Macauley Peterson

Using blockchain in finance to establish more efficient markets is one of the technology&#8217;s most logical applications. Whether you call it decentralized finance, open finance, or simply crypto, there are benefits to its enhanced transparency, automated accounting and reduced counterparty risk.



The trillion-dollar question is, where are the apps to onboard the masses?



Heron Finance, an US Securities and Exchange Commission-registered investment advisor (RIA), is swooping in to provide investors with a robo-advisor for private credit markets via the Goldfinch protocol, both of which are developed by Warbler Labs.



It’s a bid to democratize access to an asset class previously reserved for high net-worth individuals able to foot the high minimum investment amounts.



Heron’s approach is aimed at individual investors of all sizes. While Heron has not yet launched, Goldfinch, an open-source lending system, has facilitated over $110 million in loans across more than 20 countries in its three-year history.



Read more: <a href="https://blockworks.co/news/undercollateralized-lending-wildcat">Is ‘hands-off’ undercollateralized lending possible? Wildcat thinks so</a>



Warbler Labs co-founders Mike Sall and Blake West have previously proffered the “crazy” idea that all private debt will move to crypto rails.



“Eventually, for people running companies, it will seem silly to get a loan from a private bank rather than a crypto protocol,” Sall <a href="https://gov.goldfinch.finance/t/gip-06-proposed-goldfinch-roadmap/825">wrote</a> in 2022. “Going to a bank will be like bartering your goods with your neighbors instead of using the internet to sell them online.”



The recent &#8220;Blueprint for Goldfinch&#8221; proposal, known as <a href="https://gov.goldfinch.finance/t/grc-02-a-blueprint-for-goldfinch/1881">GRC-02</a>, outlines a strategic plan to transform Goldfinch into an extensive ecosystem for on-chain lending businesses. This strategy aims to capitalize on the $1.4 trillion private credit market with a crypto edge, to make the market more open, interoperable and liquid.



Heron Finance is a reflection of that blueprint. Its clients will select an investment strategy that aligns with their risk tolerance and objectives. The platform then constructs a diversified portfolio of private credit deals, ensures ongoing rebalancing, and pays out a steady monthly yield — projected to fall in the range of 11-16% annually.



Read more: <a href="https://blockworks.co/news/cryptocurrency-investment-bull-market">Investor rush into crypto products the largest since 2021 bull market high</a>



The team behind Heron created the first non-fungible token (<a href="https://blockworks.co/tag/%20nfts">NFT</a>) for compliance with know-your-customer (<a href="https://blockworks.co/tag/kyc">KYC</a>) requirements in 2021, Sall said in a statement. This has culminated in Heron becoming the first SEC-registered robo-advisor primarily focused on private credit.



West pointed to the company&#8217;s commitment to transparency and cost-effectiveness.



&#8220;We built Heron Finance on the open-source, blockchain-based Goldfinch protocol because we believe investors deserve better transparency and costs compared to traditional finance,&#8221; he said.



The launch comes alongside an anticipated boom in the private credit sector, driven by macroeconomic and regulatory tailwinds, Sall said, citing Morgan Stanley <a href="https://www.morganstanley.com/ideas/private-credit-outlook-considerations">analysis</a> projecting the private credit market will grow from $1.4 trillion in 2023 to $2.3 trillion over the next four years.



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Warbler Labs dogfooding its Goldfinch protocol with Heron Finance

A recent initiative by Binance introduces what it describes as “the world&#8217;s first cryptocurrency triparty arrangement with a third party banking partner.” This project aims to attract institutional clients who prefer not having their capital solely under the control of the exchange.



Ever since the FTX fraud, crypto traders have been leery of assurances by exchanges that they always have all the assets they say they do, backing deposited capital. The concept of proof-of-reserves got a big boost in response as one approach to addressing the longstanding issue of counterparty risk.



That’s a risk retail investors became well acquainted with in 2022, when multiple centralized crypto firms crashed into <a href="https://blockworks.co/tag/bankruptcy">bankruptcy</a>.



But as Catherine Chen, Binance’s head of VIP and institutional said in a statement, it’s also a major concern in the realm of institutional investment.



Read more: <a href="https://blockworks.co/news/ftx-meltdown-timeline">FTX began to unravel one year ago today: A timeline</a>



“Our team of crypto natives and traditional finance professionals has been exploring a banking triparty agreement for more than a year to address their concern,” Chen said.



This new arrangement would allow institutional investors to access <a href="https://blockworks.co/tag/binance">Binance’s</a> trading liquidity while placing their trading collateral off the exchange entirely, under the custody of a third-party banking entity.&nbsp;



But, exactly which bank or banks is not yet clear.



&#8220;We are not sharing any additional information regarding our banking partners at this time,” a spokesperson told Blockworks. Binance would only say they “are in discussion with an array of banking partners.”



Binance has been the biggest player in worldwide cryptocurrency exchange for some time, but following its <a href="https://blockworks.co/news/binance-settlement-message-to-crypto-industry">record-breaking $4.3 billion settlement</a> with the US Department of Justice, trading volumes may be <a href="https://coinpaprika.com/exchanges/binance/">waning</a>, even as <a href="https://blockworks.co/news/binance-outflows-stabilize">net outflows remain muted</a>.



While Binance&#8217;s initiative to replicate a traditional financial framework in the crypto sphere seems promising, it’s also not alone in offering custody options. Fireblocks <a href="https://blockworks.co/news/fireblocks-crypto-counterparty-risk">just released a similar system</a> in partnership with derivatives exchange Deribit.



And the newly launched Cube Exchange <a href="https://blockworks.co/news/cube-exchange-crypto-mpc">takes itself out of the custody equation</a> altogether.



For those able to handle self-custody, removing counterparty risk entirely is a major selling point of <a href="https://blockworks.co/tag/dexs">decentralized exchanges</a>, which are designed to facilitate peer-to-pool trading.



As Binance forges ahead with its solution, one perk the company points to is that customer collateral can include fiat equivalents like Treasury bills. These assets not only secure trading activities, but also yield returns simultaneously.



As we await further details on how this feature will work in practice, one thing’s for sure: Binance’s competitors are smelling an opportunity.



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Binance embraces counterparty risk reduction

Michael Bodley

Institutional crypto asset manager Forteus has launched its first two funds, rolling out a long-only and multi-manager vehicle. Those strategies represent bets on both digital assets bouncing back and the prowess of outside managers to navigate choppy markets.



The London-headquartered Forteus has locked down some $50 million of investor capital and commenced trading its first commingled vehicles on June 1, according to a source familiar with the matter and investor communications obtained by Blockworks.



For the London-headquartered Forteus, a subsidiary of the Numeus Group, the commingled vehicles have evidently been in the works for some time — taking into account the fact that the firm in July 2022 sold an undisclosed minority stake to the $746 billion asset manager Schroders.



A spokesperson for Forteus declined to comment, citing private placement regulations on institutional funds. The firm also publishes research, <a href="https://blockworks.co/news/crypto-hedge-fund-trends-2023">including dives into the dealings of other crypto hedge funds</a>.&nbsp;



In a recent investor letter, Numeus detailed its multi-manager strategy, Forteus Multi-Manager Alpha Fund (MMA), touting “less competition” in markets for traders, given “several players” having “closed shop or ceased their crypto activities.”&nbsp;



Forteus said the “significant market rotations” last month indicated “encouraging stronger levels of activity,” which the firm said it had “not observed since the FTX collapse back in November 2022.”



The investment play and associated opportunity set, as outlined by Forteus President Nicolas Vanhoutteghem and his team in the letter, harkens back to “the early days of hedge funds” when a “diversified multi-manager approach” offered the “most effective gateway for investors.”



Vanhoutteghem previously worked for Bain &amp; Company, among a number of other firms. 



The fund backs managers who run market-neutral strategies and highlighted statistical arbitrage strategies as a top performer in June, when MMA gained 0.7% in its first month of trading through a “market that was rocked by regulatory uncertainty and that saw significant regime shifts.”



Thomas Chladek, its head of external manager research and selection, previously spent 11 years working in the funds-of-funds unit for Lombard Odier’s Geneva office. An additional in-house team contributes to the fund’s operations.



Read more: <a href="https://blockworks.co/news/crypto-hedge-funds-prediction">Crypto hedge funds expect digital assets will be up by the end of the year&nbsp;</a>



The vehicle through June had deployed about 40% of its capital to five undisclosed portfolio managers, the letter said. Chladek and his team backed an additional two managers on July 1, bumping up that figure to 50% — a move that suggests relatively conservative check sizes, given available assets.&nbsp;



<h2 class="wp-block-heading">“Emergence of new arbitrage strategies”&nbsp;</h2>



Forteus has been shopping around its second vehicle, a long-only strategy focused on mostly established tokens with ample market liquidity. But the firm is also pursuing emerging tokens that could deliver more outsized upside.&nbsp;



Additional details about that still-developing strategy weren’t immediately clear. But it appeared to fit into Numeus’ broader plans to diversify the offerings pitched to prospective limited partners under the direction of Nobel Gulati, the former chief executive of Two Sigma Advisers.&nbsp;



Ryan Ebner, who previously worked as an analyst for Schroders, has been tapped as the portfolio manager for the long-only fund, dubbed Digital Asset Select.



The firm acknowledged in its letter that “the last year has been unequivocally challenging for crypto managers,” taking into account “the fallout from the events of 2022,” which have “tested market neutral and trading oriented managers across several dimensions.”



Gideon Berger, a former co-chief investment officer for Blackstone’s alternative investments unit and Forteus’ non-executive chair, told Blockworks in a statement that “digital assets are creating a wide set of investment opportunities, from innovative early-stage applications to a broad range of trading strategies in inefficient and fragmented markets.”



The state of cryptocurrency markets “in many ways” reminds Berger of “the early days of the hedge fund industry,” he said.



Updated July 14, 2023 at 10:09 am ET: Clarifies Chladek’s title, as well as Vanhoutteghem&#8217;s work experience. 



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Forteus says ‘less competition’ is good for traders

Though there have “obviously been some well-publicized failures of crypto hedges funds” over the past 12 months, allocators this quarter have turned their attention to additional digital asset strategies, an attorney told Blockworks.



In a recent interview, Scott Beal, a New York-based partner at the law firm Barnes and Thornburg, said there’s been “decent interest” of late when it comes to launching liquid institutional strategies keying in on a number of digital asset sectors.&nbsp;



There’s also been a 2023 uptick when it comes to getting cryptocurrency-focused fund of funds vehicles off the ground, Beal said in unpacking a Barnes and Thornburg study from May on the outlook for fund managers this year.&nbsp;



The study is based on a February survey commissioned by the law firm that tallied “125 limited partners, sponsors and service providers,” representatives for the firm said in a May statement.&nbsp;



A veteran of Wall Street fund formation, Beal said he’s been eyeing a number of trends lately when it comes to the adoption, as well as the diversification, of crypto assets into traditional finance portfolios.&nbsp;&nbsp;&nbsp;



Beal assisted in putting the survey together and said that “last year reinforced the volatility of the asset class,” adding that it is “fair to say that a certain set of investors looked at the drawdown of crypto assets last year” in fleshing out their portfolios.&nbsp;



Since the fourth quarter of 2022, though, when crypto markets were rattled, Beal said there’s been a resurgence of interest in what allocators “viewed to be higher quality assets as something of a buying opportunity.”&nbsp;



<h2 class="wp-block-heading">Distressed specialists may be eyeing digital assets</h2>



Part of the last dropoff in traditional finance investors backing crypto portfolio managers at scale, industry participants have said, can be attributed to liquidity.&nbsp;



Barnes and Thornburg found that “cryptocurrency is a risk many are still willing to take” in its study.



A full 52% of respondents said “the current state of cryptocurrencies has significantly impacted their company in a negative way,”  the survey found. “Yet even as regulatory scrutiny picks up, the majority are still considering or actively deploying capital in the space in 2023.” 



But that view “hasn’t stopped many of them from actively investing or considering investing in the space,” the law firm said.&nbsp;



Beal is the co-chair of Barnes &amp; Thornburg’s Private Funds and Asset Management Group — and he’s worked in compliance roles for a number of buy side fund operators, as well as in external compliance functions.&nbsp;



In the US, Wall Street appetite for closed-ended crypto funds, including venture capital and acceleration capital vehicles, generally declined toward the end of last year. Mounting state and regulatory concerns at the time were said to have played no small role.



Regulators including the <a href="https://blockworks.co/tag/sec">SEC</a> and the <a href="https://blockworks.co/tag/cftc">CFTC</a> could still use “to give a little bit more guidance” to current and prospective digital asset fund managers, Beal said.&nbsp;



The law firm’s survey cited a March 17 <a href="https://www.coinbase.com/institutional/research-insights/research/weekly-market-commentary/bank-mismanagement-march-17-2023">note</a> from Coinbase’s institutional research arm. It cited a number of macro factors in making the exchange’s case that “the medium to long term outlook for cryptocurrencies has been reinforced to the upside.”&nbsp;



And Coinbase researchers at the time drew unfavorable parallels to the downfall of Silicon Valley Bank (SBV), as well as a number of ensuing banking implosions.&nbsp;



“The technology behind open trustless blockchains and transparent smart contracts stands in stark contrast to the poor risk management practices that led to the turmoil witnessed in the US banking sector this week,” Coinbase researchers then wrote.&nbsp;



<h2 class="wp-block-heading">RIAs still wary of SEC oversight</h2>



Beal said his practice is continuing to advise registered investment advisers (RIAs) overseen by the SEC to “have some understanding on the risk you are taking,” considering that a “substantial portion” of crypto assets “may ultimately be deemed securities, even if the SEC hasn’t come out one way or the other.”&nbsp;



Fewer hedge and venture fund capital survey respondents — 46% and 40%, respectively, reported being “negatively impacted” by cryptocurrencies broadly.&nbsp;



In the study, Jahan Sharif of Barnes and Thornburg wrote that “hedge funds are definitely paying close attention to the cryptocurrency sector.”&nbsp;



Added Sharif: “For instance, the FTX bankruptcy — with its multiplicity of involved entities and their competing claims — could create opportunities for distressed funds to find value in potential recoveries.”



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Potential ‘Buying Opportunity’ for LPs in Distressed Digital Assets

Darren Kleine

Institutional investment strategy, especially in crypto, advances at a glacial pace. Judiciously allocating funds, family offices and institutions must ensure legal compliance and carefully protect against massive losses that can result from shifting just a percent or two of a portfolio into the wrong asset.



It wasn’t that long ago that the Ontario teachers’ pension fund saw <a href="https://blockworks.co/news/ontario-teachers-fund-sank-95m-in-failed-ftx-empire">95 million dollars swept away</a> in the <a href="https://blockworks.co/tag/ftx">FTX</a> aftermath — a mere 0.05% of the fund’s total assets. While a <a href="https://blockworks.co/tag/uniswap">Uniswap</a> trader might casually blow <a href="https://blockworks.co/news/pepe-memecoin-red-flags-abound">a few bucks on a memecoin</a> without legal or financial consequences, things can go south in a much bigger way when a trusted custodian invests a small percentage of hundreds of billions of dollars.



It’s no wonder then, that it can take quite a while for larger entities to adjust their risk profiles, particularly when it comes to the volatile and legally fuzzy world of crypto.&nbsp;



Albeit at a cautious rate, institutional investors are “starting to exit the bear market mentality,” says Bitwise Chief Investment Officer Matt Hougan, as he spoke to Blockworks on the <a href="https://www.youtube.com/watch?v=BI28p72iOSc&amp;t=193s">0xResearch podcast</a>. “Even though the market has been trading sideways for a while, they&#8217;ve woken up to the fact that it&#8217;s the best performing asset class in the world.”



He acknowledges concerns around regulation persist but says as institutions begin “putting their toe in the water,” he expects to see asset flows shift back into crypto over the next few months.



As a relatively safe bet, <a href="https://blockworks.co/tag/bitcoin">bitcoin</a> — perceived to be the most secure and established of all crypto networks — has been the focus of most large-scale investment in the past, but appetites seem to be changing, he says.&nbsp;



Hougan sees a preference for ether (<a href="https://blockworks.co/price/eth">ETH</a>) emerging with “the family office and institution side thinking about just a very small allocation” in crypto.



“Now, I would say there&#8217;s actually more interest in ETH than there is even in bitcoin from many of the institutions that we talk to.”



<h2 class="wp-block-heading">One step further on the risk curve</h2>



Whereas interest used to be “bitcoin-only,” Hougan says ether is now getting attention as an asset that is “one step further on the risk curve.”



<a href="https://blockworks.co/tag/defi">DeFi</a> protocols are not yet on the radar, Hougan says, but investment in <a href="https://blockworks.co/tag/layer-2-2">layer-2</a> solutions might be “just around the corner.”



“But the big change,” he says, “has been from bitcoin, to bitcoin and ETH.”



Those who are deeply entrenched in the crypto market “live a few years ahead of where the institutional market is,” Hougan says, “so that&#8217;s a tired story for us, but it&#8217;s a brand new story for many of these folks.”



<h2 class="wp-block-heading">You have to allocate when it hurts</h2>



Bitwise crypto research analyst, Ryan Rasmussen says more clients are asking about the crypto market due to its outstanding performance during the first quarter. 



“To not have an allocation to crypto,” Rasmussen says, is “becoming a business risk for them as financial advisors, as institutional investors.”



“So I do think it&#8217;s a good time for them to allocate. You don&#8217;t want to see it pop another 20, 30, 40% and still not have the appropriate allocation.”



Hougan adds, “You have to allocate when it hurts. You have to allocate when it&#8217;s ugly.”



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG3853674314" width="100%"></iframe>







“If you wait for us to get <a href="https://blockworks.co/tag/regulation">regulatory clarity</a> and for the macro uncertainty to vanish,” he says, “you&#8217;ll definitely have missed.”



Hougan suggests investors can find success “by having a little bit more information about the market than what most of the market sees.”



“You can succeed by looking abroad and <a href="https://blockworks.co/news/mica-could-get-crypto-banked">seeing regulatory progress</a>, even as we see regulatory <a href="https://blockworks.co/news/galaxy-regulatory-headache-not-going-away">challenges in the US</a>. You can succeed by realizing the sort of <a href="https://blockworks.co/tag/rollups">technological revolution taking place with layer-2s</a> and the Ethereum blockchain, when the market isn&#8217;t focused on that.”



“But it&#8217;s always going to be painful when you&#8217;re buying at the right time. It&#8217;s never easy — and that&#8217;s true right now.”



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Moving Up the Risk Curve: Institutional Investors Cautiously Consider ETH’s Potential

Sebastian Sinclair

Binance is rolling out a “self-service” platform aimed at connecting institutional capital with crypto funds.



Dubbed Capital Connect, the platform sets disclosure standards for market participants handling size, allowing investors to review detailed fund information before potentially opening lines of communication.



Data on assets under management, performance records and minimum investment amounts are expected to be shared, among other details.



Capital Connect is targeted at asset and fund managers, brokers, hedge funds, <a href="https://blockworks.co/news/family-office-crypto-interest-plummets" target="_blank" rel="noreferrer noopener">family offices</a> and high net-worth individuals, liquidity providers and corporations.



Changing interest rates and <a href="https://blockworks.co/news/macro-in-bitcoin-favor" target="_blank" rel="noreferrer noopener">macroeconomic conditions</a> have increased institutional inquiries from investors with differing investment theses on digital assets, Catherine Chen, head of Binance VIP and Institutional said in a statement.



“Increased capital flow in crypto asset funds will have positive spillover effects and benefit the entire ecosystem,” Chen said.



<h2 class="wp-block-heading">Binance won&#8217;t Connect Capital in the US</h2>



The platform is open to Binance VIP-level users, a status that starts by holding the equivalent of 200,000 <a href="https://blockworks.co/news/sec-triggers-bank-run-on-busd" target="_blank" rel="noreferrer noopener">BUSD</a> in user accounts. To participate, both investors and investment managers must complete Binance Institutional&#8217;s know-your-customer verification.



A Binance spokesperson told Blockworks the platform defines &#8220;institutional investors&#8221; as entities that allocate funds on behalf of others: family offices, pension funds and the like, though specific definitions “vary from region to region.”



“Crypto investment funds” are portfolios composed of digital assets maintained by investment managers for their clients, they said.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1374" height="898" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/05/image-9.png?w=1024&amp;h=1024" alt="" class="wp-image-55030" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/05/image-9.png?w=1374 1374w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/image-9.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/image-9.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/image-9.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/image-9.png?w=393 393w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/image-9.png?w=399 399w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/image-9.png?w=335 335w, https://blockworks-co.imgix.net/wp-content/uploads/2023/05/image-9.png?w=80 80w" sizes="(max-width: 1374px) 100vw, 1374px" /><figcaption class="wp-element-caption">Screenshot of the Capital Connect interface (source: Binance)</figcaption></figure>



Allocators across the US are set to be left out, however. Binance said Capital Connect will only be available in certain jurisdictions across Latin America and Asia Pacific, as well as Europe, Middle East, and Africa.



Binance declined to provide specific jurisdictions in which Capital Connect would be offered.



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Binance Wants To Connect Crypto Funds With Institutional Capital

Bessie Liu

Ethereum’s long-anticipated Shapella upgrade — the combination of the Shanghai execution layer and the Capella consensus layer, is just <a href="https://blockworks.co/news/ethereum-set-date-for-eth-withdrawals">a day away</a>.&nbsp;



Many institutions and staking protocols are preparing for what could <a href="https://blockworks.co/news/eth-post-shanghai-price-action">potentially be volatile market movements</a>.&nbsp;



Ethereum’s network runs on a proof-of-stake model and is secured by validators who must deposit <a href="https://blockworks.co/news/eth-staking-providers-withdrawals">32 ether ($52,500)</a> to participate in block validation.



Shapella is a significant event for <a href="https://blockworks.co/tag/ethereum">Ethereum</a> as it will be the first time that ETH stakers, many of whom have had their ether locked up since Nov. 2020, will be able to retrieve their deposits from the network’s smart contract.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">It&#39;s happening 🎊 Shapella is scheduled on mainnet for epoch 194048, scheduled for 22:27:35 UTC on Apr. 12, 2023 📆 Client releases compatible with the upgrade are listed in the announcement below 👇<a href="https://t.co/I0hSv9lnjz">https://t.co/I0hSv9lnjz</a>&mdash; timbeiko.eth ☀️ (@TimBeiko) <a href="https://twitter.com/TimBeiko/status/1640722906744487936?ref_src=twsrc%5Etfw">March 28, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<h2 class="wp-block-heading">An attractive investment for institutional investors</h2>



Ether Capital CEO Brian Mosoff told Blockworks that this is an exciting time for the industry as “Shanghai unlocks the potential for new Ethereum investment vehicles to emerge, which could include structured products for investors looking for more traditional access points.”



&#8220;The lack of liquidity on staked ETH is a sign that investors want to see the final stage of Ethereum&#8217;s PoW to PoS transition take place,&#8221; Mosoff said.&nbsp;



Following this upgrade, Mosoff believes institutional investors may be more drawn to the network as there will be “lower barriers to entry when it comes to regulatory requirements for staked ETH funds.”



“It won&#8217;t be as challenging to bring these products to market as liquidity can be offered with certainty around timing,” Mosoff said. &#8220;A lot of investors are speculating on what the price of Ether will be following Shanghai. I believe it will be a non-event, but it&#8217;s anyone&#8217;s best guess.”



In the long term, Mosoff believes that the Shapella upgrade will be a bullish event for Ethereum and strengthen its dominance in the blockchain space.&nbsp;



Hsuan Lee, the co-founder and CEO of Blocto, also shared this sentiment. He noted that although short-term price swings are expected, the upgrade is likely to bring in a fresh influx of institutional demand to the space.&nbsp;



“Crucial to converting such institutional interest to participation is the establishment of robust security features to enhance collective confidence,” Lee said.&nbsp;



Web3 players such as Coinbase and Bybit have already ramped up their institutional and retail staking services. More recently, MetaMask Institutional also announced its plans to launch an <a href="https://blockworks.co/news/metamask-institutional-staking">institutional staking marketplace</a>.&nbsp;



MetaMask institutional product lead Johann Bornman previously <a href="https://blockworks.co/news/metamask-institutional-staking">told</a> Blockworks that Shapella would be a landmark moment that would drive more institutional interest.&nbsp;



“We’ve observed a real shift in interests from institutions into staking, particularly over the last six months,” Bornman said.&nbsp;&nbsp;



Lee agreed, adding that “overall, the expectation is that Shanghai will strengthen ether as a benchmark asset class for crypto by establishing a blueprint for staking protocols and giving users more confidence in their sovereignty over other assets.”



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Shapella Upgrade Could Reignite Institutional Interest in Blockchain

David Canellis

Crypto and institutions go together like lightning and thunder these days. Traditional finance shops are moving over, while the digital asset market births debutants all by itself.



This brings about two problems:



<ol>
<li>How do institutions — which are meant to represent the smart money — find market moving information before markets move?</li>



<li>How can they share that information with clients while remaining compliant with strict data security controls?</li>
</ol>



The Tie, a crypto-native data platform, is gunning to solve both concerns. In the same vein as Bloomberg Terminal, the firm’s crypto-only terminal platform serves as an all-in-one screener for news, market data, regulatory filings, analytics and research.&nbsp;



The startup, founded in 2017, says it has attracted more than 150 hedge funds, asset managers, venture capital firms, over-the-counter desks, market makers and the like (and even news organizations such as Blockworks).



It’s common for such firms to rely on encrypted messaging apps such as WhatsApp, Signal or Telegram — but regulators have recently handed out billions of dollars in <a href="https://www.computerworld.com/article/3675289/16-wall-street-firms-fined-18b-for-using-private-text-apps-lying-about-it.html">fines</a> for communicating about trades or other orders via platforms that don’t preserve business records, a key SEC requirement.



Those firms require chat histories to be stored and logged in a compliant manner, and until recently, they haven’t had a way to communicate with their counterparties from within the terminal.



“The roll-out of The Tie Terminal Messenger enables firms like ours to take advantage of [the digital asset investor network] and compliantly communicate with a range of leading market participants including banks, asset managers, funds, and liquidity providers,” Rob Hadick, general partner at Dragonfly Capital, said in a statement.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1600" height="815" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-8.png?w=1024&amp;h=1024" alt="" class="wp-image-50669" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-8.png?w=1600 1600w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-8.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-8.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-8.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-8.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-8.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-8.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-8.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-8.png?w=80 80w" sizes="(max-width: 1600px) 100vw, 1600px" /></figure>



There are other firms shooting for the same market. Aurox, for one, is a free terminal service intended to support fast-moving crypto traders, but its offerings are more skewed towards retail investors, rather than institutional types.&nbsp;



Other crypto-specific terminals, such as Orion Terminal, are more like market aggregators, allowing trades across multiple platforms all under one umbrella platform. And of course, there’s the Bloomberg Terminal, which does support a number of cryptocurrencies, but its selection is comparatively limited.&nbsp;



To help service institutional types that need more variety, The Tie’s terminal messenger is SOC 2 compliant, a benchmark built by the American Institute of CPAs, which translates to strict internal controls regarding how data — such as sensitive financial messages between institutions — is stored (to avoid leaks and whatnot).



All Tie Terminal users are verified via corporate email, reducing the chance of profile spoofing commonly seen across Telegram and WhatsApp. The firm says around half of its clients are using the messenger app but declined to give specific metrics for total usage so far.



“More than 80 of our 150+ clients have turned on Messenger and we are already seeing a significant number of messages per day,” CEO Josh Frank told Blockworks. “We anticipate both users and messenger volume to increase over time as new connections are formed and comfort with the feature improves.”



The Tie was <a href="https://www.accesswire.com/693801/The-TIE-Announces-9-Million-Strategic-Funding-Round-at-100-Million-Valuation">valued</a> at $100 million in March last year, when it raised a $9 million round led by Avalanche-focused venture firm Blizzard.



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Institutions Are Going Crypto — But How Do They Share Info?

MetaMask Institutional is launching a marketplace to streamline staking for companies.



The marketplace, a bridge between institutions that are interested in staking and providers of staking, will go live on March 27. Initial partners on the marketplace include Allnodes, Blockdaemon and Kiln.



Following <a href="https://blockworks.co/tag/ethereum-merge" target="_blank" rel="noreferrer noopener">the Merge</a>, which moved the Ethereum network from <a href="https://www.blockworksresearch.com/glossary#proof-of-work-pow" target="_blank" rel="noreferrer noopener">proof-of-work</a> to <a href="https://www.blockworksresearch.com/glossary#proof-of-stake-pos" target="_blank" rel="noreferrer noopener">proof-of-stake</a> last year, institutions have shown greater interest in staking, MetaMask institutional product lead Johann Bornman told Blockworks.



“We’ve observed a real shift in interests from institutions into staking, particularly over the last six months,” Bornman told Blockworks. “With the important fork upgrade that’s happening with Shanghai and Capella, I think these are two very key landmark moments that are driving more institutional interest.”



Sharing Bornman’s sentiment, Tim Ogilvie, CEO of Staked, a non-custodial staking platform <a href="https://www.kraken.com/press/releases/kraken-acquires-staked-to-support-growth-and-resilience" target="_blank" rel="noreferrer noopener">acquired</a> by Kraken in December 2021, also notes that <a href="https://blockworks.co/news/ethereum-set-date-for-eth-withdrawals">the upcoming Ethereum upgrade on April 12</a> is likely going to usher in more institutional investors into the staking space.



“You’re going to see a lot of people coming in and staking, so the net of that will drive a lot of long-term staking demand,” Ogilvie said.



<h2 class="wp-block-heading">So why a marketplace?</h2>



Bornman tells Blockworks that existing institutions are bound to providers selected by their custodians, and this latest marketplace aims at providing companies with more choices for their staking provider.



It also plans to standardize reporting, he said.



“What we want to do is make it very easy for institutions to not to just take but also understand the rewards they’re receiving, what they are, what they look like across different time horizons,” he said.



MetaMask’s institutional staking marketplace could be a good first step in offering a simplified staking solution to institutional players, <a href="https://www.blockworksresearch.com/" target="_blank" rel="noreferrer noopener">Blockworks Research</a> analyst <a href="https://www.blockworksresearch.com/research?author=ren" target="_blank" rel="noreferrer noopener">Ren Yu Kong</a> said. 



“I expect to see further integrated service offerings through MetaMask Institutional as the space grows so that the full range of an institution&#8217;s needs are fulfilled within one platform,” Kong said.



<h2 class="wp-block-heading">What are institutions staking?</h2>



Different institutions have different reasons to participate in staking.



For decentralized hedge funds — or crowd-sourced hedge funds — many of its staking initiatives are focused on liquid staking derivatives (LSDs) Bornman said.



In the case of Staked, many of its institutional clients include large venture funds, such as Pantera and Multicoin, asset managers such as Brevan Howard who are often running a fund strategy, and Wealthsimple, which runs different accounts for broader sets of individuals.&nbsp;



“Venture funds are making early investments in promising Layer-1’s that use staking as a security layer, and in those cases, they are looking to support a nascent investment,” Ogilvie said. “Asset managers [might] put assets into Ethereum because [they] have conviction around the story there.”



Ogilvie is optimistic that staking will eventually replace bonds as a large allocation in institutional portfolios.



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MetaMask Wants To Streamline Institutional Staking

Shalini Nagarajan

<div id="highlights-block_633c0ab859750" class="highlights">
 <ul>
 <li>NYDIG has appointed its global head of trading, Tejas Shah, as its new CEO</li>
 <li>The bitcoin-forward financial services firm raised $1 billion in December at a $7 billion valuation </li>
 </ul>
 
</div>



Despite bearish macro trends, investment management firm NYDIG says it has raised nearly $720 million for its Institutional Bitcoin Fund.



A total of 59 investors contributed to the raise, a SEC <a href="https://www.sec.gov/Archives/edgar/data/1758651/000175865122000001/xslFormDX01/primary_doc.xml" target="_blank" rel="noreferrer noopener">filing</a> from Sept. 29 showed, although the regulator may not have reviewed the document, which could mean the raise isn’t over just yet.



In December, the bitcoin-focused financial services firm completed a <a href="https://cms.blockworks.co/nydig-closes-1b-funding-round-raising-valuation-above-7b/" target="_blank" rel="noreferrer noopener">$1 billion financing round</a> led by WestCap. Other participants included Morgan Stanley, Bessemer Venture Partners and MassMutual.



NYDIG has withstood multiple <a href="https://cms.blockworks.co/new-planned-etf-targets-nft-related-stocks/" target="_blank" rel="noreferrer noopener">SEC rejections</a> against its proposal to list and trade spot bitcoin ETFs. Yet NYDIG, established in 2016, continues its mission to “make Bitcoin accessible to all” through products such as bitcoin accounts, rewards and loyalty programs.



Earlier this year, it launched a <a href="https://cms.blockworks.co/nydig-supporting-bitcoin-pay/" target="_blank" rel="noreferrer noopener">benefit program</a> allowing employees of participating companies to <a href="https://cms.blockworks.co/how-many-employees-are-allocating-paycheck-portion-to-bitcoin/" target="_blank" rel="noreferrer noopener">allocate a portion</a> of their paychecks to bitcoin.



<h3 class="wp-block-heading">NYDIG fundraise comes with new CEO</h3>



NYDIG’s latest fundraising efforts come amid a reshuffling of senior leadership. On Monday, the group <a href="https://www.prnewswire.com/news-releases/nydig-promotes-leaders-amidst-record-bitcoin-balances-301638534.html" target="_blank" rel="noreferrer noopener">announced</a> the departure of CEO Robert Gutmann and President Yan Zhao.&nbsp;



Both will continue to work at the firm’s parent company Stone Ridge Holdings, which they co-founded with Ross Stevens in 2012.



NYDIG appointed Tejas Shah, the firm&#8217;s global head of trading, to the position of CEO. Nate Conrad, formerly the global head of payments, was appointed to the president position.



Shah and Conrad will focus on expediting investments in NYDIG’s mining solutions franchise and boosting institutional bitcoin adoption via layer-2 scaling project Lightning Network.



All things considered, NYDIG appears healthy at a turbulent time for the digital asset industry. NYDIG’s bitcoin balances hit an all-time high in the third quarter, up nearly 100% year on year, according to a statement released Monday. Revenue is up 130% through the second quarter, it added.



&#8220;When markets crumble, character emerges. A flight to quality from the most risk-aware institutional investors has relentlessly driven bitcoin, and revenue, to NYDIG the last 12 months,&#8221; Stevens wrote in a statement.



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