In the fast-moving cryptocurrency market, large institutional traders have sat on the sidelines. With Seed CX, which launched last month, two MIT Sloan Master of Finance alumni expect to change that.
Founded by Edward Woodford and Brian Liston in 2015, the Chicago-based company is the first licensed cryptocurrency exchange offering institutional trading for spot market and Commodities Future Trading Commission-regulated derivatives, Woodford said.
Seed CX could be a boon to institutions wanting to trade in the space. Currently, trading platforms for digital assets like cryptocurrencies are focused on retail investors. They’re also unregulated and limited to spot trading. Many institutional investors have been hesitant to wade into cryptocurrencies because they lack the infrastructure to trade them or have been put off by concerns of fraud and ambiguous regulations.
Woodford and Liston felt early on that there was an opportunity for cryptocurrencies in the institutional space, and the two got to work on creating a trading platform for digital assets that would be on par with equities and existing commodities. “Twenty months ago, we realized that the digital asset space was going to be a much bigger play,” Woodford recalled.
Investors have picked up on that, too. Seed CX has more than $25 million in funding, from companies that include Bain Capital Ventures (which provided $15 million in funding in its latest round), Tetras Capital, XMS Capital, and others. Many of the firms that will trade on the platform are also investors.
As the crypto sector still faces questions about whether a cryptotoken is an investment or a commodity and where certain players have defrauded investors with phony initial coin offerings, Seed CX provides some clarity and reassurance. The company is regulated by the Commodity Futures Trading Commission and has been approved as a swap execution facility, which allows the company to do derivatives contracts. Seed CX also has a pending broker-dealer license with the Financial Industry Regulatory Authority.
In addition to having regulatory compliance, Seed CX doesn’t do the actual trading for customers and bans employee trading. “We’ve decided to do that because the market demands a higher compliance and regulatory threshold than even regulators require sometimes,” Woodford said.
From a technology perspective, the platform was designed with institutions in mind. For example, Seed CX expects to minimize risk by allowing companies to have accounts for multiple users, so that the appropriate access and security permissions can be designated for each user. A lot of existing trading platforms don’t offer this kind of distinction, Woodford said.
Seed CX currently has around 40 employees and has been staffing its ranks with industry experts, including John D’Agostino, the former head of strategy for the New York Mercantile Exchange, and Bob Paul, the former general counsel for the Commodity Futures Trading Commission. Both will serve as public directors for the company.
Woodford said he and Liston are trying to keep up with changes in a constantly evolving market. With its latest round of funding, the company is looking at ways to expand its physical trading infrastructure and make the right hires to keep up with changes in the sector.
Last month, Woodford and Liston were named to the 2019 Forbes 30 Under 30 list for enterprise technology.