Founded in 2018, Talos develops technology infrastructure for financial institutions to trade in the crypto asset market. The startup’s institutional-grade infrastructure technology supports the full lifecycle of digital asset trading, from price discovery to execution through to settlement.
KrASIA caught up with Talos co-founder & CEO Anton Katz at the recent crypto conference TOKEN2049 in Singapore. He told us how institutional adoption of crypto continues to grow despite the current bear market, and more.
This interview has been consolidated and edited for brevity and clarity.
KrASIA (Kr): Tell us how you became involved with crypto?
Anton Katz (AK): I was born in Ukraine. My family moved to Israel when Ukraine was still part of the Soviet Union. I did my mandatory military service in Israel, then went to school in the US, where I got my degree in computer science.
My involvement with cryptocurrency started pretty early. Back then, in 2012, crypto was something interesting to take a look at even though it hadn’t gone mainstream.
After university, I did a short stint at Microsoft. I also worked for a company called Broadway Technology, where my co-founder, Ethan Feldman, was a colleague. Over the years, the company became one of the largest providers of trading technology in the institutional sector.
I eventually left for AQR Capital, and around 2016, I started paying more attention to crypto. By then, the space had gained quite a lot of traction.
This idea of having decentralized currency came from proof of concept to something tangible. All of a sudden, the distributed system was actually working and being used by quite a number of different people around the world. I was still at AQR and realized that there was a need for institutional involvement in the crypto asset class, and would need quite a lot of ‘machinery.’
So I left AQR and partnered with Ethan to start Talos. This was about four years ago.
The initial intent was to build a trading platform that would allow institutions, whether banks, hedge funds, or sell-side or buy-side, to trade crypto the same way as people trade asset classes.
Institutions obviously need a different set of tools than retail investors. When you’re an institution, you need to have connectivity to multiple destinations, and have a reliable way of doing it. For example, algorithmic trading, reporting analysis, and other tools which we had built for every other asset class. So we decided that we would start building those for crypto to connect institutions when trading digital assets.
Kr: What do you think was the tipping point when financial institutions saw digital assets as a legitimate asset class?
AK: Some institutions have been involved with crypto since 2012/2013, which were the early years of crypto. When we came into the space, those institutions were our first clients because we primarily looked at crypto natives as well as people who had left traditional markets but started buying and selling cryptocurrency to institutions.
Over time, this trickled down to the traditional institutions on the buy side, who started getting involved. Meanwhile, many institutions with other asset classes started looking at crypto as yet another class with potentially uncorrelated returns with the traditional asset classes, so in terms of diversifying your portfolio, this was an interesting development.
What we’re now seeing is traditional sell-side institutions getting involved—service providers such as banks, custodians, and brokers. They provide access to other smaller institutions or even the retail sector, when handling an asset class.
The only reason why these players are getting involved is that there’s an underlying demand; no service provider will start building an infrastructure simply because they think it’s just a good idea. Over the past four years, we’ve run the gamut of institutional adoption, and right now we’re at the edge where we’re seeing some of the more traditional yet still conservative institutions in the world interacting with digital assets, which is a pretty awesome thing to see.
Kr: There has been negative sentiment with crypto over the past few months, especially on the retail side. Have you experienced the same with your institutional clients?
AK: First, this sentiment is not only true for crypto. We’re talking about a pretty weak macroeconomic environment. Generally speaking, the wider macroeconomic environment has been pretty depressed over the past year, much more in the last six months.
Crypto has not been spared. Being a smaller asset class with a lot more volatility, it has been impacted to a very large degree.
I wouldn’t say the sentiment is negative on the institutional side, but we’re definitely seeing a down market now. The difference between the retail sector and institutional sector is what they do to get through these kinds of events.
In the retail sector, negative sentiment generally means that this is not the time to trade and some may look elsewhere.
With institutions, it’s kind of divided. Across buy-side institutions, what we’ve seen are more people getting in, so adoption never really stopped. Sometimes we’re seeing slower timescales; if people wanted to launch within two months, now it might be three to four months. But we are still seeing people launch—they have committed budgets and are still building.
Having said that, we’re seeing lower volumes on average on the buy side—the hedge fund activities, the systematic side, and even asset managers.
On the service provider side, it’s the opposite. We’re seeing more adoption and more people getting in. The second quarter of this year was the best year by far, with service providers growing to take up about half of our business now. Large institutions don’t change their minds. They set the direction and don’t just change because of a quarter that’s trading less. They continue because they believe that there’s longevity in this market and continue building.
What we’ve seen over the past two years is unprecedented. The retail involvement in the market and seeing how active the retail sector is, especially with the meme stocks, is crazy. That’s the beauty of this evolving market.
Kr: Do you see traditional institutions developing their own digital asset solutions? Do you think this will become the norm in the financial sector?
AK: Providers in traditional markets can’t move at the same speed that technology is changing. That means a year from now, we’re not going to see everything tokenized and digitized. Having said that, the efficiencies that can be gained by moving the existing traditional ecosystem to digital assets are unparalleled.
If you work in the institutional sector, especially those in the middle or back office, you know how inefficient some systems are. If you have a trade, you might be able to settle that trade within days, sometimes it has to go through five different institutions. There’s a whole lifecycle that needs to take place in between.
With crypto and digital assets, if our client is trading in New York, and they’re selling a trade with their counterparty in Singapore, they can do it within ten minutes. We never had anything like this before; it’s not even close. So these capabilities of digital assets really make us think of how to create a smoother and more efficient financial system.
Unfortunately, this is two or three years away. But I do think that within this time, we’re going to see meaningful impact. For the first time, we have tons of people who are starting to talk about securitization, tokenization of assets, and issuance on chain.
We’re also seeing experimentation. It’s not ready for primetime yet but the technology is there. Our job is to be there to facilitate that change. That’s one of the big things that we’re thinking about: how we can help make sure that traditional assets can move around seamlessly, and that the institutional environment can continue improving its operations.
Kr: What are some of the most popular products with your clients?
AK: Generally our customers, at a high level, are broken into buy-side and sell-side institutions. On the buy-side, they include hedge funds, systematic trading desks, and asset managers. They are effectively institutions that trade using either their own capital or the capital of their customers.
Half of our clientele are service providers. They are sell-side institutions such as banks, brokers, and institutional and retail brokers. We also have custodians who provide services to their customers on a white-label basis.
We have a lot of traction with a white-label infrastructure. We have a product where our sales and customers can literally roll a brokerage out of the box. If you want to become a broker, either to institutions or to retail, you can take our entire stack and manage your clients there. You can already connect to all the liquidity providers and price your customers effectively. That’s definitely been the most popular on the sell side.
Without a doubt, the most popular product on the buy-side is our algo environment. Executing algorithmically across the market has been very popular. Around 75% of the orders going through the system are now going through algorithmic trading environments.
The ecosystem on the buy side is pretty diverse. Some people use our APIs as they are institutional grade. We use the same language, terminology, and protocols, the way they are used in traditional markets. Some clients really like the connectivity layer because we have tons of different connectors, whether it’s for custodians or liquidity providers.
The thing that is the most attractive for the buy-side institutions is the fact that they can do the entire thing at a go, which is the kind of stuff that we always looked at in capital markets. They are asking: can you make my operations more efficient instead of dealing with 20 different systems? This notion of interconnected trade lifecycle management is probably the thing that our clients like the most.
Kr: Singapore recently proposed stricter regulations on digital assets trading. How do you feel about tightened compliance for companies like Talos?
AK: We totally welcome it. I’ve spent my entire career in regulated organizations, working with hyper-regulated solutions. Today, we work with regulators across the world. Anytime you can provide regulatory clarity on an evolving asset class, it’s a great thing for the institutional ecosystem. Regulations are there to protect the ecosystem and retail investors from systemic risks. We welcome clarity from regulators, and we have very strong ties with them.
The one thing I would say is that I hope that the trend continues in the digital assets ecosystem. It’s about creating regulation that makes sense, which doesn’t stifle innovation but provides the safety and the guidance that allows things to flourish without the bad things that can happen in the ecosystem.
We hope to find a good partner to be able to promote the ecosystem. We have to continue working with the regulator, and I think regulatory clarity is a huge part of that.