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If Wall Street is to be enticed into crypto, firms need tools that better connect them to trading opportunities that are similar to the tools they use on capital markets.
The digital asset space has been abuzz with interest from traditional financial institutions (TradFi) for months as the big players of Wall Street reevaluate it as a solid and lucrative asset class. To make the most of the rewards from this sector, however, TradFi firms need the right applications to get involved, according to Talos CEO Anton Katz.
In an interview with Decrypt, Katz said that financial firms like banks and hedge funds are looking for tools that let them lock in the best price with the lowest risk attached. To help clients do this, Katz said he sees Talos’ role as creating the “piping” that better connects these firms with liquidity with tools familiar to them in capital markets.
"It's not a very sexy thing to say with investors, but that's how we think about it," Katz told Decrypt. "We build the piping, and then we build the layer on top of it."
Building connections between digital and traditional financial markets is a natural fit for Katz, an MIT-trained engineer who held executive positions at AQR Capital Management and Broadway Technology. In 2018, Katz and his Broadway colleague Ethan Feldman founded Talos as a trading platform that would connect institutional investors with digital asset trading opportunities.
Building the plumbing for clients is necessary, Katz said, as the digital asset space undergoes what he says is an "institutionalization of the entire marketplace" in the wake of high-profile failures like Terra and FTX—on top of heightened scrutiny from regulators.
Some of the protections institutional investors want to see before participating in crypto already have parallels in the markets in which they're used to operating that can be imported, he said.
"We've seen these kinds of events that have people at some point say, 'We need a lot more protection here,'" said Katz. "Well, the capital market side actually does that pretty well because it's years of bad things that happened that created an ecosystem of safeties and all that kind of stuff."
For years, TradFi firms were cautious about crypto markets, be it for the uncertainty that came with its wild market swings or to avoid falling afoul of regulators. For Talos’ clients, the platform offers connections to its wide network of service providers that includes big players like Coinbase and Kraken to help assuage these worries.
Yet, for all the travails seen in crypto recently, there is an enduring sense on Wall Street that it still holds rewards to be gained. In June, BlackRock, the world’s largest asset manager, filed an application for a spot market Bitcoin exchange-traded fund, and it was quickly followed by others.
For its part, Talos announced Wall Street-backed cryptocurrency exchange EDX Markets joined its partner network in July, expanding the latter’s reach across Talos’ network of providers.
Despite the perception that crypto is in a “down market,” Katz said that this is an ideal time to double down on creating the market infrastructure needed to incentivize more institutional players to join. As evidence, he said Talos has increasingly seen more interest in its platform from sell-side firms like banks—players that he said "only enter the domain when there's underlying demand.”
With the “huge positive sign” presented by the recent ETF filings, Katz said it is his view that there is widespread recognition that the demand for digital assets is not going away.
“It's a young market, it's evolving, but everything we see right now is pointing out that it is going to be a pretty big contender inside the institutional landscape,” said Katz.