Diginex is about to go live with services on a number of fronts. At its core, the company has ambitions to become an investment bank for digital assets. But it is now rolling out a dizzying array of other services that extend beyond what a traditional universal bank might do.
“It’s all about making this industry investible,” said Richard Byworth, Hong Kong-based CEO.
That’s the difference between the classic world of finance and one built around digitization and blockchain. In the classic world, you build one business at a time, bespoke and isolated, with a holding company to stitch things together.
In the digital world, you build a platform with a customer database at its core and APIs to connect to many third parties; you build an ecosystem that can keep expanding.
The Everything Bank
This happened first in e-commerce with Amazon and Alibaba. But it hasn’t happened in traditional finance, which remains based on product-specific technologies and a complex patchwork of regulation. Can the lessons of e-commerce apply to financial institutions operating in a purely digital context? That’s what Diginex is doing, by building as much of the institutional ecosystem as it can, before traditional investment banks wake up and join in.
So in a span of months, Diginex is:
- Beta-testing technology to connect traditional trading floors to crypto-currencies;
- Making markets in digital assets;
- Introducing a custody solution this week;
- Launching a licensed asset manager;
- Underwriting its first security token;
- By October, launching its own digital asset exchange;
- Extending a blockchain-based app to help document migrant workers into a KYC and authentication service.
Some of these functions accord with how investment banks are structured in the classic world, pre-2008: with markets desks, prime broking, prop trading, and asset management. But it would also be as if Goldman Sachs were a tech vendor like FIS, a data provider like Refinitiv, and owned and operated Nasdaq.
Digital investment banks and the tokens they touch are simultaneously companies and networks. This is what makes blockchain-based finance dynamic and presumably lucrative, but also difficult to regulate and potentially conflicted.
From classic to digital
Byworth, asked about this, says nascent market conditions are driving traditional stock exchanges and investment banks to look at the infrastructure to accommodate digital assets. That might mean creating their own.
So…does this mean each bank, as it enters blockchain-based business, will create its own trading venues? That suggests a world more like today’s bond market, where everything trades bilaterally among banks with warehouses of liquidity.
But Byworth doesn’t think so, although he doesn’t get into specifics as to why. He’s hoping Diginex serves that infrastructure role instead. (For example, the onboarding model for the exchange has also been repurposed into a KYC and authentication product.) Although he stresses the firm’s commitment to building things well rather than racing to market, it’s clear there is a countdown. The big investment banks will enter Diginex’s space.
Will Goldman come along? DefinitelyRichard Byworth, Diginex
“It’s harder for traditional banks to run their businesses because they’re getting commoditized. Spreads are going to zero on just about everything,” he said. “The spreads and margins in our [digital] business will also compress at some point, but we have a two-year head start. It’s just issuing securities via a new form, so will Goldman come along? Definitely.”
Byworth spent 17 years at Nomura as an investment banker, trader and structurer. He also ran the derivatives business inherited from Nomura’s takeover of the failed Lehman Brothers.
He was on gardening leave in 2017, about to take a position with a venture capital firm. The day he meant to sign the new contract, he had breakfast with Miles Pelham, the founder of Diginex. Diginex was initially set up as a bitcoin miner, and Byworth had already taken a stake in it as a private investor. But over breakfast, Pelhem shared his vision for Diginex as a full-service financial platform.
Byworth, who had only recently gotten interested in bitcoin, changed his mind on the spot, and formally joined Diginex as CEO in March 2018. Now his main job is to ensure there are customers ready to go on day one for each product launch.
He is speaking with DigFin at Diginex’s offices in IFC Two. Uber-prime real estate, outfitted to be slick. High rent for a startup that’s still in the process of introducing projects.
“It takes time to get revenues, but we have been very well funded,” Byworth said.
We have been very well fundedRichard Byworth, Diginex
Investor James Mengdong Tan, from Singapore, has facilitated Diginex’s reverse listing onto Nasdaq. Tan’s investment firm, 8i Enterprises Acquisition Corp., is a special purpose acquisition company. Listed on Nasdaq, its purpose is to amass capital to find an asset – which turned out to be Diginex.
The acquisition by 8i, announced on July 10, still needs the approval of the U.S. SEC, which Byworth expects in the next month or so, enabling Diginex to complete its listing by October. The deal would value the company at $276 million.
Digital investment bank, plus
As for the core of the business – to become an investment bank, originating and distributing securities – the firm is exploring the launch of its first securities token in London, with the deal slated for September 1. Diginex has the capability to distribute securities in the U.K. through its status as an appointed representative.
The proposed token would be a one-year fixed-income security to raise capital for the firm’s proprietary trading business: the idea is to eventually roll the trading business into a new asset-management vehicle.
“It’s Diginex’s credit,” he said. “This is a test case, to make sure everything works.” And if it does?
“We have a pipeline of securitizations, and we’re in talks with big private-equity firms about optimizing their portfolios and monetizing their assets.”
We’re in talks with big private-equity firms about optimizing their portfoliosRichard Byworth, Diginex
The firm is centering origination in London, and would like to acquire a broker-dealer or other distribution capabilities in Hong Kong and Switzerland. With offices in Berlin, Dubai, Tokyo and Boston, the firm intends to broaden its reach.
Diginex is also working with partners for other projects. It has a deal with trade-tech vendor FIS to build a crypto capability onto FIS’s existing products. This is in beta now, potentially putting Diginex’s technology on many of the world’s biggest trading floors.
And it is partnered with an ant-slavery NGO, The Mekong Club, on one of its first products, called eMin, a blockchain service to give undocumented workers a means of identity, so that global companies can identify them. The idea is to cut out middlemen in developing countries that exploit poor people. The platform is being repurposed as a solution to allow organizations to secure sensitive documents, and add additional security to workflows using Microsoft’s Azure blockchain.