Sfox aims to help institutional investors make crypto trades faster, stealthier and at better prices. Above: an employee at Dutch bitcoin broker Bitonic checks crypto prices.
Silicon Valley-based cryptocurrency trading platform Sfox has raised $23 million in new investment, led by venture firms Tribe Capital and Social Capital. The 20-person startup aims to help investors make large trades by routing their orders to multiple places, enabling faster execution and better prices. Khosla Ventures, startup accelerator Y Combinator, and crypto investors Blockchain Capital and Digital Currency Group also participated in the Series A funding round. Forbes estimates Sfox has reached $15 million in revenue over the past 12 months.
Sfox CEO Akbar Thobhani, 41, is a software engineer who was one of the first 15 employees at Airbnb and served as its head of business development. He cofounded Sfox in 2014 with George Melika, 42, a software developer who built trading platforms at asset management firm Nuveen. In 2009, Thobhani became interested in crypto. His biography on Sfox’s website reads, “He started mining bitcoins at MIT before it was cool.” Sfox’s platform first launched in 2015.
The crypto trading landscape is highly fragmented, with hundreds of exchanges and dozens of “over-the-counter” (OTC) trading desks, where a trader can be matched directly with a buyer or seller to complete a large transaction. Sfox aims to provide a single point of access for institutional investors, like crypto hedge funds and family offices, that move large amounts of money.
Its platform plugs into digital currency exchanges and OTC desks—Thobhani says it’s connected to “almost every single one”—and tries to get the lowest price for buyers (and the highest price for sellers). It does that by using a “smart router” that scans the different trading venues for prices and tries to lock in the best deals. Thobhani says Sfox has been able to beat the average market price for a crypto asset trade by 2.5%. By connecting to so many different entities, Sfox also helps its customers access more liquidity, upping the chances they can clear an order at their desired price.
Sfox also lets clients make “stealth” orders. For example, one of the problems with trying to make a large crypto asset sale on an exchange like Coinbase Pro or Binance is that it can crash the price, causing coins to sell at lower and lower values and reducing the seller’s profits. Sfox says its “secret sauce” algorithms help to hide that trade until it gets executed, preventing the market from cratering.
To make money, Sfox charges transaction fees, which range from 0.25% to 0.75%, depending on the type of order. Over the past 12 months, it processed $5.4 billion in trades and brought in an estimated $15 million in revenue.
Compliance is critical in any securities trading business, and two years ago Sfox hired David Gutierrez as chief compliance officer—he had previously been a senior compliance officer at Capital Group, an investment management firm with $1.7 trillion in assets. Gutierrez built Sfox’s compliance platform, which helps the startup adhere to regulatory guidelines like “know your customer” rules.
Sfox isn’t the only startup trying to court institutional crypto investors. New York-based Omega One, backed by blockchain consulting firm and startup incubator ConsenSys, was founded last year. Its CEO, Alex Gordon-Brander, previously worked in finance for more than 20 years, including five years at hedge fund Bridgewater Associates, where he helped build the company’s algorithmic trading infrastructure.
Omega One has more than 20 employees, and sources at the company say it will launch an early product to a limited set of clients in the next few weeks, with a full-scale launch expected by the end of the year. Planned services include a smart order router, a dark pool where investors can trade large orders without moving markets and a custody solution. Last year, it postponed plans for an ICO to focus on regulatory compliance, although it has raised an undisclosed amount of private investment. Crypto startup Tagomi, backed by Peter Thiel, is also reportedly working on a smart order routing product.
What will Sfox do with its newly secured $23 million? One goal is to pursue regulatory approval in more states. It’s currently registered as a “prime dealer” in 22 states, but not yet New York, where it will need to get approved for a BitLicense. Sfox will also likely build a custody solution, which would let institutional investors store their crypto assets with the company.
Jeff Kauflin Forbes Staff