Despite stagnant prices, institutions continue to show interest in blockchain technology

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(Kitco News) – Institutional investment in the cryptocurrency sector has long been heralded as what will bring legitimacy to the burgeoning asset class, as the world’s largest financial institutions are expected to throw their weight behind digital assets as the next financial frontier.

2021 saw the rise of many popular market sectors that caught the attention of institutions — including decentralized finance (DeFi), non-fungible tokens (NFTs), and the metaverse — but the widespread pullback for cryptos in 2022 has corporate desire decreased to increase their own crypto holdings.

While PR surrounding blockchain-focused companies has declined, interest in the sector continues to grow at an amazing rate, according to Tongtong Gong, COO and co-founder of digital asset data company Amberdata, who spoke to Kitco Crypto about the growing interest institutional investors in blockchain technology.

Services offered by Amberdata include trade research, risk management, backtesting, accounting and compliance that businesses use to make more informed decisions when it comes to investing in the blockchain space.

Several companies have turned to Amberdata to use their services to gain a better understanding of the crypto markets and the different types of information available to them. These include firms like Citibank, Nasdaq and National Australia Bank, all of which are current Amberdata customers, according to Gong.

Evidence of the increased demand for crypto data support is the expansion of Amberdata, which has grown from a small team of 10 to 60 people in less than eight months.

“I would say that 80% of my clients are all institutions and prop shops,” Gong said, highlighting the current institutional demand behind the scenes. “Even if a company decides not to delve into crypto, what they want most of all is to be smart and stay up to date with the latest developments.”

Information that tops the list of importance to institutions includes the basics of a token, such as its issuance rate, the supply available, and the consensus mechanism, along with various metrics that provide insight into the health of a network.

Areas of interest include decentralized finance (DeFi), stablecoins, smart contracts and interoperability, as well as a simplified way to view data from hundreds of crypto exchanges around the world for a better understanding of available liquidity and potential arbitrage opportunities.

The increasing importance of derivative products such as futures and options contracts has further complicated the information gathering process and made it even more difficult to participate in the world of crypto.

areas of interest

One of the sectors garnering the most attention from institutional players is DeFi, which is introducing some “fun financial market primitives” like lending and leveraged trading.

The process of adopting DeFi products is relatively easy compared to the cumbersome process required with centralized finance (CeFi). DeFi is also globally accessible, while CeFi products are often only available in individual markets.

Another key selling point of DeFi protocols is that they don’t require a human to operate, thanks to smart contract technology.

According to Gong, CeFi institutions will likely start integrating DeFi offerings like lending and yield farming in the near future as they try to offer users the best of both worlds while trying to take advantage of all available income opportunities.

When it comes to NFTs, the fundamental topic of discussion is digital rights management.

“When McDonald’s or Starbucks announce the launch of NFTs, it’s really about digital rights management,” Gong said. “NFTs provide a way to use digital rights annuities as a revenue stream, and for artists they can continue to make money while their product is in use.”

“So I think it solves a lot of problems, especially for the artist industry.”

The importance of data and DYOR

What’s most important for institutions to focus on moving forward is “to know your data and do your own research,” Gong said.

While the main focus of discussions in 2019 revolved around the question “Is crypto just a scam?” After the ICO hype cycle, the questions this time are more focused on how do we better understand this and how do we better manage our risks?

Topics such as available liquidity and counterparty risks are more in the foreground than the fixation on fraud. Above all, companies are looking for ways to avoid making the same mistakes again.

“Whether it’s Three Arrows Capital, Celsius or Luna, all the issues we’ve seen are very similar to those seen in traditional markets like Long-Term Capital Management or Lehman Brothers. The entire financial industry is built on risk management, and now crypto is no different,” the COO said.

“Our mission is to provide the best, most comprehensive and deepest insights and data for institutions to help make crypto more legitimate, mainstream and here to stay.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of the author Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. It is not an invitation to exchange goods, securities or other financial instruments. Kitco Metals Inc. and the author of this article assume no responsibility for any loss and/or damage resulting from the use of this publication.

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