Why the founder of IEX, the "flash kid", uses blockchain to fight against the opaque market

Rage Review : Matthew Trudeau, one of the founding team of IEX, was the inspiration for Michael Lewis' bestseller "Flash Boys". He is also the president of the start-up Tradewind Market, and most of the board members are also legendary figures. The company cooperated with Sprott Inc. in Toronto, Canada to use blockchain to simplify the gold trading process and increase market transparency. However, the company has not yet announced a clear route.

Translation: Annie_Xu

The core principles of the IEX stock exchange that inspired Michael Lewis’ bestseller “Flash Boys” could now form the basis for a blockchain-based gold exchange.

IEX and Sprott Inc have participated in a $9 million investment in the newly formed Tradewind Market, whose codebase will integrate some kind of blockchain in an effort to streamline gold trading and increase market transparency.

The key difference here, however, is that while IEX’s so-called “speed bump” recipe slowed down some high-frequency trading in order to build a fair market, Tradewind hopes to use blockchain to achieve trading compliance while increasing settlement speed.

Matthew Trudeau

In the first interview about Tradewind, Matthew Trudeau, president of the startup and former product manager at IEX, explains how the stock exchange came up with the idea to modernize precious metals trading.

“Our view is that maybe blockchain technology can find a place in a new world with new rules. We started with the open terminal research project, not to find a breakthrough to force it into blockchain, but to understand how settlement and clearing work in different asset classes around the world.”

Trudeau said that after deciding to start with the gold market, the company's founding team began looking for strategic partners with specific industry knowledge to form the board of directors. Finally, we determined that this important role was Sprott Inc. in Toronto, Canada, the operator of the Gold Miners ETF fund, which had assets of more than $250 million in July.

Sprott CEO Peter Grosskopf has joined the Tradewind board, along with IEX's CEO Brad Katsuyama, IEX CTO Rob Park, Bain Capital's Matt Harris, Tradewind co-founder Mike Haughton, and Steve Eisman, an analyst who founded the hedge fund and was the inspiration for actor Steve Carell in the movie The Big Short.

Tradewind’s other co-founder is Fraser Buchan, who is interim CEO and president of NewCastle Gold Ltd and CEO and president of Angus Mining Inc.

The company has yet to decide which blockchain it will use, or whether it will develop another system of its own. However, Trudeau said the team is clear about what the project entails, including the difference between it and the public nature of the bitcoin blockchain.

“We haven’t specified which blockchain it is yet. But we are very clear about the purpose and layout of the company’s system. We are trying to deconstruct and clarify it.”

Gold trading is just the beginning

Data from commodity research company CPM Group shows that the world's largest gold exchange, the London Gold Market, had a gold trading volume of 4.62 billion ounces in 2015, with a total value of US$5 trillion.

But Trudeau believes that most OTC markets are “quite opaque” and that the post-trade clearing and settlement process “is not as technologically driven as other markets,” making them ripe for disruption.

Tradewind is not the only company that sees this shortcoming as an opportunity. Others looking to improve technology in the gold market include the London Bullion Market Association (LBMA) and the World Gold Council, which has a partnership with the London Metal Exchange (LME).

Those who succeed in modernizing this market will be rewarded with many things other than gold.

“If we can develop a working production version of a distributed settlement system, I think the whole industry will be attracted to it.”

"If we can build products on top of this system, we can get other opportunities."

IEX Precious Wealth

Although Tradewind is based on IEX, Trudeau said the company has always considered itself a subsidiary and its relationship with IEX will become closer.

In addition to learning how to operate a “transparent and fair market,” Trudeau said the IEX team taught him the importance of bringing together industry representatives who are interested in achieving disruption.

"Our staffing is different from traditional single organizations and is very unique. The exchange of ideas brings many opportunities and innovations, and IEX is the driver of these new things."

The company is located in the Nolita community in Manhattan and currently has 8 members, and plans to increase to 25 by the middle of next year, including several engineers who will transform the IEX securities trading code base into gold trading.

As for whether the move will have multifaceted implications and whether IEX will follow the Australian Securities Exchange in integrating blockchain into its infrastructure, Trudeau said, “I don’t have a firm idea at this point.”

"I think we'll probably see progress on this project and they can do an evaluation."