PolySign Creates “FIX Messaging” for Digital Assets

PolySign, which is building an institutional-grade blockchain-enabled infrastructure for digital assets, is developing a cross-chain messaging layer that will enable transactions across different assets to be seamlessly consolidated in one place, which is currently a cumbersome process. .

Jack McDonald, chief executive of PolySign, told Markets Media that the infrastructure provider has an initiative that has been “in the skunkworks” for a while around building a cross-chain settlement layer for a large group and asset transfer agnostic.

Jack McDonald, PolySign

He said: “We are working with very large asset managers and service providers to create a settlement layer which we call PolyNet. It’s six months away from any kind of rollout in a commercial sense, but it’s a really exciting strategy for us that will help take us overseas and open up our customer base.

For example, if an investor wants to trade in fiat currency for a token interest in a building, or a fractional interest in a venture capital fund, or for a cryptocurrency, all of these different trades could be brought together in a single ecosystem. . The messaging layer is comparable to FIX messaging, a standard in the traditional financial sector across asset classes.

McDonald went on to say that PolySign was started in order to build a blockchain-enabled infrastructure for institutions to invest in digital assets and the company started with custody, which he said is the cornerstone of a asset servicing model.

Standard Custody & Trust Company, a subsidiary of PolySign, was created in New York to become a qualified custodian regulated by the New York State Department of Financial Services, and received authorization in May 2021. McDonald’s said the custodial business has grown very rapidly since its launch and is doubling in terms of customers and assets every month.

According to McDonald, being a regulated and qualified custodian is an important differentiator for PolySign. He argued that other crypto-native custodians license guard software but are not regulated. US asset managers or advisers managing more than $150 million in regulatory capital should use a qualified custodian such as Standard Custody & Trust Company.

“A fundamental difference is that if a customer licenses custodial software, they themselves keep their keys,” he said. “We are a qualified regulated goalkeeper, so we keep the key.”

Standard’s security program combines proprietary blockchain technology, end-to-end encryption, and distributed trust protocols to protect secret keys.

McDonald explained that PolySign also uses a unique technology that combines multi-party key sharing and a hardware security module on a proprietary blockchain designed by blockchain architects Arthur Britto and David Schwartz. Britto, founder and chairman of PolySign, previously co-founded Ripple and co-designed the XRP Ledger.

In the world of digital assets, many exchanges act as custodians and one of Polysign’s fundamental theories at launch was that these tasks should be separated. McDonald said: “We are not an exchange and only a custodian. Fundamental questions like these still need to be addressed before some of the more conservative institutions enter this space.

Cowen Digital

In March 2022, investment bank Cowen announced the public launch of its digital asset division, Cowen Digital, with Standard Custody & Trust providing safekeeping.

Cowen and PolySign had announced a strategic partnership in May 2021. The bank also made a $25 million strategic investment in PolySign and led the initial $53 million closing of PolySign’s Series B financing.

Jeffrey Solomon, Chairman and CEO of Cowen, said in a statement at the time: “As digital assets continue to grow and mature as an asset class, institutional investors need custodial solutions and reliable trading companies that live up to their requirements for investing in traditional securities. .”

Stover MG

In April 2022, PolySign announced the acquisition of MG Stover, a administrator of digital funds with over $40 billion in digital assets under administration, which the company said were by far the largest in the world. Alongside the deal, PolySign completed its Series C capital raise, adding new investors to its shareholder base, including Soros Fund Management, Brevan Howard and GSR. Cowen Digital also added to its equity position.

McDonald said: “The opportunity to acquire a company like MG Stover doesn’t come around that often. They are by far the leading digital asset fund administrator so we jumped at the chance and couldn’t be more excited about it. »

The deal is done and the companies are being integrated. “We are certainly focused on cross-selling our custodial business to legacy fund administration clients and vice versa,” he added.

Market downturn

There has been a drop in digital asset prices this year and cracks in the ecosystem such as lenders suspending withdrawals and the collapse of an algorithmic stablecoin. McDonald’s said this would result in a flight to quality.

“Some of the issues we’ve seen are going to expose shortcomings or weaknesses of some service providers,” he added. “I think investors will migrate to entities and well-funded, compliant service providers overseen by reputable regulators”

Also, as some of the excesses that existed in the market are eliminated, the fundraising process will become a bit more patient and thoughtful. McDonald continued that three factors affect the institutional adoption of digital assets – education, infrastructure and regulation.

He said: “Infrastructure has come a long way, but we still have more to do.”

For example, three or four years ago, there were no qualified custody options in digital assets, and few scalable solutions in trading, custody, or reporting.

However, standardization still needs to develop, such as the same identifiers for securities used by the many different exchanges around the world, or common templates for market data or reports, or accounting standards.

“There is no standard format for messaging between exchanges, custodians, administrators and auditors,” McDonald said. “The pavement and plumbing that has existed in traditional finance doesn’t fit neatly into the digital asset ecosystem, nor does the regulatory framework.”

Regulation

A die The fundamental questions that remain to be answered in the United States are whether or not digital assets will be treated as securities. Senators Kirsten Gillibrand and Cynthia Lummis introduced a crypto regulatory framework that assigned regulatory authority over digital asset spot markets to the CFTC, which regulates commodities.

Once a regulatory framework is in place, McDonald’s expects traditional businesses to enter the digital asset space, but argued that it will then take some time to get the technology in place. and the necessary processes.

“My personal view is that we are going to see an M&A cycle evolve because when the regulatory window opens for banks to participate in this space, there will be a buy versus build debate and the issue of speed marketing comes into play,” he said.

As part of its growth strategy, Polysign will add more services, such as reporting tools, and form partnerships to deliver the infrastructure it has built to mainstream institutions.

“We want to go to market as fully as possible, but in the best way,” he added. “We don’t have to own everything in-house.”