A Conversation with Talos, a Rising Institutional Trading Technology Provider in the Crypto Market

A Conversation with Talos, a Rising Institutional Trading Technology Provider in the Crypto Market

Institutional traders are pouring into the crypto industry as the crypto market becomes more and more popular. Following this trend, institutional crypto-trading service providers have started to catch investors’ attention. It has become a norm for projects in this sector such as Amber Group, to be valued at over US$2 billion. Yet, while some investors are distracted by the glamor of novel projects like NFTs and DeFi, there is a tendency to overlook the institutional aspect of digital assets despite its large market size.

Today we introduce Talos, an institutional trading technology provider that powers digital asset trading strategies globally. Talos recently announced its $105 million Series B fundraising, led by global growth equity firm General Atlantic and participation from veteran investors in both the traditional finance and digital asset space. Given the teams’ background in capital markets and existing relationships with prominent industry leaders, Talos is set to be a competitive player in this sector in the future. The following is a recap of my conversation with Anton Katz, Co-Founder and CEO of Talos during TOKEN2049 Singapore. Through this conversation, we will learn more about the background, mission, and focus of Talos. As an added bonus, Anton will also give a detailed breakdown of the key differences in institutional digital assets trading that make it so drastically different from retail trading.

(From Left to Right) Hang Jiang from GCR and Anton Katz from Talos

Editor’s Note: This interview took place in September as part of TOKEN2049 Singapore.

Hang: We know that Talos has raised US$105 million recently, and it’s an institutional trading technology provider.  Can you share some background of Talos, why you built this company, and how Talos solves the challenges faced by institutional traders?

Anton: That’s correct. We managed to raise US$105 million in our last fundraising round. Based on the investors that participated in that round, it’s very clear that most of them are traditional institutions and traditional partners that are starting to place their bets in the digital asset space.

As a company, Talos provides institutions with the ability to trade crypto assets. The reason why we’re doing that is because we identified the challenges faced by traditional institutions entering the digital asset space at our previous jobs. Our entire team came from multiple places and we have predominantly been involved with capital markets for 15-16 years. So we built the infrastructure that’s needed for solutions in foreign exchange, treasuries, fixed income and futures.  Before founding Talos, I led the trading technology team at AQR Capital, one of the largest asset management firms in the world and prior to that, I was the director of software for Broadway Technology, the largest provider of training support for the sell-side. The reason why we’re in this space is because we’re seeing an evolution with a  brand-new asset class and institutions will need to be a part of that evolution. We believe that institutions will play  a large role. In order for institutions to play that critical role in the ecosystem, they will need the right tools for them to be able to interact with digital assets. This is where Talos comes in to connect all these institutions, whether on the buy side or the sell side, by providing an ecosystem for all the stakeholders to trade crypto either by connecting them to all the different exchanges, or the different OTC providers.

Hang: It sounds to me like Talos is an aggregator for financial institutions because you provide the necessary tools that connect traders to exchanges. Am I understanding this correctly?

Anton: A lot of times that’s true. We aggregate a lot of services that are provided under us. Many of our customers want to provide a “one-stop shop” for their clients to be able to  complete their entire trade lifecycle or investment lifecycle. From custody to liquidity, to settlement, and even data, we provide it all under one umbrella allowing our clients to do things more efficiently. That’s essentially what our product offering is.

Hang: Sounds like the main selling point of the platform is convenience.

Anton: Absolutely, convenience. Not only that but also safety and optimization, especially in this asset class where there are so many different types of platforms, and liquidity pools. We also provide 24/7 client support globally, we need to make sure that institutions have access to all the tools that they need, when they need them. These are non-negotiables for institutions, and that is something not many software providers can provide. So, we are the ones that allow traders to access all these different services from a single platform by connecting them together.

Hang: So how do institutional traders differ from retail traders?

Anton: That’s a good question. Let me explain by using both of us as examples. You and I are both retail traders. If we want to buy bitcoin tomorrow, we would make our transactions on Coinbase, Kraken or Binance. It’s fairly straightforward for us. For institutions, we need to understand that the scale of their purchases is much larger in volume. For example, if they want to buy a billion dollars’ worth of bitcoin, they will need to figure out what their strategy is around custody. Then they would need to think about how they would carry out those transactions through an algorithmic trading environment with the respective custodians. In the instance of a billion dollars’ worth of bitcoin,  it is likely going to be broken up into thousands of pieces over some duration. The Talos platform provides an algorithm that understands how to optimize these trades, how to keep them safe, and how to do it very quickly.

That was just one of the steps that are part of the wider trade lifecycle. When making transactions, a digital asset goes through three main stages — pre-trade, trade, and post-trade. Pre-trade refers to what happens before the actual transaction is made, when the trader has to decide for example, if he wants to borrow from lenders. The trade takes place when we decide to make the transaction. After these stages take place, post-trade will be when clearing, settlements and reporting take place. These post-trade stages are a priority to institutions because they want to be able to say “okay, I have done my best I could for my customer” because they have to be able to tell auditors that they did their best to get the best price. Because they are financially responsible for these activities, they need to have a very different set of tools from the ones you and I use as retail investors.

Hang: Awesome, it saves them a lot of capital with these efficient algorithms. Are commission fees much higher than other exchanges like Binance?

Anton: Commission fees are part of the equation. For retail investors, the commission we pay is negligible. But for institutional investors, the commissions can be hefty because of the sheer volume of the trade. This is why the algorithm is so important because it actively monitors the changes that vary on all the marketplaces and identifies which marketplace offers the best price to minimize commission fees. A fun fact is that algorithms recompute every millisecond and 100 milliseconds and will shift orders around according to the prices offered on each marketplace.

Hang: Sounds very interesting. That’s amazing. Can you share how many exchanges use your data?

Anton:  We have over 40 different destinations on our platform ranging from exchanges, dealers like Cumberland or Genesis and OTC desks. The difference is that on exchanges, it is open to everyone – you and I can trade on exchanges, and institutions as well. But on the dealer side, only institutions can trade. Dealers are the ones that publish prices on the exchange site. So, institutions always have a choice to choose where they want to transact. In total, we support over 40 of them.

Hang: Would you consider decentralized exchanges? Like Uniswap, and DYDX. Do you also plan to connect with them in the future? 

Anton: Yeah. So unequivocally for us, a decentralized world is a big focus of our strategy.  Today we already contribute prices to some of the decentralised protocols and because we’re trading entities, we see prices across the world. We know how to aggregate prices, and we know how to calculate the relative fair price across all the entire world in all the different currencies, or different digital assets. We give these prices to our clients, but also contribute prices to other protocols. Increasingly, we’re involved with the decentralised domain. Generally speaking, liquidity is not the only thing that we care about. So liquidity is interesting and to your point, Uniswap is a great example of that. Uniswap would be an interesting proposition that can be integrated onto our platform, giving our clients access to that liquidity pool. As you might know, liquidity is very important to institutional investors. Given our domain focus, we will speak with any liquidity provider because ultimately, we are here to provide a service to our clients. While there is a lack of liquidity in the decentralised world, for now, there is actually a growing liquidity pool. Our job is simple — we connect institutions to the underlying asset class and if it means doing this on decentralised rails, that’s where we go. Liquidity is just one part of DeFi.

Another area we are starting to focus more on is yield. This refers to things like staking or lending that complement our current portfolio and treasury management services. Our clients will soon be able to say “I really want to make sure that we have this capability, maybe I want to lend, some of it is through centralised tools, and some of them through decentralized tools”.

Another aspect of DeFi is data. There is a lot of data that is now generated in a decentralised world, and we don’t necessarily get the same availability or fidelity in this regard compared to the traditional centralised world. So, we’re connecting to data sources there as well to make sure that our clients have access. So as always, you know, for us it’s about being the one-stop shop that provides access to these larger services, and DeFi is a huge portion of our strategy.

Hang: Talos recently announced its partnership with Lukka. How does this contribute to your product? How will this define your edge over your competitors?

Anton: Generally speaking, the difference between Talos and some platforms that are out there is our size, and accumulated knowledge of the challenges faced by institutions – we build a platform that covers a wider gamut of the trade lifecycle. We don’t only focus on one stage of the trade lifecycle; we connect all the underlying rails so a client can really engage the entire trade life cycle in one place. So being a “one-stop shop” is a very nice thing to do because clients no longer need to worry about connectivity to tons of other players. It’s a very common thing to do because every institution will be trying to build the same thing, but Talos is building that for them. Again, you want to make sure that the clients can basically achieve whatever they need to do.

To your question about our partnership with Lukka, the back office is something that traditionally doesn’t get integrated very well. We are now realizing the importance of back-office services such as data collection, calculating taxes and other similar tasks. So, for us, the partnership with Lukka is a great addition to our platform because they power fund administrators when they trade. Our partnership with Lukka allows us to take the data, normalize all the data, and make it available on the platform. Now, Lukka doesn’t have to connect to every single exchange anymore. They can get the data from our clients from our platform easily. Lukka also doesn’t have to be concerned about how to get access to the data because we already normalize and allow them to have access at once. The partnership with Lukka is perfect for us because it processes the data and allows our clients to easily provide data for administrative services. So far, this partnership has yielded quite a lot of good outcomes.

Editor’s Note: Since the interview, Since the interview, Talos announced their latest partnership with Amber Group that will allow their users to access greater liquidity via Amber’s flagship product, WhaleFin.

Hang: I understand that the current valuation of other institutional trading service platforms like Amber Group has surpassed US$2 billion.  Given your background and future direction, I think Talos will probably be valued at much more than that.

Anton: That’s the hope. And look, we have very sophisticated investors. The people that led our Series B, General Atlantic, is a private equity firm that is very systematic in its nature and is generally one of the best PE firms in the world. We also have Stripes, we also have a lot of banks like Citibank, BNY Mellon, Wells Fargo, SCB, and Fidelity. Our investors tend to believe in the ecosystem that we’re building, and that it will continue to evolve.

Hang: That makes a lot of sense. Thank you for the conversation today, Anton.

Anton: Thank you for your questions, appreciate it.

This conversational article was written by : Hang Jiang// In collaboration with: Global Coin Research

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