EXCLUSIVE From Bitcoin 2022: How To Increase Liquidity, Efficiency In Cryptocurrency Markets

Detroit-based Benzinga, a media and data provider bridging the gap between retail and institutional investors, sent its team to Miami, Florida April 6-9, for Bitcoin 2022.

During that time, Benzinga sought to recognize the innovation in digital assets, and spoke with founders, investors, and beyond.

The following is a conversation with Haohan Xu, the founder and CEO of Apifiny Group Inc, a global digital asset trading network for institutions, creating one global trading marketplace for digital assets. Check it out!

Benzinga: Hey Haohan, nice to meet you in person, finally. We spoke in March and are glad to hear some updates. What’s new?

Haohan Xu: We’re going public the SPAC route via a merger with Abri SPAC I Inc ASPA.

In a typical SPAC process, you announce a deal and the SEC will comment on the filings. We’ll answer some of the comments, and that’s usually a 90-day process.

Since we’re a crypto company, it’s an area that the SEC wants to regulate, and so it’s taking longer. It’s been exciting, and the SEC asks a lot of questions.

They’re sharp. They ask about custody, and the exchange of tokens. It shows the SEC understands a lot more than the public thinks. That’s assuring.

What’s been your focus since March?

We’ve dropped a few product launches, and we’ve been hiring aggressively.

The crypto labor market is very competitive now, and we’re mainly looking for engineers from traditional finance (TradeFi). So, hiring individuals from the Intercontinental Exchange Inc-owned ICE NYSE, Nasdaq Inc NDAQ, Citadel, and the like.

Since the SPAC announcement, a lot of large TradeFi names have reached out to us, either wanting to learn more about our solutions or, potentially, become strategic investors.

I think the solution we provide is very unique. We’ve got trust, disclosure, and compliance.

Overall, a more innovative business model.

How does Apifiny work, again?

We provide a trading platform that gives you seamless access to the complete crypto market.

Crypto, traditionally, is being traded in a very backward way compared to equities. If you look at the equity world, a typical user interacts with introducing brokers like Robinhood Markets Inc HOOD.

Then, these introducing brokers go to a market maker or exchange where the liquidity of a certain asset is centralized. You’re not going to find Apple Inc AAPL stock priced differently across those different introducing brokers. There’s no arbitrage opportunity.

Cryptocurrencies, however, are traded locally. Coinbase Global Inc COIN has its own market and that’s also the user’s first point of contact. Just because you’re using Coinbase doesn’t mean you’re getting the same quote on Gemini.

You’re only seeing the prices that sellers on Coinbase are offering, and not the prices sellers on Gemini are offering.

So, you have Bitcoin BTC/USD, a global asset, being traded locally and, because of this, in the early days of crypto, people found massive arbitrage opportunities.

You could buy bitcoin in one place and sell it for much higher elsewhere.

Arbitrage is secondary to the issues institutions and professional traders face in crypto, which is fragmentation. At any given point, you can’t find the best price on bitcoin.

In order for professional and institutional traders to trade efficiently, they need to connect to the entire crypto market, which is all the exchanges out there. And, every time you connect to an exchange, you’ve got to onboard, study the API, and repeat this process like 25 times.

Through us, you onboard once and trade through one set of APIs.

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Where does the extra capital you have now go?

It will go to hiring and marketing, as well as business development. In the second half of this year, we’re trying to work with a group of custodians to solve the problem of pre-funding in crypto. So, today, a crypto trader has to decide on capital allocation issues while they should be focused on trading.

We’re trying to have the traders be able to custody all of their funds at one custodian and trade on the exchanges, without having to pre-fund into the exchange.

Then, they can settle to the exchange afterward. Custodians play a crucial role, here.

How are you making money?

We have three businesses: fees from the trading platform or exchange of exchanges, market-making and earning rebates for providing liquidity, and mining.

When we mine, the bitcoin is injected into our market-making arm to provide more liquidity out to the exchanges. When we provide more liquidity, we will get lower fees from the exchanges.

When fees are low, we gain more spread on trading fees. That way, we can gain more revenue from the trading business.

In terms of market-making, do you limit yourselves to the assets you trade?

It’s very similar to prop trading. We market make everything. There are thousands of crypto assets out there.

In regards to the assets we offer for trading to our clients. That’s very limited. We have a listing policy and look at the reputation of the asset and how the network works. After, we evaluate whether it is a security or not.

The Howey Test is a pretty common test for whether an asset is a security. When we pass the test and determine the asset is not a security, we will list the asset on the exchange.

Consolidation. How does that impact Apifiny?

It’s an arms race and, ultimately, it comes down to diversification of business. So, new assets and ways to make money include derivatives, NFTs, or staking. These are all in line with acquisition strategies for these exchanges like Coinbase.

For us, we’re more focused on servicing professional traders. We want to make this market more efficient. We want the crypto world to be freer where the value flows freely across, essentially.

Apifiny is for anyone, right?

There are different features or solutions that might cater a bit differently.

So, our Apifiny Connect product is for funds who want lower costs on exchanges or access to a certain sort of exchange through our platform.

Then, we have a product called ExOne. It’s an open library, written in C++. It helps some of the funds that don’t necessarily have a lot of technology resources to build components for backtesting, execution, and things like that. So, we pre-built a library for them to use.

The solutions are different for different crowds but, overall, we serve more professional traders. Retailers are welcome to use it.

Do you have a data business?

Not right now. Data collected is used to improve user experiences. Traders are very sensitive about data and question if we’ll reverse engineer their strategy.

Anything else to get off your chest?

We do treat maker orders as a commodity. In the end, there’s no single wholesaler of market orders. There’s no single seller of liquidity.

Exchanges need maker orders — liquidity — to produce revenue, and everyone’s kind of buying maker orders and liquidity from different people.

It’s all priced differently and everyone’s spending a lot of money on that.

Because we’ve captured a lot of small- to medium-sized traders who were previously barred from entering this space, we capture a lot of new liquidity, so we can provide this in bulk to the exchanges, solving a lot of problems they face.

That’s the new value proposition or pitch to the market in the coming year