DigFin has dedicated this week to looking at the companies at the forefront of digitizing gold. Today we conclude with a look at Tradewind Markets. Unlike the other companies we have featured – HelloGold, Mobile Assets and Emergent Technology – Tradewind is tackling digitized gold at the institutional level, in capital markets. It wants to build a platform that these other companies might ultimately plug into.
Tradewind: trading gold electronically
Tradewind Markets is a New York-based spinout from IEX Group, the stock exchange founded in 2014 as a reaction to distortions created by high-frequency traders, as documented in Michael Lewis’s Flashboys.
Its co-founder and president, Matthew Trudeau, has a career in equities electronic trading, including senior roles at Instinet, Chi-X and IEX. The IEX Ventures team that Trudeau led was interested in applying distributed-ledger technology in order to create new market infrastructure in post-trade systems.
It found the physical gold market, centered in London, both large and out of date, with trades mostly conducted over the counter and by phone.
“The world of gold involves vaults and depositories all over the world that have different recordkeeping systems and serve different customers,” Trudeau said. “It’s a mess when it comes to reconciliation and data management.”
Could Tradewind use DLT to bring about a common infrastructure, digitize all the recordkeeping, and let end investors stay in direct touch with their assets? In short, the company is looking to become to gold what DTCC is to equities.
Doing so should make gold a more transacted and useful asset class. This can happen if it helps institutional investors avoid the costs of shipping and storing gold, or the extra fees required when investing in paper derivatives like exchange-traded funds, all without sacrificing liquidity or direct ownership.
“Our first use case is just to make gold more efficient and useful,” Trudeau said, noting the company is working with the Royal Canadian Mint as a depository. “If the market likes the digital gold format, it will change how people trade and invest in gold.”
A common infrastructure
What next? Trudeau says the focus for this calendar year is to create an infrastructure for the electronic trading of gold, using R3’s Corda DLT, and start getting institutions to use it.
But the company is also thinking ahead, which means building out a broader ecosystem. It is extending back to the provenance of gold, using DLT to support transparency in mining and refining, and has attracted producers with emphasize environmentally sustainable and ethical mining as investors in the company; GoldCorp is one such example.
“Instead of recreating fragmentation, can we get miners to agree on some standards?” Trudeau wondered. “We’re electronic market operators; we don’t want to impose a solution or play the role of arbiter, but collaborate with constituents on business problems.”
Tradewind is also working with physical gold dealers, starting with those in North America, with London next. Dealers lead to distribution. And if it works for gold, what about other commodities?
“In five years, we can be the infrastructure for trading all precious metals,” Trudeau said, with Tradewind’s technology supporting vaults and depositories for storage; dealers for trading; and other gold fintechs for customer acquisition, recordkeeping and KYC.
“A marketplace brings together liquidity, and that leads to efficiencies, but it requires a common tech infrastructure,” he said.