- Use Cases
TradFi institutions continue to get involved in digital assets, some dipping a toe in, others plunging in all the way. Today we’ll take a look at some of the recent institutional activity as of August 2023, as well as a couple of case studies about how Amberdata helped two of our clients painlessly enter the digital asset class.
The latest in institutional digital finance
Institutions are becoming increasingly influential in digital assets, driving the development of new products and services tailored to their customers’ needs. Among other things, TradFi institutions are becoming more interested in stablecoins and Bitcoin spot ETFs. Because of this institutional interest, a current big story is the growing attention to security and regulatory compliance and what seems like, finally, serious focus by the government on creating clear regulatory guidelines.
Regulatory clarity on the horizon?
Recently, the U.S. House Financial Services Committee advanced two bills that would begin to codify digital asset regs in the U.S. The first of these would define whether crypto is a security or a commodity and expand the Commodity Futures Trading Commission's (“CFTC”) oversight of the crypto industry. This would likely clarify and somewhat constrain the Securities and Exchange Commission's jurisdiction in crypto, particularly as industry players are complaining that the SEC seems eager to decide that every crypto is a security, irrespective of design and use case.
The second bill would establish a federal regulatory framework for stablecoins. It would have the U.S. Federal Reserve write requirements for issuing stablecoins while preserving the authority of state regulators. Although this bill advanced to the full House, it faces serious opposition in its current form by the committee’s senior Democrat, Maxine Waters.
Meanwhile, over in the Senate came the reintroduction of the Lummis-Gillibrand Crypto Bill which, at 274 pages, would dramatically advance crypto regulation in the U.S. Among other provisions, the bill gives the CFTC increased oversight of crypto markets, including crypto trading and money laundering.
In addition, the bill requires proof of reserves for stablecoin issuers, registration for U.S. crypto exchanges, and stablecoin issuance limited to banks or credit unions. It also codifies the risk disclosures crypto companies must provide to customers and allocates $1.3 billion for the implementation of these and other policies related to crypto assets.
PayPal recently launched a stablecoin, PayPal USD ($PYUSD). It’s hard to believe that one-time disruptor PayPal is now a TradFi company, but time marches on, and this makes PayPal the first major U.S. TradFi firm to launch a U.S. dollar-backed stablecoin. According to a company press release, $PYUSD is “100% backed by U.S. dollar deposits, short-term U.S. Treasuries, and similar cash equivalents.”
Users can buy and sell $PYUSD in the PayPal app or on their site, convert it to other supported cryptocurrencies, use it for purchases at millions of online stores, and remit it to other U.S. PayPal users without fees. As the only stablecoin supported within the PayPal network, $PYUSD leverages the company’s experience in payments at scale, combined with the speed, cost, and programmability of blockchain protocols. Currently, most stablecoins are used in web3-specific environments, and $PYUSD is compatible with that ecosystem.
The coin is an ERC-20 token issued on Ethereum by Paxos Trust Company, a fully licensed limited purpose trust company regulated by the New York State Department of Financial Services.
It’s likely that this is just the first of many U. S. asset-backed stablecoins we’ll soon see because rising interest rates make stablecoins fabulously profitable for their issuers, with little risk. The 90-day T-Bill rate is around 5.25 percent at the moment, and all that interest will go to PayPal. It’s a sweet gig when rates are up.
As we discussed in June’s Sector Alert, the holy grail of a spot Bitcoin ETF finally being approved by the SEC is still a huge ongoing story. At the moment there are at least seven big-name applications still live: Fidelity, WisdomTree, BlackRock, Invesco, Van Eck, Valkyrie, and Ark. (A decision on ARK’s filing was just delayed—delayed, not declined—as was expected by most industry insiders.)
As it stands, all commentary right now is simply speculation, with different constituencies claiming a decision is right around the corner, or next month, or next whenever, and that there will be one winner, or all will be approved on the same day, or something else. Either way, this is a big deal, and whatever the near-term outcome is, it will almost certainly have a big effect on $BTC’s price action.
Data facilitates institutional digital asset adoption
As more TradFi companies enter digital assets, they are learning that good, clean data is critical in the asset class. Amberdata and its comprehensive, wide, and deep data offerings have helped many institutions create the data infrastructure to profitably play in digital assets. Here are brief case studies of two of our clients.
Cross River, a large bank and financial technology provider, needed digital asset data to support their product development and growing research practice. With strategic product launches approaching, they had an immediate need for crypto data to create and rigorously test models. They also wanted to use their own pricing data, in order to ensure accuracy.
As for their research, they were scaling up their institutional offerings and needed market and on-chain data for their analysts. They worried that building the data infrastructure themselves would draw focus away from their core business, so they decided to find an experienced data partner to gather and manage data for them.
As part of their data vendor evaluation process, they decided that their most important needs were:
- A comprehensive data provider to meet their primary data needs.
- A single API where they could access all the necessary market and on-chain data.
- Granular order book data, as well as historical and real-time OHLCV data.
- Options data immediately and, eventually, futures data, as their product development strategy progressed.
- Indexed, searchable, and normalized datasets, because their product dev team was implementing rigorously tested models, and they didn't want to compromise on the quality of the data.
After a rigorous search Cross River chose Amberdata, and it turned out to be a wise decision. Amberdata eliminated the need for infrastructure setup and maintenance. This allowed Cross River's quant strategy and research teams to collaborate quickly with their crypto team to bring new products and primary research to their institutional customers.
To find out in greater detail how we and Cross River worked together to achieve superior results, download this case study. You’ll see how we gave Cross River the digital asset data it needed to support its product and research needs.
Leading Hedge Fund
A top hedge fund wanted to expand its trading strategies to include digital assets. To do so, they needed comprehensive real-time and historical data, both market and on-chain. Their trading was real-time, high frequency, and high volume, requiring a significant amount of data for developing and backtesting their digital asset algorithmic/programmatic trading strategies. They also had specific on-chain data requirements.
The key challenges they needed to solve were:
- Building and maintaining a massive data infrastructure and transforming raw data into actionable information which was costly and time-consuming.
- Finding a provider that supported the FIX (Financial Information eXchange) protocol, which was essential for their trade desk to handle the large volume of data they required.
- Obtaining real-time and historical mempool and wallet-level data to minimize transaction time, monitor gas fees, and track large trades in progress.
- Accessing wallet holder data to gain insights into the holdings, trading history, and real-time trading signals of key whales.
Amberdata provided solutions to these challenges. We eliminated the need for infrastructure setup and maintenance, allowing the fund's trading team to enter the market quickly without diverting focus from their core business. Our FIX API is seamlessly integrated into their existing operations, enabling real-time streaming of pricing data. Finally, we offered complete transparency into the required blockchain data, providing comprehensive, granular, and unbiased data.
Overall, we provided the hedge fund with the necessary data infrastructure and comprehensive data sets to support their digital asset trading strategies effectively. Download the full case study to see how we worked together with them to support their product development and research practice. It may give you some ideas about how we might be able to help your firm.
The digital asset class is rapidly evolving, with institutional investors, financial institutions, and government agencies beginning to play a more significant role in shaping its future. As the sector continues to mature, it's essential to stay informed about the latest products, trends, and developments to capitalize on rapidly developing opportunities and innovations.
These sorts of innovations, however, demand a robust and sophisticated digital asset data infrastructure. Building that infrastructure is difficult. Also, while all centralized exchanges and blockchains provide open-source APIs that can be used to access digital asset data, companies still need deep expertise and the ability to build and maintain the massive infrastructure necessary to collect and process the data.
Amberdata provides solutions and expertise for every digital asset class participant. Whether you’re a financial institution just beginning to think about digital assets, a seasoned crypto-native looking to expand coverage, or a Fintech looking to build new or enhance existing products, Amberdata has digital asset data solutions to meet your needs.
Amberdata’s unified API and data services provide a single integration point for obtaining a complete view of the entire digital asset economy. We offer comprehensive data as well as insights into blockchain networks, crypto markets, and decentralized finance. We empower financial institutions with critical market and DeFi data for research, trading and analytics, risk management, derivatives analytics , and compliance.
To learn more about Amberdata, please contact us to book a demo, hear about our products that can help your business, or receive pricing information.
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