Investing in Kaiko
The B2B Digital Asset Market Data Solution
Coming off the heels of our Portfolio Days event, it’s only appropriate to announce another fantastic addition to Revaia Growth II! Introducing Kaiko: a B2B digital asset market data solution based here in Paris, France. This represents our second investment from Revaia Growth II and our first investment in the Web3 space, albeit on the institutional side (we’ll dive into this in just a minute). We participated in the $53M Series B led by Eight Roads and were joined by existing investors including Alven, Point9, Anthemis and Underscore.
Whether you’re a Web3 native or a Crypto-n00b, not to worry! The goal of this piece is to outline Kaiko’s equity story, team dynamics, exceptionally innovative product and the fundamentals of Decentralized Finance (DeFi) including all the critical lingo you need to be a certified Blockchain expert, or at least feel like one.
A quick summary on why we’re excited to back Kaiko:
The Digital Asset Market Data is due to reach $2.6bn+ by 2026 and Kaiko plans to capture 30–50% of market share:
- Digital asset classes are expected to grow 10x by 2026, with expected market capitalization of $20T — $30T
- With similar ratio of market data spent in TradFi, the expected Digital Asset market data sector to grow to $2.6B — $3.8B by 2026
- Kaiko’s target market share is 32% — 47% by 2026
The Kaiko Story
The company was founded in 2014 with the aim of becoming a key pillar of the digital finance ecosystem by serving as a single access point for market data. In essence, they are attempting to build the Bloomberg Terminal for the world of decentralized finance (crypto), as it were. Perhaps it’s a leading positive indicator that Bloomberg itself ranks among one of its top customers to date. In a somewhat unconventional start, the business was sold from the original founder to the current CEO, Ambre Soubiran, in 2017 with no revenue or full-time employees. You might be wondering: where is the original founder now?
That founder just so happens to be Pascal Gauthier who went on to become CEO of Ledger, France’s first crypto unicorn (also now a customer). So it’s safe to say that the product has a solid foundation, only strengthened by the incoming CEO’s extensive background in equity derivatives trading at HSBC and her visionary outlook for the business rooted in excellence and passion. Did I mention that Ambre is a mathematician?
Kaiko has secured investments from trusted partners at each step of their journey, but has attracted further investment from more traditional venture firms due to its differentiated approach, specifically its focus on B2B and institutional investors (as opposed to consumers or retail traders). One big question remains: will crypto hedge funds and enterprise asset managers build in-house solutions or rely on third party data? Fundamentally, this begs the question: will DeFi trading mimic the behaviors of TradFi (traditional finance) or lead to new, crypto-native approaches? So far, customer feedback, revenue trends and product expansion point to yes. Let’s have a look at exactly what Kaiko’s product suite provides.
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But first… a glossary of definitions (trust me, you’ll thank me later!):
- API: An application programming interface (API) is a set of programming codes that queries data, parse responses, and sends instructions between one software platform and another
- Blockchain — DLT infrastructure: a publicly accessible digital ledger used to store and transfer information without the need for a central authority. Blockchains are the core technology on which cryptocurrency protocols like Bitcoin and Ethereum are built
- Blockchain Oracle: a service supplying smart contracts with data from the outside world. Smart contracts are unable to access data that exists off-chain, so they rely on oracles to retrieve, verify, and provide external information. Ex: Chainlink, Band Protocol
- Backtesting: is the general method for seeing how well a strategy or model would have done ex-post. Backtesting assesses the viability of a trading strategy by discovering how it would play out using historical data
- CeFi — Centralized Finance: centralized businesses that participate in crypto
- CeX — Centralized Exchange: a cryptocurrency exchange managed by a centralized business or entity. Ex: Coinbase, FTX, Binance, BlockFi, DCG, Grayscale
- DeFi — Decentralized Finance: the ecosystem of borderless, trustless, peer-to-peer financial tools being built on public blockchains without the use of banks. DeFi apps are built to be open and interconnected, allowing them to be used in conjunction with one another
- DeX — Decentralized Exchange: a peer-to-peer cryptocurrency exchange built on the blockchain. A DeX is run by its users and smart contracts instead of an intermediary figure or centralized institution. Ex: Uniswap, 1inch, Sushiswap
- Digital Asset: is anything that is stored digitally and is uniquely identifiable that organizations can use to realize value
- Ethereum: a public blockchain serving as the foundation for decentralized applications. Ethereum is a turing complete language, allowing for users to write and deploy complex, self-executing smart contracts which live on the blockchain
- Gas fees: are fees charged when inserting data on chain. They increase with the number of data feed served
- NFT — Non-fungible token: a digital certificate of authenticity used to assign and verify ownership of a unique digital or physical asset. Unlike fungible tokens, NFTs are not interchangeable with one another
- Node: any device connected to a blockchain network. Different nodes have varying levels of responsibility, and may help validate transactions, store the blockchain’s history, relay data, and perform other functions. Because blockchains are distributed peer-to-peer networks, nodes come together to create the network’s infrastructure.
- On-chain transactions: are transactions that occur on a blockchain
- Off-chain transactions: refer to those transactions occurring on a cryptocurrency network that move the value outside of the blockchain
- Proof-of-Work — PoW: a consensus mechanism that requires miners to complete complex mathematical puzzles in order to verify transactions and mint blocks. When a miner correctly solves a puzzle, they gain access to mint the next block and receive the corresponding block reward and transaction fees.
- Proof-of-Stake — PoS: a consensus mechanism that requires nodes, called validators, to stake a set amount of cryptocurrency on the blockchain in order to verify transactions and mint blocks. If a validator approves fraudulent transactions, then a portion of their stake will be slashed.
- Smart Contract: self-executing code deployed on a blockchain. Smart contracts allow transactions to be made without an intermediary figure and without the parties involved having to trust one another.
- Staking: involves earning rewards for holding a particular crypto asset for a period of time. It is the process of dedicating your assets to a blockchain network which compensates you in return.
- Web3: the next iteration of the web being ushered in as we speak, which leverages blockchain technology, open-source applications, and the decentralization of data and information. Web3 aims to remove control of the web from monopolistic tech companies and return ownership of data and content to its users. Also referred to as the “read-write-trust web.”
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Unifying Digital Assets
One of the great challenges of the modern economy is the abundance of information. This is true for centralized, off-chain finance as well as blockchain-based DeFi. In fact, for the latter category, there is probably more data than ever to explore — but more data doesn’t necessitate better insights. And that’s where Kaiko comes in, bridging the gap between centralized and decentralized financial data to create live and historical data sets, analytics and indices for institutional investors to interrogate, test and make decisions.
When you think of an index or financial data aggregation services, names like the S&P 500 or Bloomberg may come to mind, and for good reason. The prevailing indices and aggregators have thrived in traditional financial markets because they benchmark assets, enable close to real-time reporting and provide the ability to executive trades based on your analysis. Today, DeFi is starting to challenge the hegemony of TradFi: on-chain assets are increasing in proportion to the overall financial markets and existing traditional assets are represented digitally (CeFi) meaning that data normalization and analysis is king. Access to more and better data with best-in-class tooling to manipulate said data provides an edge to these well equipped traders.
Kaiko has a first-mover advantage with over 10 years of historical market data, billions of tick-level data points and a modern API with enterprise grade uptime. This offers a wide range of capabilities for institutional investors and data teams:
- Strategy Backtesting: Leverage granular cryptocurrency trade and order book data to run simulations and backtest trading strategies.
- Research & Analysis: Study cryptocurrency markets with historical datasets optimized for advanced research
- Pricing & Valuation: Reliable crypto asset price data can be used for valuation by custodians, fund administrators, accountants, and more
- Charting & Analytics: Integrate live and historical cryptocurrency market data into your third-party platform, app,or website
- Indices: Build your own indices, indicators, or visualizations using normalized data feeds from dozens of exchanges.
- Market Making: Analyze order book liquidity using live and historical spreads, market depth, and price slippage.
While the original promise of DeFi was a democratization of financial markets, the growth of the sector has inevitably captured the interest of large financial institutions who demand the breadth and quality of information they use for traditional investment strategy and execution. This trend is reflected in the chart below showing that Coinbase saw institutional trading volumes 10x in 2021, surpassing retail.
The tailwinds behind institutional DeFi investing are hard to ignore. As stated, these are the types of clients that will expect enterprise ready tools to satisfy their ever-growing demand for DeFi trading. And who better than Kaiko to provide that service?
Bridging The Gap
Ultimately, Kaiko is well positioned to bridge the gap between Centralized and Decentralized finance. This strength applies both to its customer base and its competitive landscape. They are already leveraged at market data providers, institutional actors and crypto-native companies alike.
Compared to other players in the market, they offer a definitively B2B product that sits at the intersection of the two ends of the finance spectrum. The vast majority of “competitors” skew towards the consumer (B2C) market; those aligned with a B2B customer base tend go to market with a CeFi offering, lacking a bridge to DeFi and thereby reducing their potential as a holistic solution, at least in the near term.
As blockchain-based finance scales from a speculative, cottage industry to a force to reckoned with in the future of financial markets, we expect a dramatic shift in institutional investing and blended asset strategies. Investors have been particularly cautious due to recent systemic challenges in the world of crypto (which we covered in depth here). Nevertheless, the resiliency and transformative power of blockchain technology coupled with an institutional (B2B) slant and a rockstar team made this first point of contact with Web3 one of genuine excitement and overwhelming optimism.
