Will large financial institutions adopt digital assets? — we think so…

Illuminate Financial’s investment in Curv

Illuminate Financial & Franklin Templeton have invested into Curv joining existing Series A investors, CommerzVentures, Coinbase, Digital Currency Group, Team8 & Digital Garage. Curv, a US & Israel based company, has developed the world’s most trusted digital asset security infrastructure.

Business is booming for digital assets custody solutions! This layer of the digital asset “stack” is benefitting from the extraordinary growth of the three digital asset segments:

• Stablecoins — have seen the most rapid growth recently. The global market cap for USD Coin (USDC) has topped $2 billion, doubling in size in just the past two months! USDC is just one of the 200+ stablecoins out there. There are 50+ central banks working on CBDCs (Central Bank Digital Currencies), half are in POC and 6 have launched pilots. Stablecoins offer near-instant settlement, low-cost global transactions, transaction transparency and traceability and 24/7 availability. These advantages are already fundamentally changing the remittance and post-trade settlement markets.
• Crytoassets…most notably BitCoin… have survived their “first stress test” weathering the COVID volatility and “showing longevity as an asset class” according to JPMorgan. BitCoin started 2020 at $7.2k and reached $13.1k (21 Oct 2020), an 82% gain, surpassing the already significant YTD 26% gains of the Nasdaq. Broader acceptance of BitCoin is undeniable, with Paypal announcing yesterday that they will enable their 320 million customers to hold and pay with BitCoin. In addition, there has also been significant growth and development across DeFi protocols, from Chainlink to Compound and Blockfi. Not to mention other crypto assets…

“Let me just basically say how impressed I am by Ethereum, full stop, period.” Heath Tarbert, Chairman of CFTC

• Tokenized securities — digital assets like Ethereum, Stellar, EOS, provide the technological rails to issue both digitally native assets (online content, advertising space, etc…) and real world assets/securities leveraging all the aforementioned benefits of a blockchain. From private securities to real estate to art & diamonds there are a number of fast growing projects in this space, including Securitize, Tokeny, Upvest. Further reading — Deloitte report.

So, why are we excited about Curv?

The 3 growing segments of the digital asset markets need a foundational layer of secure custody.

1. Timing —adoption of digital asset infrastructure by traditional financial institutions has arrived — driven by client demand, the availability of enterprise grade infrastructure and clarity from the major regulators.

Client demand— In a survey conducted by Fidelity Digital Assets of almost 800 institutional investors across the U.S. and Europe, 36% of respondents say they are currently invested in digital assets. In addition, 6 out of 10 believe digital assets have a place in their investment portfolio.

Availability of enterprise grade infrastructure — investment into digital asset infrastructure is accelerating— $597 million was spent in 60 deals in the first half of 2020, compared to $481 million spent in all of 2019 for 125 deals, according to data aggregated by PwC.

Clarity from regulators —recent announcements from global regulators provided traditional financial institutions with the comfort to enter the digital asset market:

• US Office of Comptroller of Currency (OCC) announced that nationally chartered banks can now custody crypto.
• German regulator BaFin has provided clarity around licenses for servicing cryptoassets.

Our fund is backed by traditional financial institutions like IHS Markit & Deutsche Boerse, amongst others. We carefully validate the demand across the industry before investing. At Illuminate, Crypto/blockchain and their evolving landscapes have been topics of discussion between us and our sell & buy-side industry partners for a number of years. We have evaluated over 350 companies in these verticals, many of which have seen significant retail based growth. However, other than our investment in Baton Systems (which now settles ~$15Bn of transactions per day on a blockchain for Tier 1 banks) we struggled to validate genuine institutional adoption, until now. Recent (publicly announced) institutional adoption of Curv:

• BNP Paribas Securities Services partners Curv on digital asset transfer.
• Franklin Templeton partners with Curv to tokenize money market fund.

2. The custody layer — this layer benefits from the pace of global growth and innovation across crypoassets, stablecoins and tokenized securities, whilst remaining abstracted from the complexity of multijurisdictional regulation.

The institutional digital asset market structure continues to mature and increasingly mirror the institutional capital markets — growth of hybrid OTC brokers, consolidation of exchanges, emergence of prime brokers, etc…The fundamental difference is custody (due to how asset ownership is represented on a Blockchain). The true potential of digital asset technology lies in the custody/transaction layer…instantaneous settlement, atomic swaps, transparency and traceability and the ability to enable new market more efficient market structure (e.g. non-custodial broker-dealers).

3. Differentiated technology — Curv’s keyless multi-party commute (MPC) technology and flexible tech stack enable the company to swiftly deliver keyless customized digital asset security solutions. The solutions can be built for crypto-native and traditional financial institutions, who in turn can build world-class cryptofinance products. Further reading on benefits of MPC technology — report from Gartner.

4. Team — Curv have built a truly unique team! They have embedded highly complex cryptography into a practical enterprise solution by leveraging experience from Big Tech firms, Banks and the elite units of the Israeli military intelligence. We excited to work with Itay Malinger, Dan Yadlin, Josh Schwartz and the rest of the Curv team.

Further reading on institutional adoption of digital assets: Jonas M. Wenke (here), Sean Lippel (here).

For more information please contact me on: ar@illuminatefinancial.com