On Monday, Tagomi, the first digital asset brokerage catering to sophisticated traders and investors launched its service. Wall Street investors depend on brokers to assist them in executing trades. Such brokerages provide the link between the actual market and the investor.
Whilst there has been a move towards use of over the counter (OTC) trading desks, there are few fulfilling the role that Tagomi are focusing on. The brokerage is being backed by Paypal co-founder, Peter Thiel through his San Francisco based venture capital firm, Founders Fund.
Co-founder Greg Tusar spoke about what specifically Tagomi is trying to offer:
“The space is growing so fast and has so many different business models. For us, we saw a landscape that was made up of exchanges that offered up their own liquidity. Software vendors that sell you software but the end user is responsible for running their own exchange relations, and OTC dealers. None of these act effectively as the client’s broker from the beginning to the end.”
Another element of the company’s offering is a consultancy service. If a client who wants to make a multi-million dollar crypto trade presents, Tagomi can walk that client through the process. The company informs the client on how to best make the trade using the best available data.
In order to achieve the objective of the best possible trade execution, limiting slippage and market impact, trading may be facilitated on a number of exchanges if necessary. Duration of trading would be totally aligned with achieving this goal and as a consequence, it could happen within a few hours or days. Algorithms could also be included in the approach taken in order to assist with the decision making process.
Models for best execution are ubiquitous to conventional markets. However, crypto is playing catch-up in this respect and this is one area where Tagomi has a role to fulfil.
Liquidity is an important factor in terms of Tagomi’s best trade execution model. The ease with which an investor can take a position or reverse that position is sometimes of greater importance than simply selecting the trading mechanism that facilitates the best possible price. Chief Operating Officer (COO) of Tagomi – Kevin Johnson, explained:
“Best execution is a little more nuanced. We have to look at best price and best liquidity. Getting access to all of this liquidity is difficult. And you have to explain to a client that while you saw this price available on CoinMarketCap for a coin, it might not be easy to get connected to a venue where you can get that price but with Tagomi, you can access multiple venues from a single account, and get much better price execution which represents the full market.”
Additionally, Tagomi works with financial institutions and cryptocurrency custody providers to facilitate secure transfers and asset custody on behalf of its clients. The company has bundled its offering into two products. A streamlined execution product is being marketed at high net worth individuals and fund investors. This package allows traders to utilize advanced trading tools together with an interface which allows them to monitor their holdings.
An advanced trading product is also offered and aimed at active traders that need aggregated access to markets, together with the provision of advanced execution strategies.
The company have raised $16 million in funding to date. Amongst the top tier investors are Digital Currency Group, ZhenFund, Brainchild, Collaborative Fund, Box Group, Elad Gil, Joe Lonsdale, Charlie Noyes and Peter Thiel’s Founders Fund.
The launch is significant as it sets another block in establishing a crypto currency ecosystem, with a sophisticated brokerage needed to assist with trade execution. In the conventional trading world, investors utilize the services of BNY Mellon and State Street for custody solutions. Neither of these companies have moved to provide custodial services in cryptocurrency. Therefore, Tagomi will liaise with the lesser known providers of custody solutions in the crypto space so as to accommodate its clients.
Chris Hehmeyer, the CEO of Hehmeyer Trading suggested that Tagomi will assist in building trust for large investors who are otherwise unsure of how to enter the cryptocurrency market.
Hehmeyer stated: “People like their trusted third party. They like their banks. They like their brokerage companies. They feel comfortable. These folks, it looks like, are trying to bring trusted third-party services to the digital space, the digital ledger technology area. That should definitely bring comfort to the fiduciaries of the world, which is where the institutional money is.”