Lack of action after blockchain startup raises $10 million after deal

Rage Review : In May 2015, Swedish blockchain startup Cryex raised $10 million to explore blockchain in the post-trading field. As one of the first companies to focus on the post-trading field, it attracted great attention at the time. However, recent news reports have said that the company has not taken any practical action so far, and the investment has not yielded any returns, and even the company's co-founders have resigned. However, the company's CEO Lotta Eek pointed out that the company has its own plans, but currently lacks external impetus and the regulatory environment is not favorable. In addition, such projects have always required a lot of costs, so they will prepare for a second round of financing. Although the post-trading field has indeed attracted a lot of capital and enterprises, there is no practical solution in the entire blockchain field.

Translation: Annie_Xu

Swedish blockchain startup Cryex has denied news reports that it needs to seek funding to keep the company afloat, arguing instead that a lack of external motivation and an inefficient regulatory environment have reduced the company’s earnings.

In May 2015, Cryex raised $10 million, which attracted great attention. It was one of the first companies to explore blockchain in the post-trade field, attracting investors such as White Star Capital and Northzone Ventures. Since then, post-trade has become the hottest use case of blockchain. Goldman Sachs also predicted that blockchain could save billions for derivatives and equity markets alone.

However, Cryex did not gain much benefit from building a blockchain-based central counterparty clearing organization (CCP). Reports on the reasons for the company's failure are also mixed.

For example, late last month Swedish tech news Breakit reported that the company had invested 43 million Swedish kronor (about $5.9 million) and earned only 9.5 million Swedish kronor (1.1 million U.S. dollars) from September 2014 to December 2015. The news also highlighted the resignation of the company's original leadership, with co-founders Scott Miller, Christian Merheim and Klas Hessleman all leaving the company last year.

Although this has led to speculation that the company's prospects are not good, Cryex CEO Lotta Eek told reporters that such reports are misleading and that the company is applying for a license to distribute its solutions from the Financial Supervisory Authority SFSA (Swedish Finansinspektionen).

“We worked very hard even though we knew the reality was that we couldn’t get a cryptocurrency license. We stuck to the reality.”

Eek said becoming a CCP is an ambitious goal because only 16 companies in the European Union are currently allowed to provide such services, according to the European Securities and Markets Authority (ESMA). The cost of such work cannot be compared with other startups.

"The average cost of such a program is closest to the cost of Nasdaq's published market and clearing house."

Eek said Cryex submitted a license application in April 2015, and the company's 10-person team is planning a second round of financing to provide follow-up funds for the project (Breakit said the company's financing goal is US$15 million and a transitional financing "bridge loan").

The core of foreign exchange

Eek said the company’s future plans are to focus on non-blockchain services first.

The company has designed two versions of the platform, one of which does not rely on blockchain and has higher operability.

“We have two parts of the market, one is FX and the other is FX and crypto. Just like settlement, we have two parallel environments. One for FX projects and one for FX-related crypto projects.”

Eek said many banks are unsure whether they can handle digital assets, or code in a distributed ledger, so firms may be limited to token-based blockchain systems for now.

Cryex is considering providing a solution that relies more on the ledger, only sharing information without exchanging tokens. She expressed appreciation for the development of post-trade services by companies in the industry such as SETL and Chainalysis.

However, she said the company believes these solutions are short-sighted given the potential value that digitized assets can bring to capital markets.

“We are also interested in the cryptocurrency space, which I think is very interesting. We strongly believe that the advantages of cryptocurrencies in value transfer are self-evident. When they will happen we don’t know, but we will follow the trend.”

The Road Ahead

As for when the company will release its blockchain service, Eek believes that Cryex’s application will be approved by mid-September this year.

Eek said Cryex would even compete with its foreign exchange services because its combined bid and ask prices would be reflected in an order-driven market.

“That’s the first core value proposition, and there can only be one market player that can do that.”

"Cryex is a big project and our clearing organization is superior to our peers."

Eek said Cryex plans to include over-the-counter derivatives in its proof-of-concept because the cryptocurrency settlement system needs to wait for regulatory approval.