such as Bitcoin, NFTs, stablecoins, and so on. These investors view digital assets as another tech stock that can be tapped into as a way to diversify their portfolio and hedge against volatility.
This interest was echoed in our recent study, the Private Wealth in Digital Assets 2022, which showed that 70% of wealthy investors expressed a high level of interest in investing in digital assets, despite the onset of the “crypto winter”. Half of the same investors also expect that most assets in the future will be digital, illustrating that digital assets are here to stay even with their short-term setbacks.
However, we are also seeing that the investors’ mindset has evolved since the crypto market crash. Overall, expectations have evolved compared to the bull market of last year, as investors now demand greater visibility into the underlying financial instrument and risk management mechanisms instead of simply investing based on the reputation of the service provider.
For Matrixport, adapting to this newfound demand has not been an issue, as transparency and robust risk management are principles that we have upheld at Matrixport since our inception. Particularly, our prudent operational risk management is the bedrock that has enabled us to ensure our full range of services remains available as our customers expect, and this is a path that we are committed to staying on and building for the future. For example, we recently secured USD 50 million in insurance coverage for digital assets by Canopius, one of the largest Lloyd’s of London syndicates, as part of our efforts to meet the highest level of service standards for institutions.
With the evolving marketing structure, we also expect the demand for institutional crypto prime services to further mature and grow in tandem with a broadening digital asset derivatives marketplace over the next decade.
KR: Project Guardian was announced in Singapore with DBS, SBI, and J.P. Morgan. How can Matrixport benefit from further growth and development of digital asset adoption at an institutional level?
JG: About two years ago, decentralized finance (DeFi) was conceptualized as a permissionless financial system, which aims to be a catalyst for changing how financial services serve our society. It holds the potential to financialize everything and ascribe financial rights to a wider array of assets and activities. This includes creating an underlying value for assets that were previously untouched by finance, and making these assets liquid and be used for transactions, such as collateral for loans or margins for trading.
However, DeFi is still nascent in its development, and there are still uncertainties that need to be addressed—the crux of which is regulatory guidance for easy access. Project Guardian is a step in the right direction, as it presents the opportunity for various industry stakeholders to have an open dialogue with regulators and facilitate the creation of a holistic framework for digital assets that incorporate 360 viewpoints of both the private and public sectors.
Developments in institutional-grade DeFi protocols and trust anchors will go a long way in instilling confidence in investors, especially those who have compliance requirements to fulfill, as it ensures that existing infrastructure is transparent, efficient, and secure for participation. In the near future, we expect more research, education, and guardrails to be established, ultimately accelerating the adoption of DeFi.
KR: What are the upcoming plans for Matrixport in the next five years?
JG: Many forget that crypto and blockchain have only been around for a decade. It is still a fast-growing innovative sector and difficult to see beyond the next 24 months. For example, decentralized finance, the rise of NFTs, and security tokens emerged soon after the previous crypto winter. As someone who has experienced several bear markets, I can see that with each cycle, the industry matures and emerges more resilient.
With that in mind, Matrixport is building and revamping our business offerings in preparation for the next upcycle. We are working on offering real-time visibility into the underlying source of yield and financial instruments for our products, starting with the fixed-income product. This effort to build trust will attract the right profile of investors to Matrixport, and help us build a stable and sustainable business.
We are also pressing on with our ongoing international growth strategy beyond Asia, with the scaling of our US and UK offices. The focus will be on building a comprehensive toolkit to deliver best-in-class institutional crypto prime brokerage services, including 3rd-party custody services.