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November 10, 2020

Market Spotlight

Bringing Clearing to the Crypto Markets With Koine and X-Margin


Teana Baker-Taylor spoke with the founders of Koine and X-Margin about bringing clearing to the crypto markets. With headlines such as Paul Tudor-Jones and MicroStrategy on one hand and BitMEX on the other side of the spectrum, the crypto ecosystem is being challenged to mature.

Phil Mochan is founder of Koine, which does custody and settlement of digital assets. Teana asked him about the response from the industry to the services that Koine offers, in response to which Mochan said,

(20:38) “I’d say the response is bifurcated. And it’s split between those that have come from a traditional capital markets background, and that’s merely on the buy-side of the institutional funds. Because asset allocators tend to allocate to proven managers who have a capital markets background. And those groups have found our institutional model, which is a centralized counterparty, is echoing what they are traditionally used to and therefore drives capital efficiency in a way that they would like to see. On the other hand, the venues, traditional crypto venues, which are quite different models for the most part from traditional capital markets infrastructure players, have been more reticent to adopt that model because they’ve not necessarily understood that it is a requirement for institutional capital. But we are seeing an increasing take-up of that as they recognize that a decentralized model is not yet universally accepted by asset allocators.”

Recent industry events have thrust regulation into the spotlight, including the CFTC’s charges against BitMEX, the European Commission’s proposed guidelines for crypto asset regulation in Europe and the FCA’s decision to crypto derivatives for retail traders. X-Margin allows cross-margin on derivatives through Zero Knowledge. Teana asked founder Darshan Vaidya about how his relationships with regulators have gone and some of the challenges they’ve faced.

(23:35) “Obviously it’s an interesting time with all of the things that you just mentioned. And it validates some of our hypotheses from the beginning which was that navigating the existing regulations is vital vs. just running further overseas to avoid that regulation. I think navigating the existing regulations and trying to fit either to be a regulated entity that does regulated activity or finding specific niches where you are not doing regulated activities seems like the more standable way forward. So far we’ve upgraded within the remit of predominantly CFTC and our conversations with lawyers have been fairly comfortable because we’re basically a technology solution where we don’t touch the funds, we don’t see the trades and basically just help them to get more capital efficiency. But in terms of how keen the regulators are to support us, they tend to be very open actually to capital efficiency solutions especially if they tend to reduce operational systemic risk…The conversations have been generally very positive.”

Koine’s Phil Mochan offered his take on the regulatory landscape, saying,

(25:29) “It’s very encouraging to see the European regulators come forward with a set of policy suggestions to modify the existing regulatory frameworks across four or five different areas of regulation to provide some uniformity and consistency on the digital assets side. It was very much along the direction that we anticipated and had already built for our systems to, for example, meta compliance, stablecoins using PMI structures, all of that. So we find that it’s very much going in a sensible direction in the EU level. The UK is a little more uncertain and erratic in uts behavior. I’m not sure the recent decision to ban CFDs at the retail level was a very positive one for consumer protection given that the previous experience of doing the same for FX just moved everything offshore and gave no protection to the consumers as a consequence of that action. I think there are some political moves rather than what we call common sense being applied in some cases.”

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Gerelyn Terzo
Gerelyn caught wind of bitcoin in mid-2017 and after learning about the peer-to-peer nature of Satoshi's creation has never looked back. Previously she covered institutional investing and fintech for several major trade publications. Gerelyn resides in Verona, N.J.

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