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VeradiVerdict - Issue #73
Pantera recently co-led the $28 million Series A round of Amber, an asset management platform that solves liquidity and fragmentation problems in crypto. This is a great example of our firm being a client of a compelling solution before deciding to invest.
Asia is one of the largest markets for crypto, but services there are hugely fragmented across different platforms and have severe issues with transparency, security, KYC policies, liquidity, and more. These ultimately deter institutional investors who are accustomed to centralized financial institutions that streamline these processes.
Amber is a Hong Kong-based firm that aims to mitigate this problem. Amber is a “one-stop shop” that enables institutional and high-net-worth investors to manage their assets and positions in one place and maximize their returns across a variety of investment verticals.
Amber offers seven core products currently: electronic market making, streaming OTC liquidity, margin trading, execution services, interest deposits, collateralized lending, and structured products. It supports over 2000 cryptocurrencies, has a relatively pain-free KYC process (a huge improvement compared to other platforms), and offers reliable, almost-constant customer service for its clients.
Already the platform has 200 global clients with partnerships with leading exchanges, token issuers, wallets and custodians. Most recently, their monthly trading volume has hovered around ~4 billion USD; in 2018, their aggregate volume was 45 billion USD.
Their team is incredibly talented, boasting backgrounds from Morgan Stanley, Goldman Sachs, Bloomberg, and Bridgewater. They understand institutional investors and what’s necessary to bring them to crypto.
Ultimately, Amber helps aggregate a ton of the disjoined and fragmented processes within the crypto space. Institutional investors are notoriously hard to convince, and Amber does an excellent job of streamlining the crypto investing experience via their platform offering to help maximize returns, bring institutional interest to the space, and build out a growing crypto investment market in East Asia.
On fragmented crypto markets in Asia
Asia has become one of the largest markets and focuses of innovation in the cryptocurrency space. Home base to some of the world’s largest crypto firms, including Binance, Bitfinex, Huobi, and Neo, Asia’s mainstream and institutional interest in crypto is skyrocketing as the space explodes with more and more innovation.
But simultaneously, the amount of innovation leads to the problem of fragmentation. A broader problem with cryptocurrency rather than crypto in Asia specifically, there are tons of companies that offer a diversity of services related to crypto –– whether that be lending, collateralization, trading, robo-advisors, loan financing, and much much more. This naturally makes it hard for individual users to engage with the suite of products that rely on crypto and blockchain technologies. With a conventional bank, customers generally have one accountant that can guide them through a myriad of financial procedures. With crypto, the fragmented and decentralized nature of various platforms makes it hard for customers to manage all of their finances, which creates a barrier to entry.
The fragmentation is just the beginning of a larger problem, too. Most crypto services have subpar transparency, security, and customer service including ad-hoc and long-winded Know Your Customer (KYC) verifications and low support of fiat on and off ramps. Ultimately, the crypto investing market is incredibly premature, which deters small-scale and large-scale investors alike from making the leap into what is widely considered a controversial space.
So, what’s the solution?
Amber is a Hong Kong-based firm that aims to revolutionize the onboarding process for investors onto various crypto platforms and streamline the fragmented services into one, all-encompassing platform. To that end, Amber has developed an electronic platform that serves all the needs for a wide range of clients interested in crypto investing. The platform compiles all of the various services that institutional investors might engage with in one, easily-accessible place which greatly reduces the barriers to entry for traditional investors.
What exactly does Amber offer?
Currently, Amber boasts the following major verticals of products over 2000 cryptocurrencies:
Electronic Market Making: On the exchange side, Amber trades reserve tokens in order to begin facilitating trading for customer-generated markets. They also stream buy and sell quotes on both sides of the market, synchronizing the process and connecting users. On the token issuers side, Amber essentially takes care of everything post-launch. They make markets to promote high liquidity, price discovery, and market depth.
Streaming Over-The-Counter Liquidity and Margin Trading: One huge problem investors have with the current space is that they require alternative sources of liquidity to maintain low execution costs for large off-exchange trades. Amber specifically offers a service that allows large clients to execute large off-exchange trades without any hidden fees, which helps maintain investor liquidity, alleviating this concern.
Execution Services: Given the diversity of tokens and services available, it’s hard for investors to manage their assets across the different portfolios and platforms. Amber algorithmically automates portfolio execution to allow investors to register trades without having to access fragmented liquidity across the global exchange landscape.
Yield Enhancement: Given the volume of operations that occur on the platform, Amber can extract insights to maximize the returns that investors get via passive income. This allows clients to maintain their positions and preferred exposure while also giving them extra returns that they might not have if they had independently managed their assets. Clients are also able to use interest deposits as collateral to trade on the platform, improving capital efficiency and removing the need for users to decide between earning interest or trading.
Collateralized Lending: Amber also integrates collateralized lending into their platform, another huge use case for crypto, in particular for miners and crypto corporations that wish to optimize their balance sheet usage, obtain leverage, or invest in CapEx without having to sell their assets.
Structured Products: Through a derivatives offering, Amber helps clients manage risk, gain exposure and hedge their portfolios against a wide range of outcomes. Amber helps structure solutions for clients that want income generation, speculation, or hedging.
Beyond these core services, Amber also offers an intuitive, relatively headache-free KYC process that allows investors to engage with all of the services Amber offers as well as fiat on- and off-ramps to help onboard users onto the platform. Amber also boasts 24/7 in-person customer service.
How much traction has the platform received?
A ton. They already have approximately 200 global clients, with partnerships with some of the most notable figures in crypto, including Namebase, Blockchain.com, Algorand, Nervos, and Fenbushi Capital. Most recently, their trading volume has hovered around 4 billion USD but in aggregate, the annual trading volume for 2018 was 45 billion USD.
What about regulation?
Amber isn’t pursuing any formalized licensing in Hong Kong, as the administrations there have concluded that cryptocurrencies aren’t legal tender and part of their jurisdiction. They are currently working towards obtaining licensing in South Korea and in the United States on a state-by-state basis, in addition to being registered as an MSB with FinCen.
Who’s on the team?
The team is run by brilliant folks, all of whom have backgrounds in tech and/or institutional investing. CEO Michael Wu previously worked as an FX & Rates trader at Morgan Stanley, was a portfolio manager for a $500M+ hedge fund, and was honored on the Forbes 30 Under 30 list. COO Wayne Huo also previously was an FX options trader at Morgan Stanley, and was also honored on the 30 Under 30 list. CTO Thomas Zhu previously was a senior engineer at Bloomberg and a quantitative developer at Blue Basin Capital Management. Other key backgrounds the leadership team include structured credit trading at Goldman Sachs, credit modeling at Morgan Stanley, Asian FX derivatives at Morgan Stanley, short-term interest at Morgan Stanley, and FX structuring at Deutsche. They clearly know the ins and outs of institutional investment –– what works and what doesn’t.
Amber is one of the most promising investment vehicles for cryptocurrency in East Asia and the globe. It uniquely offers a diverse suite of services relating to cryptocurrency addressing real pain points that deter investors from entering the space, including overdrawn KYCs, poor liquidity management, fragmentation of services, and non-existent customer support. It’s able to execute all of its operations through a single offering, which makes it incredibly easy for investors to manage their positions and maximize their returns from crypto investing natively. Within a short time, it’s been able to build an impressive customer base with huge trading volumes –– demonstrating the growing interest for crypto in East Asia and the industry’s ever-increasing accessibility. Ultimately, Amber is a huge step forward to mainstreaming crypto investing for institutional investors and globalizing these markets.
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Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in blockchain companies and cryptocurrencies. The firm invests in equity, pre-sales/IEO rounds, and cryptocurrencies on the secondary markets. I focus on early-stage investments and share my thoughts on what’s going on in the industry in this weekly newsletter.
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