The global head of trading at Syz Group talks us through her journey in crypto since the firm’s launch of its digital assets solution 18 months ago – but warns that without more robust regulatory involvement, institutional involvement is likely to remain limited.
How have you built your infrastructure to service clients in this arena?
Our solution builds a bridge between traditional and decentralised finance. We streamline the trading experience by eliminating complexities associated with creating wallets and navigating various trading exchanges, offering clients direct exposure to digital assets through their bank.
We start with a curated selection of tokens and maintain an open architecture approach with integration capabilities for three counterparties. Trading remains accessible during opening hours, with clients enjoying limited order and stop-loss functionalities. All counterparties are integrated into our trading system, facilitating order generation directly from the bank’s core system.
We also provide secured custody services, enabling full custody, deposits, and withdrawals of digital assets exclusively through a secure wallet accessible solely by the Syz team. Our technical framework has been developed by experts in Switzerland leveraging Taurus-Protect, a leading solution in this field. Clients benefit from seamless crypto in/out capabilities, allowing for the transfer of cryptocurrencies to and from their private wallets without the need for fiat currency intermediaries.
What interest are you seeing from clients, and what volumes are you seeing now?
Since our launch 18 months ago, we have observed a significant surge in client interest, particularly notable since January following the approval of ETFs by the SEC. Our monthly trading volumes [in 2024] have notably exceeded the cumulative volumes achieved throughout the entirety of 2023.
What recent developments have been the most critical, and are there any missing gaps?
A significant obstacle arises within the middle/back office domain, where every broker employs unique settlement protocols. Furthermore, due to the prerequisite for pre-funding, counterparties must implement approaches akin to tradFI, entailing collateralisation or leveraging of deposited funds. Similarly, regarding tokens, specific entities mandate token transfers before executing trades, a practice difficult in tradFI.
You are one of the early movers in this space – why do you think so many other asset managers are holding back, and what more needs to be done to encourage institutional adoption of digital assets?
Many asset managers are still cautious to cryptocurrencies for several reasons. There’s a lack of regulatory clarity and uncertainty surrounding the legal framework governing cryptocurrencies and digital assets. Additionally, concerns about security, market volatility, and the potential for regulatory scrutiny contribute to their hesitancy.
Regulatory frameworks need to be clarified and standardised to provide clear guidelines for asset managers. This would help alleviate concerns about compliance and legal risks. Secondly, enhanced security measures and risk management protocols should be developed to mitigate the inherent risks associated with cryptocurrencies. Education and awareness programs can be implemented to familiarise with the benefits and potential of digital assets. Despite the progress made, several barriers still hinder forward movement. These include regulatory uncertainty, concerns about security and market volatility, lack of institutional-grade custodial solutions, and limited infrastructure for trading and settlement. Addressing these barriers will be crucial in unlocking the full potential of digital assets.
How do you see digital assets investment/trading interacting with incumbent asset classes such equities and FX? How can they support each other?
Digital asset investment and trading can interact with incumbent asset classes such as equities and FX in various ways, fostering mutual support and innovation. One compelling use case involves digital assets enhancing liquidity and efficiency in traditional markets. Consider a scenario where a company issues digital tokens representing ownership shares in its equity. These tokens can be traded on digital asset exchanges alongside traditional equities. Investors benefit from increased liquidity, as trading occurs 24/7 on global digital exchanges, complementing the limited trading hours of traditional stock markets. Furthermore, digital assets can facilitate cross-border transactions in FX markets. Cryptocurrencies, for instance, can serve as a universal medium of exchange, allowing for seamless and cost-effective currency conversions without the need for traditional intermediaries like banks.
In return, traditional asset classes like equities and FX can provide stability and diversification to digital asset portfolios. For instance, holding equities in established companies can mitigate the volatility associated with some digital assets, offering a balanced investment strategy.
Could the growth of this asset class help to address some of the challenges being faced by European capital markets today?
Digital assets and blockchain technology do have the potential to address certain challenges faced by European markets, but it’s important to note that regulatory clarity and supportive policies are crucial for their widespread adoption. European regulators need to strike a balance between fostering innovation and ensuring investor protection to fully realise the benefits of digital assets and blockchain technology in European markets.
What can we expect from the future, what are the developments to watch?
We are actively collaborating with our regulators to navigate this evolving landscape. Currently, our focus is on trading payment tokens. However, we are considering expanding our offerings to include utility and securities tokens in the near future. Additionally, we are closely monitoring developments in staking and are exploring opportunities in asset tokenisation. These initiatives reflect our commitment to adapt and innovate in response to emerging trends and regulatory frameworks.
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