As a result of Peter Thiel’s plans to move towards mainstream adoption, Peter Thiel’s venture-capital firm is backing a startup that intends to bring Wall Street electronic-trading expertise to the cryptocurrency market.
Peter Thiel’s firm is a San Francisco based Founders Fund. One of the investors from the firm is behind the early-stage startup, called Tagomi Systems Inc., according to people familiar with the situation who spoke with the Wall Street Journal. The startup has raised $15.5 million to date, one of the people with knowledge of the firm’s plans said, and is still refining its strategy. The company could also see a name change in the coming future
Tagomi whose Co-Founders include Greg Tusar, the Former Head of Electronic Trading at Goldman Sachs. The company intends to be the cryptocurrency version of a traditional broker-dealer. Tusar is a well-known and respected figure in the electronic-trading business. He worked at Goldman for almost 15 years before joining high-speed trader KCG Holdings Inc., where he spent the next four years.
Tagomi is to face a tough uphill battle, despite the involvement of Thiel’s organization. Some investor enthusiasm has cooled since December when the industry registered all-time highs for cryptocurrencies. In the U.S., there are also worries surrounding the uncertain regulatory status of the industry.
The problem the startup is looking to tackle is related to the buying or selling of large quantities of digital currencies, which is difficult because of market fragmentation across hundreds of exchanges around the globe. Connecting to all of them requires different accounts, and cryptocurrency exchanges generally impose limits on the number of funds that can come in and out on a given day.
These obstacles make it both difficult and time-consuming to execute big trades and in addition to the above problems the price of the coins can fluctuate before an investor finishes the buying or selling process.
This is where Tagomi steps in, intending to make trading easier by borrowing a page from the stock market. In U.S. equities, broker-dealers use systems called ‘smart order routers’ that dispatch their clients’ buy and sell orders to various venues, including a dozen exchanges and more than 30 over-the-counter platforms called ‘dark pools.’
These routers make immediate and calculated decisions about which market is the best place to execute a trade at any given time, and Tagomi is looking to develop a similar tool for use in the online cryptocurrency exchange market.
As of now, there isn’t a clear number available that can tell how much money Founders Fund has invested in the startup. Overall, Thiel’s firm has more than $3 billion under management and has taken stakes in more than 100 companies, including Facebook and Airbnb Inc.
“The digital equivalent of gold could be Bitcoin as it is a potentially useful hedge against global chaos.”