Here's Why We Invested In A Company Bridging The Gap Between Traditional Finance & Digital Assets

“There’s a fear of blockchain,” James explained, “I think that may hold off a lot of folks to really do a deeper dive because of some of the complexity that you always hear about with these digital-native assets.”

Traditional institutions will adopt digital assets en masse - that much is certain. Bitcoin is approaching 60K; a tenfold increase year-over-year. Meanwhile, institutional interest in digital assets is building.

The Wall Street old guard and leading investors alike are keeping a close eye on the market and drawing up digital asset strategies. But widespread adoption will require a catalyst.

Market fragmentation, the inherent complexity of crypto, a lack of tools and the absence of institutional-grade prime services tailored to the needs of legacy finance block the path forward. 

We invested in Digital Lending Capital Corp. (DLCC) because they’ve developed that catalyst. DLCC, a member of our Winter 2020 accelerator cohort, has built a suite of prime services that allows traditional asset managers and allocators - including global macro hedge funds, family offices and endowments - to participate in digital assets. 

A SaaS prime services suite for traditional asset managers and allocators

The platform boasts a full suite of prime service. Moreover, DLCC have built tech for digital assets with traditional finance DNA: The product gives institutions access to a nascent asset class by understanding the needs of a traditional user.

DLCC’s prime services suite makes participating in digital assets less confusing and fragmented for institutions, can be plugged into a firm’s existing infrastructure, and borrows best practices and rules and regulations from traditional asset classes. 

The product offering allows users to trade digital assets through the company’s prime brokerage platform, locate and borrow digital assets, short digital assets with cutting edge tools to manage directional risk, lend digital assets to augment yield, and manage collateral across users’ open positions, as well as profit and loss. 

The all-in-one toolkit DLCC’s platform provides its users mitigates the fragmentation that discourages traditional institutions from participating in digital assets.

Version 1.0 of the prime services suite is calibrated to offer institutions flexibility with the assets it supports (today, DLCC provides liquidity in five tokens) and to embrace a wider range of financial instruments as clients get more comfortable allocating capital into digital assets and implement more complex investing strategies. 

Built by a team that understands traditional finance

The founding team has deep roots in traditional finance. DLCC co-founder and CEO James Runnels has been working in capital markets for nearly twenty years.

Throughout his career, he’s provided traditional clients the services they need to manage the risk of the portfolios they’re responsible for. James has worked closely with hedge fund clients, institutional asset managers, and family offices, as well as different bulge bracket and middle-market firms that provide institutional prime services like execution, custody, margin financing, securities lending, and repo financing.

Before he founded DLCC, James was head of securities lending at tZero, the leading blockchain enterprise for capital markets. Prior to his pivot to digital assets, he was managing director at Cantor Prime Services, which offers prime brokerage for legacy, structured credit and fixed income.

James cut his teeth at the prime brokerage arm of BNP Paribas, a global investment bank, where he headed business development on the institutional desk.

During his time at tZero, James and a few of his colleagues identified an unmet need in the market: crypto prime. Perfect timing graced the idea that became DLCC:

Hardly anyone was talking about crypto prime in late 2018 and early 2019. So, James and his colleagues quickly gathered a talented team and a cadre of investors, then got to work.

The result is a prime services solution for digital assets that works for traditional institutions because it knows their needs firsthand. 

DLCC’s prime services software is designed to suit the needs of a traditional asset manager or allocator who is accustomed to prime brokerage for traditional assets.

The long-standing model for traditional prime brokerage sees a family office or endowment meet a hedge fund manager at the prime brokerage arm of a big Wall Street firm.

Asset managers know that the prime brokerage tools at the fund manager’s disposal allow him or her to manage asset risk all in one place. This centralized prime brokerage model serves as the core principle in DLCC’s product design. 

DLCC has developed an offering that helps untangle the more intricate aspects of digital assets that confuse legacy institutions and prevent them from seizing the next opportunity to allocate capital into digital assets like Bitcoin.

“There’s a fear of blockchain,” James explained, “I think that may hold off a lot of folks to really do a deeper dive because of some of the complexity that you always hear about with these digital-native assets.”

“We’re not trying to build a product that skirts around best practices and traditional rules and regulations. We built a product that is actually embedded in it, and embraces it.”

DLCC’s solution is designed to be used right out of the box. The SaaS prime services suite can be plugged into any regulated entity, and gives traditional asset managers and allocators the institutional-grade tools they need, all in one place.

DLCC’s decision to start with technology enabled them to nimbly build a workable SaaS platform with broad compatibility, rather than a standalone prime services system. DLCC optimized their seed capital--they put it into their tech, avoiding a protracted capital raise in the firm’s infancy to develop costly infrastructure.

In retrospect, James told us, DLCC’s decision to make tech the priority was a boon. DLCC built their software to be agnostic to service providers and custody - they can work with one or many custody partners - as well as execution and liquidity.

This gave DLCC’s product agility and straightforwardness. The platform’s compatible design also reflects the team’s commitment to borrowing best practices and rules and regulations from traditional finance: DLCC built a prime services suite that’s embedded in and embraces the long-standing rules and regulations that apply to traditional asset classes. 

DLCC aims to add derivative and DeFi functionalities, James said, and to grow its ever-expanding roster of liquidity providers. 

Why we invested in DLCC

We’re backing DLCC because their SaaS-based prime services suite for digital assets is designed to facilitate traditional asset managers and allocators’ participation in the digital asset space--addressing an unmet need in the market. DLCC’s tech-first approach enabled them to develop software with a range of prime services tools that can be plugged into an existing trading infrastructure, lending it wide compatibility and making it easy to adopt for traditional institutions who often lack the tools to participate in the space on their own.

Additionally, their focus on building a prime services suite with traditional ergonomics will lessen the market fragmentation and complicated nature of digital assets that prevent global macro hedge funds, family offices, endowments, and other asset managers and allocators from moving capital into the space.

DLCC’s prime services offering has the potential to revolutionize how traditional institutions participate in digital assets and help the traditional finance world lean into, embrace and adopt digital assets. We think that’s brilliant.

By John Payne for Aves Lair

Join us for Demo Day on April 9 as we celebrate the Aves Lair Winter 2020 cohort's achievements and see how they've turned innovative ideas into reality. Sign up for the free event here.

(Disclaimer: DLCC is a member of Aves Lair's Winter 2020 accelerator program)

Learn more about DLCC and their prime services solutions for traditional institutions.

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