Trident Digital, which launched today, aims to restore market liquidity with a new standard of risk management and capital efficiency, following a US$8m seed funding round. But why should traders care? We talk to founder and CCO Toby Norfolk-Thompson to find out why low liquidity is leading to arbitrage opportunities – and how intermediated lending can help traders leverage these to generate alpha.
Co-founded by a team with a pedigree spanning Coinbase, Barclays, HSBC and MatrixPort, Trident hopes to bridge gaps in the institutional market left by the collapse of critical centralised lenders.
“Traders wanting to operate in digital asset markets are largely faced with opaque and privately-owned counterparties whose credit risk is hard to assess,” explained Norfolk-Thompson, speaking to BEST EXECUTION.
“The failure of FTX, 3 Arrows Capital and Genesis last year served to highlight this problem. Since November of last year, digital asset lending markets have mostly seized up, reducing liquidity both for market making and to support new DeFi projects.”
To solve this problem, Trident is building a secured lending platform which aims to intermediate lending according to strict deployment rules, thus removing the counterparty risk element. It will also provide advice and guidance to digital asset protocols and traditional financial institutions looking to enter the space.
“Counterparty risk, largely ignored in the last cycle, has become the key constraint preventing lenders from re-entering the market. Trident’s solution will offer proper risk management and strike a balance between security and capital efficiency,” agreed Anthony DeMartino, Trident’s CEO.
The firm will also go to market with a safe yield product, offering yields linked to the risk-free rate while ensuring treasuries physically back all deposits. Focusing on fintechs, crypto native treasuries, and VCs with significant idle funds, the new approach intends to leverage latent liquidity through a genuinely risk-free product. Finally, the firm also plans to offer a structured staking solution for institutional investors that addresses regulatory and tax inefficiencies hindering wider adoption.
“It’s all about providing liquidity in the form of loans and prime brokerage, enabling traders to market make and trade futures strategies,” said Norfolk-Thompson.
“Arbitrage opportunities are presenting themselves because right now there just isn’t enough liquidity available.”
©Markets Media Europe 2023
