In a step towards mainstream adoption, Peter Thiel’s venture-capital firm is backing a startup that intends to bring Wall Street electronic-trading expertise to the cryptocurrency market.
Thiel’s firm, San Francisco-based Founders Fund, is one of the investors behind the early-stage startup, called Tagomi Systems Inc., according to people familiar with the situation who spoke with the Wall Street Journal. The startup has raised $15.5 million to date, one of the people with knowledge of the firm’s plans said, and is still refining its strategy —which could see a name change — the person added.
Tagomi — whose co-founders include Greg Tusar, the former head of electronic trading at Goldman Sachs — intends to be the cryptocurrency version of a traditional broker-dealer. Tusar is a well-known and respected figure in the electronic-trading business. He worked at Goldman for almost 15 years before joining high-speed trader KCG Holdings Inc., where he spent the next four years.
Bringing Wall Street Ingenuity to Crypto
Tagomi does face an uphill battle, despite the involvement of Thiel’s organization. Some investor enthusiasm has cooled since December, when the industry registered all time highs for cryptocurrencies. In the U.S., there are also worries surrounding the uncertain regulatory status of the industry.
The problem the startup is looking to tackle is related to the buying or selling of large quantities of digital currencies, which is difficult because of market fragmentation across hundreds of exchanges around the globe. Connecting to all of them requires different accounts, and cryptocurrency exchanges generally impose limits on the amount of funds that can come in and out in a given day.
These obstacles make it both difficult and time-consuming to execute big trades — and another problem is the price of the coins can fluctuate before an investor finishes the buying or selling process.
This is where Tagomi steps in, intending to make trading easier by borrowing a page from the stock market. In U.S. equities, broker-dealers use systems called ‘smart order routers’ that dispatch their clients’ buy and sell orders to various venues, including a dozen exchanges and more than 30 over-the-counter platforms called ‘dark pools.’ These routers make immediate and calculated decisions about which market is the best place to execute a trade at any given time, and Tagomi is looking to develop a similar tool for use in the online cryptocurrency exchange market.
Napoleon Ta, a partner at Founders Fund who leads the firm’s crypto strategy, as well as Tusar, are listed on the March 15 U.S. Securities and Exchange Commission filing as being among the startup’s directors.
As of now, it isn’t clear how much money Founders Fund have invested in the startup. Overall, Thiel’s firm has more than $3 billion under management and has taken stakes in more than 100 companies, including Facebook and Airbnb Inc. Thiel, has many times stated that Bitcoin could become the digital equivalent of gold and is a potentially useful hedge against global chaos.
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