Walter Jennings: Welcome to Waves in the Finoverse. I'm Walter Jennings, the host of a podcast brought to you by Finoverse. We're talking with the wave makers, creating ripples, waves and tsunamis across finance, crypto, FinTech, Web3 and beyond. Listen weekly to hear the changemakers talk firsthand about their experiences in this dynamic industry. Joined today by Samar Sen, Head of Asia Pacific with Talos, the institutional platform for digital assets. Welcome, Samar.
Samar Sen: Hi, Walter. Thanks for having me here.
Walter Jennings: I wanted to dive right in, Asia has some of the highest rates of retail adoption of crypto due to the unbanked or the undocumented needing to send and receive funds around the world. Yet, what's the institutional adoption like in the region?
Samar Sen: Yeah, so great question. I would say that Asia is a pioneering region when it comes to institutional adoption. You had some of the earliest crypto funds originating from here, you have a lot of the exchanges and other market infrastructure participants who are either headquartered here or originated from here. And in general, we are seeing a lot of forward-thinking activity from some of the regional banks such as DBS, Standard Chartered, Nomura. We think it's a really exciting space right now. Because we have a tonne of clients all across Asia, from Singapore and Hong Kong, the main hubs, to Australia, Thailand, Indonesia, Japan, Korea, etc.
Walter Jennings: Hong Kong made some widespread announcements about balancing out the institutional crypto with retail crypto. How do you find the regulatory framework in Asia providing permission for this type of work?
Samar Sen: Look, in general, we are grateful that we have regulators who are really upskilling. And on top of this exciting new technology and legislating fast, we also have a direct dialogue and constructive dialogue with regulators in the region. And so it's all good news. When regulators in Singapore and Hong Kong give licencing pathways to institutions, and service providers who want to offer this at an institutional grade to proliferate this asset class.
Walter Jennings: I like the saying where CeFi meets DeFi, or where it's centralised finance meets decentralised finance, it gets very granular. What are some of the barriers from institutions adopting digital assets? Is it these kind of granular issues?
Samar Sen: If you had asked me, maybe five years ago, what are the barriers for institutions? I would have said that probably there were a lot, right. So first of all, this whole asset class came out of the retail sector first. And normally it comes from the institutional side first, when you have asset innovation in financial services. And so that's a unique thing. And so even when financial institutions realised that "hey, this asset class is interesting. I want to get involved. I want to get exposure to it." There were a lot of things that they didn't have confidence in, in terms of the ecosystem, being able to support their kind of flows. And so they would ask questions like "How do I make sure I'm not hacked? How do I move things on a blockchain? How do I make sure I can do my AML correctly? How do I connect to all these new liquidity venues? Is there credit? Are there prime brokers? Can I borrow and lend?"
All of these things kind of didn't exist five years ago. But what I would say now, and this is the really exciting, pivotal point in the industry, is a lot of these problems are solved by really great infrastructure companies that are giving institutions these key pillars, for custody, for trading, that's the part that we operate in for AML. And regulators are legislating, giving paths forward. So overall, it's very exciting. But there are a couple of things that probably still need to be solved around the risk management side, on the regulatory side as well. But we can get into that if you'd like.
Walter Jennings: Samar, you said five years ago, I think that's about 100 years in crypto, it's even noticing the change since the reopening of travel in the region. We've seen a real explosion of the number of solutions provided. Tell us about Talos and your journey in the last few years.
Samar Sen: So Talos is a B2B software provider. And we have a trading platform that's used by the buy side and the sell side only institutions to connect to digital assets and trade digital assets in a way that they're familiar with, from capital markets. Because I had mentioned earlier that a lot of the tooling is retail focused. When institutions want to trade large volumes, they are used to the kinds of tools that you and I probably don't use on a daily basis. Things like algorithmic execution, the ability to aggregate liquidity and have smart order routing, and reduce your cost of trading. These are some of the tools that they look for, and transaction cost analysis and things like that. And we provide those tools to institutions. So we allow, for example, hedge funds to be able to trade across the entire market and keep their trading costs down. And at the same time, we white-label our technology for banks, and brokers, and FinTechs to allow their end customers to trade digital assets, using our tech.
Walter Jennings: Oh, you answered my question with the white label because I assume the institutions want something that is bespoke and fits in with their own infrastructure systems and technology. So you're able to integrate well?
Samar Sen: Well, you got it. So the way that we've built our platform is from the ground up modular and very customizable. So if you are a bank, or FinTech, or broker, then you have your own trading systems. We are an API first company that is comprised mostly of engineers. We're about 100 people now with 70% engineers. And basically, it's fairly trivial to work with our tech stack and integrate the pieces that you need. You might need a pricing aggregator, you might need a transaction cost analysis piece, but you don't have to take all of it. You can pick and choose the services that you need.
Walter Jennings: And your institutional clients, are they just trading in the coins themselves? Or in any of the security tokens? Or what are the different products available on it?
Samar Sen: So the clients that go through our platform, it's a bilateral trading platform, so they are actually trading against all the liquidity venues that they've onboarded with. So whatever those liquidity venues offer, they are able to trade on our platform. Now, we are very excited about things like securitized tokens, or tokenized securities. But you know, they aren't in abundance yet.
Walter Jennings: No, we're waiting for the offers.
Samar Sen: Exactly. But we are very agnostic to any kind of venue or digital asset that our client wants to trade. And so when there's a demand to connect to some of these newer venues or be able to trade some of these more innovative new asset classes, like tokenized securities, we will be there to help our clients connect to those markets as well.
Walter Jennings: You know, you're growing in a period, in an industry where there is already a lot of growth, how are you finding the people necessary in the brainpower to drive these innovations forward?
Samar Sen: Look, recruiting is a very important piece of the puzzle for Talos and its growth and its success. Our talent is actually one of our key USPs. You know, we believe..
Walter Jennings: Unique selling point.
Samar Sen: That's right.
Walter Jennings: I'm an acronym-free webcast.
Samar Sen: Thank you for elucidating. And so yeah, we are very, very proud of the people that we've brought on. We have a very nice mix. So like I said, we're 70% engineering. So we are a technical firm. And we've brought in a lot of people with hardcore experience in capital markets. We built most of the trading systems that institutions used across all asset classes in the traditional world. And so then we came into this world, the new digital asset world and rebuilt a lot of this tech from scratch to be even better for the future of financial services. And so we pull in people from all kinds of firms, big tech, traditional banking, the hedge funds, and the buy side, and other general industries.
Walter Jennings: Who were the types of firms that would be using your service. I've seen prime brokers, OTC desks. Tell us a little bit about the target market.
Samar Sen: Sure. So we usually serve two types of clients, the buy side and what we call service providers on the sell side. On the buy side, we are used by crypto funds, traditional hedge funds, like some of the big names that you know, in the US and in Asia and Europe, we are used by family offices and some asset managers. And these are firms that they are sophisticated trading firms, that have their own strategies either they are trading directionally, they are trading the volatility or their long-term value investing, something like that. So on the buy side, we cater to those types of firms. We also have the systematic firms, the quantity type shops, high frequency trading firms as well. That's on the buy side. On the sell side, there I explained that we white label our technology so that companies that already have licences and their own trading systems for that with their own end customers and they are looking to enable digital assets trading for their customers. The firms that we offer our services to are banks, custodians who are looking to enable trading, broker dealers and e-trading platforms, and some FinTechs as well.
Walter Jennings: Now, I don't know your personal trading patterns, but I understand institutions would be doing so at a much higher volume than the retail level. And yet we're at a period of time where we're seeing kind of the volume dropping off, and that's impacting liquidity. How are institutions finding the ability to get in and out of their positions?
Samar Sen: Yeah, that's a fair question. I mean, look, that's, that's our bread and butter. So if you're an institution, and you want to be able to connect to the global liquidity that's out there for digital assets, you typically use a platform like Talos. And then that way, you know that if you're trying to work a large order, like sell $10 million worth of bitcoin, we can help you break up that order and send it to a bunch of different exchanges and get out of your position or get into a large position. So our system has held up very well in these circumstances. But you're absolutely right, that we are in a market downturn, and trading volume has gone down. Let's not deny that. But we are still seeing encouraging signs from new entrants that are still coming into the market, to sort of get set up. So you're seeing announcements from the buy side, they're setting up trading divisions from some of the famous traditional hedge funds, they are dedicating portions of their AUM and portfolios to digital assets..
Walter Jennings: Assets under management - AUM.
Samar Sen: That's right, to their .. to digital assets. And they are trying out their trading strategies, maybe in a smaller volume for now.
Walter Jennings: I know, the institutional adoption of crypto was really the the headline news in 2020. And two years later, we're seeing some catch up. But there's still a large market that has yet to be penetrated.
Samar Sen: You got it. And definitely we're seeing on the buy side, even if they're sitting on the sidelines and trading less. They're definitely beefing up their teams, and testing out their models. But on the sell side, the data that we're seeing is very encouraging. So all these banks and brokers that missed out on previous cycles, they have a bunch of demand from their end customers that "Hey, why couldn't I trade, digital assets on your platform? I've been using you for 20 years, I use you for cash and equities. Why can't I use you for my digital asset journey as well." And so they are all signing up at an increased pace, because they're using this downturn as a time to build and get their services up and running. So that the next growth cycle, they are up and running. And so we've seen encouraging new client onboarding from that segment for us.
Walter Jennings: It's easier to build when there isn't froth in the market. You know, we're now being led not by FOMO, fear of missing out, but by planning for tomorrow.
Samar Sen: You're absolutely right.
Walter Jennings: Look, one of the killer apps for institutional adoption of crypto has been custody, the inability to kind of solidly hold in regulated format, the assets themselves, are you beginning to see solutions that overcome that in institutional crypto?
Samar Sen: Yep, that was one of the original barriers to entry. I believe that is a space that is really solved now. We are integrated with many of the excellent custody institutional grade custody providers out there and custody technology providers out there. And we believe that this is a space that is maturing and becoming that has a professional offering for what institutions need.
Walter Jennings: Now, along with the trading platform, you have some additional offerings, including spot derivative FX liquidity, can you walk us through some of those other offers?
Samar Sen: Yeah, sure. So what I had explained earlier was, we have a full suite of trading services that, institutions would be used to, and that's, you know, the pricing aggregation, the execution layer, with the execution algorithms and the transaction cost analysis. That's what you would expect from a trading platform. But what's happening now is that as customers are using us as a single gateway to access the digital asset markets, they are asking us for additional types of services, complimentary services, so now they're saying "Okay, let's look further downstream. Can you help me with my settlement as well? Can you help me with some treasury tools so that I can move my assets around and rebalance my portfolios? Can you help me with portfolio management so I can see where all my assets are, and risk management? So I can figure out if I'm too exposed in one asset class and need to rebalance."
So all these kinds of complementary tools are exciting new projects that we're working on right now. And some of them are launching. Some of them have already launched like our settlement services already launched. Our portfolio management services about to launch. And we're also launching a lending and borrowing marketplace, which is going to be super exciting as well.
Walter Jennings: I wanted to talk to you for a moment about the market environment we're in at the moment. People have called it crypto winter. I think it's winter across many markets. It's one of the first times we're seeing crypto trading in correlation with traditional markets. How would you characterise the outlook for the crypto markets in the coming year?
Samar Sen: Yeah. So look, it's fair what you've said in that. First of all, we are in a macro, challenging macro environment in general, right. We've got the war, we've got inflation, we're at the tail end of a pandemic. So that's challenging in itself. But in the in the crypto world, you know, there was a few, there were a few incidents, right and irresponsible behaviour that caused a recent crash. And that's hit the industry very hard. So what I would say is that, yes, we are indeed in a crypto winter, where prices are depressed. And I see a lot of possibilities for opportunity.
I think it's a good thing. If certain scam coins go away, I think it's a good thing if companies that didn't really have a product market fit or a purpose in the ecosystem, you know, if they naturally fade away or get acquired, we can see that there will be some kind of consolidation and improvement and maturation in this ecosystem. And I think these are all good things so that when we emerge from this crypto winter, we will be a much more resilient ecosystem, and ready for that next spurt of growth. It's just, it's only natural when you have a new asset class that's come into being that there are some growing pains. And I see each of these crypto winters as growing pains. They've always had a different cause each time, and I believe the market has emerged stronger whenever we've come out of them.
Walter Jennings: Samar, what are some of the other than Talos? What are some of the technologies that have caught your eye during the Singapore FinTech festival? Some of the new applications, some of the updates you've heard during the course of this event?
Samar Sen: No. I mean, we are seeing amazing innovation all around, right? So in general, in FinTech, there's a lot of talent solving all kinds of problems, right, whether it's payments, identity, all kinds of amazing initiatives in the Web3 and digital assets space, which is much closer to what we do. We have seen companies solve other areas of the value chain that needs solving, right? So I mentioned that, custody is something that's been solved, trading is something that's been solved. AML is something that's been solved.
But we are now seeing companies further downstream solving, fund accounting, solving tax, these are all things that institutions need solving for when they want to work with this asset class. And then when you look upstream, there are amazing companies that are working on risk management solutions, which as you've seen from our last market downturn is an area that we need to do better in, right? Whether it's credit risk management, collateral management, and general risk management. I think that's an area that needs beefing up. And I believe there are companies out there that I've seen, you know, this week that are solving for some of these things as well.
Walter Jennings: Yeah, one thing I do love about this industry is it takes an ecosystem to solve some of the issues. And we have everyone from innovators to inventors to what I call renovators, which are the bigger institutions trying to backfill for crypto. So you've got demand and solutions across the chain.
Samar Sen: Yeah, and what's great is that some of them are new entrants. You know, they're young FinTechs who are like "That's an opportunity I see that as a gap. I'm gonna go for it and build something." And then others are firms that have been doing this for years, a bigger firms in the old world, and they're like "We know how to do this really well. Let's create a side project and solve for this as well." And that's great. The competition is great for the industry.
Walter Jennings: Now, Samar, we have a segment called tracks in the Finoverse where we ask people the music that will power them into the metaverse and beyond so what song would get you through your journey?
Samar Sen: That's an easy one for me and the fact that you mentioned journey - Don't Stop Believing. Let's do it.
Walter Jennings: That certainly is a great song for institutional crypto Don't Stop Believing. Well, Samar Sen from Talos, Head of Asia Pacific, great to have you on Waves in the Finoverse. Thank you so much.
Samar Sen: Thank you for having me, loved it.
