Start-up to boost digital-asset exchanges
An American technology company has launched a platform designed to provide liquidity for a planned digital-asset exchange in Bermuda.
Fundamental Interactions Inc’s product allows an automated market maker to refactor quote feeds from an active external exchange in order to supply continuous order liquidity to the internal market book, the firm said.
Shawn Sloves is chief executive officer and co-founder of FI. He underlined the importance of technology as an enabler of liquidity in this market.
“If you look at the Bermuda Stock Exchange today, there is not a lot of trading because there is not a lot of liquidity provided by either market makers or institutions that want to buy and sell the securities,” he said. “Now, you would probably have that same issue with a digital asset exchange if they don’t have the tools to enable members to actively make markets or trade on the exchange.”
Mr Sloves cited an example to show how FI’s auto-hedging platform could be such a liquidity-boosting tool.
“Here is ‘use case A’,” he said. “Hypothetically, there is a token on another exchange in Europe, and it is quoting a lot of volume and we decide to put that token in Bermuda and allow it to trade.
“We would have no volume, while they would, but if we use the auto hedger we can read all the quotes on the exchange and we can re-factor those quotes to Bermuda so the order book is completely filled up with orders from the other exchange on a Bermuda exchange.
“If an order fits against that quote, we are able to send the order to the European exchange and execute it.”
Market makers who join the exchange will be able to use the hedger for suite quoting as well, Mr Sloves said.
Mr Sloves is also CEO of VL Financial Ltd, a related company in the process of applying to the Bermuda Monetary Authority for a digital-asset licence under the Digital Asset Business Act.
If approved, VL Financial will use the FI platform in Bermuda on licence from Velocity Ledger Technology, the operator in Bermuda of FI’s core technology.
VL Tech has also developed its own blockchain issuing and trading solution for Bermuda, a spokesman for FI said.
The two companies, which are majority-owned by FI, will have their world headquarters in Bermuda, a spokesman for FI said. VL Financial will run the exchange, while VL Tech will run the auto-hedger.
FI says the service has two legs, auto-quoting and auto-hedging, with each performed from the principal account of a market maker to the exchange. Bermuda’s digital-asset legislation defines “market maker” as “a person conducting the business of trading in digital assets, including, but not limited to, quoting buy and sell prices in furtherance of profit or gain on the bid offer spread”.
The company says the auto-quoting process converts bid-ask quotes from external exchange market data feeds into orders to create liquidity. The auto-hedger leg of the process, the company said, is a dynamic hedging and routing system that optimally liquidates positions resulting from the auto-quoting process.
“The ability to generate instant liquidity in Bermuda for digital-asset tokens that are actively trading in other markets is an important avenue,” said Julian Jacobson, president and chief operating officer of FI.
The liquidity platform, FI said, is broadly compatible with any asset class but is primarily focused on tokenised assets and can be implemented as a plug and play liquidity service within FI’s virtual and nano exchange platforms, or it can be deployed as a stand-alone backend process.
Mr Sloves is bullish on Bermuda’s start-up fintech sector.
“We are making a considerable investment into Bermuda and we believe in its legislation and its position on digital assets and the direction to bring fintech to the country,” he said. “We are a firm believer in all the efforts and we think it’s a great jurisdiction and it has tremendous promise being in close proximity to the US, and being a heavily insurance-driven, bank-driven and institutional-driven country.
“We are huge advocates of everything down there. We are based out of New York, we work with the traditional Wall Street crowds here and others, and we’re hoping to try and bring some of that business down there.”
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