Disclosure: Smith + Crown was a compensated advisor to this project.
Beneath the bear market activity that the crypto industry has experienced in 2018, blockchain tools and infrastructure have been quietly maturing, largely unphased by tumultuous waves of price volatility and speculation. Industry builders are directing their energy towards solving key challenges, such as blockchain scaling constraints, interoperability between chains, tools for issuing compliant security tokens, and developing exchange infrastructure for the trade and management of cryptoassets. Given how underdeveloped, disparate, and non-user friendly existing tools for managing crypto assets are, an array of projects aim to participation in cryptofinancial markets on existing exchanges. The fact that a large portion of token sale fundraising activity has been directed at the “exchange” industry sector, as compared to other sectors in both 2017 and thus far in 2018, illustrates the problem’s significance, and was previously noted in Smith + Crown’s market reports. For broader market context, the following chart reflects finance-related token sales from 2016 into Q3 2018.
The proliferation of cryptoasset exchanges, of which there are approximately 200 as of early 2018, each with varying degrees of security and operational reliability, UX quality, liquidity, KYC/AML requirements as well as fees and policies, has created an environment in which a single fund or trader is often forced to manage a portfolio across multiple exchanges. This impedes a fund’s ability to synchronize and manage trade execution, rebalancing, compliance, and reporting. As a result, professional investors are seeking more sophisticated alternatives to satisfy their needs and support their desired cryptoasset trade activity.
Caspian is a cryptotrading platform working to solve this challenge. The company believes that the crypto industry needs improved tools and functionality to reach its full potential and onboard professional investors and funds that demand improved execution, position management and compliance. Caspian provides a turnkey platform for the trade and management of cryptoassets, which includes:
- Order and Execution Management System (OEMS)
- Portfolio Management System (PMS)
- Risk Management System (RMS)
- Compliance Engine
The platform connects to multiple established cryptoasset exchanges and offers a single OEMS trading interface for users. Caspian inherits and builds upon Tora’s Smart Order Router technology, which allows investors to maximize favorable outcomes by algorithmically executing trades across Caspian’s multiple exchanges.
Caspian’s Order and Execution Management System (OEMS) interface enables trading across the multiple exchanges Caspian has integrated with, including full access to asset and order types supported by each exchange. Pricing and position information, bid/ask, margin management and individual exchange depth are provided, and the OEMS allows orders to be staged, sent, and amended. Order and order slice progress are viewable, and users can configure alerts. APIs are also available for staging and sending orders and slices while delivering transaction information around position, pricing, and exposure. Users may create their own order management strategies using a simple rule-based language that executes according to predefined conditions. Caspian’s Smart Order Router technology is an optional module. The module allows a user to view all exchanges as a single pool of liquidity and engages an algorithm to send a single order to multiple exchanges at the same time, automatically prioritizing exchanges based on liquidity, commission and price, to deliver the best possible outcome for the user. A user is able to set and edit various parameters as well as manually override aspects of the algorithm to fine-tune its behavior.
The Caspian management systems for Portfolio (PMS) and Risk (RMS) receives execution and order information from the OEMS, tracking and recording detailed data for the monitoring of positions, P&Ls and exposures. These systems allow users to perform a variety of back office functions, including reconciliations across multiple counterparties, rebalancing to help funds meet their objectives and distributing the results of trades between different portfolios and funds, even if originally executed with a single order. Caspian’s compliance engine is also built on proprietary technology inherited from Tora, and addresses both pre-trade and post-trade workflows. Flat file reports are made available, which provide data for trades, positions, audits, compliance, snapshots, and are designed to be imported into data visualization tools as needed.
Caspian’s native ERC20 token, CSP, is not required to access the platform, though using it does confer rewards and discounts, as well as governance rights. CSP holders must first stake their tokens in order to trigger rewards. Staking, as defined in the Caspian ecosystem, is achieved by a user sending CSP to a staking contract address from which they may withdraw tokens at any time, but cannot trade or transfer them while held in that contract. User staking benefits include:
- Commission discount: On the 8th day after initial staking, staked tokens begin to accrue discount value at a rate of one percentage point per week, up to a cap of 25%. Additionally, to qualify for a discount, the value of tokens staked must be greater than 1% of a client’s weekly average of daily trade volumes. The exact minimum staking threshold is dynamic and unique to each user, established weekly based on the trading and token price data from the previous week.
- Fee payment discount: Users paying trade and platform fees in CSP rather than fiat receive a maximum 25% discount, applied in addition to the commission discount above.
- Dynamic discount: The full details of the dynamic discount have not yet been released but, broadly speaking, the Caspian team is developing a rewards mechanism that will incentivize stakers and allow them to access a set of rewards that will adjust dynamically as a function of staked tokens and overall network activity.
CSP will also be used to incentivize third party development on the platform. Caspian suggests that developers might opt to build alternative user interfaces, advanced charting libraries, external trading signal feeds, stress tests for trading strategies, or other tools or services. In order to launch a Dapp, the creator must stake tokens, and then can set the price of their own Dapp subscription fee, a portion of which Caspian retains as the underlying platform. Alternatively, developers may offer their Dapps for “free” to users who have staked a predetermined amount of CSP, and in doing so become eligible for token rewards that will be allocated from a designated rewards pool that is a function of both network and marketplace activity volumes. Users may access a portfolio that includes all available “free” Dapps by staking 1 CSP, and must stake additional CSP to satisfy the specific staking requirement determined by the “free” Dapp they want to use. Importantly, users cannot simultaneously use the same staked tokens to access a “free” Dapp and also receive commission, fee, or dynamic discounts listed above. Assuming a scarce amount of staked tokens and competing desires, users must decide which benefit they value most.
CSP will support additional platform development through:
- Development bounties: Tokens held by Caspian will slowly be released over time into bounty pools that fund the development of key infrastructure, integration and plug-ins.
- Community bounties: Users may vote on apps or features they would like to see developed, and bounties will fund the winning idea(s).
Finally, CSP will grant platform governance rights for the top 15 token stakers globally, where tokens have been staked for at least 6 weeks. These 15 stakers will be able to vote on key decisions affecting development and rewards mechanisms. In exchange for participation, they will receive a 5% discount on trading fees in addition to the other discounts they are receiving.
Caspian will launch a token sale on Wednesday October 3rd 2018, for which whitelisting will begin on September 19th 2018. The entire sale, including the closed presale, involves 400 million tokens, representing 40% of the 1 billion total supply. A large portion has already been sold through earlier private rounds, raising a total of $16 million. The public sale price of 1 CSP will be listed at USD $.04875, and the sale will be hard capped at USD $19.5 million total–or $3.5 million in addition to what has already been sold, totaling approximately 51 million CSP. The remaining token supply will be distributed across the reserve fund (32%), community (8%), advisors (5%), and JV partners (15%). Of funds raised, 40% will be allocated to technology, research & development, 25% to sales, marketing & infrastructure, 15% to application support, 12% to partnerships, 5% to accounting, legal & compliance, and 3% to administration.
State of the Technology
As of September 20th 2018, Caspian is connected to over 24 digital asset exchanges and have onboarded 15 customers. Their whitepaper mentions that they plan to enhance their API to allow for additional Smart Order Router control, access to margin information, as well as add pre-trade Transaction Cost Analysis (TCA) checks. In Q2 and Q3 2018, Caspian intends to launch new exchange connectivity and smart order router enhancements. In Q4, they intend to launch pre-trade exchange-based TCA, limits, and address latency, rebalancing, graphical reporting and visualizations. The team projects that, in Q1 2019, they will have tackled new algorithms, liquidity risk, value at risk, stress testing, sensitivity shifts and margin API access.
Caspian is a joint venture between blockchain investment firm Kenetic Trading Systems Limited (and its affiliate Kenetic Capital), and asset management technology provider Tora Trading Services Limited. Tora has existing relationships wither 150 equities and derivatives exchanges and their existing OEMS averages monthly notional equity volume of approximately USD $100 billion. Caspian’s leadership have held senior roles at top investment firms and technology companies. CEO & Cofounder Robert Dykes spent the past 14 years as the CEO of Tora, with a background in enterprise software. COO & Cofounder David Wills is also Kenetic’s COO, and was Managing Director and Head of Asia Trading at Och-Ziff Capital for 10 years prior. Gerrit van Wingerden is CTO & Co-founder, having been Managing Director at Tora for 12 years, and having worked with high volume trading applications and tools for hedge funds prior to that. Experienced blockchain investor Jehan Chu serves as both Chief Strategy Officer at Caspian, as well as Co-founder and Managing Partner at Kenetic. CFO Paul Catuna and Chairman Michael Lerch round out the senior management team.