Keyrock: Liquidity Makes Blockchain Matter

Why does blockchain matter? People might have different answers to this question. To Kevin de Patoul, the co-founder of Keyrock, a digital-asset market maker, blockchain enables the market to provide liquidity on a broader scale of asset types. In November, Keyrock announced it had raised $72 million in a Series B funding round. The announcement came at a pivotal time when market confidence in crypto was wavering.

Right before the new year, Pandaily secured an exclusive interview with Kevin. We looked back to the past and looked forward to the future. Most importantly, we dug into some fundamental questions: Why is blockchain important? What can it bring to people? What role does Keyrock play during this technological revolution?

Pandaily: A few days ago, Keyrock celebrated its fifth anniversary. Congratulations, first of all. To be honest, I didn’t know about crypto five years ago, so I’m curious to know, how did you know the concept of crypto and why did you decide to move into the industry? I noticed that before you founded Keyrock, you were a consultant, right?

Kevin: Before I founded Keyrock, I was working at Roland Berger with a focus on financial services. I started to be very interested in Bitcoin back in 2014. As you know, the market soared quite a bit in 2013. That was how I fell into the rabbit hole of crypto. Since then, I have become more and more interested in Bitcoin, its underlying technology, and different use cases. I launched a worldwide blockchain competence center within Roland Berger, the consulting firm where I was working. However, Roland Berger, as a big management consulting firm, did not have many blockchain-related projects for me to work on in 2014-2015. Most of the competence center’s job was about the publication of studies or the analysis of work, but the experience allowed me to understand the potential of blockchain and confirmed my belief in its possible impact. In 2017, ICO reached high growth, which marked the start of using blockchain in capital markets. In the same year, I met my two co-founders, Jeremy de Groodt and Juan David Mendieta. We had a lot of discussions on why ICO was getting so popular and shared our understanding of the technology. We agreed that tokenizing an asset brings a lot more potential liquidity to the asset. It doesn’t mean that the asset automatically becomes more liquid, but it might potentially have a lot more liquid.

For example, an NFT is used to tokenize art pieces. An NFT is much easier to exchange than a physical piece of art, right? Let’s consider assets that are already very liquid, for example, a stock of Amazon. If today were Saturday, you couldn’t buy it. If I wanted to buy 1/10 of that stock, it would be impossible to do it directly from you to me. However, what if the stock becomes fully digitalized and tokenized? We can then do both of those two all of a sudden. Thus, tokenizing assets potentially brings a lot more liquidity to the market. However, when we looked back at the market in 2017, liquidity was a very big challenge. Those assets issued on decentralized technologies had a very fragmented market, so they had a bit of liquidity everywhere. In summary, liquidity should be the main added value when we have tokenized assets, but the value was not reflected five years ago. Keyrock was founded to fill the gap. We created a system that would allow us to provide liquidity at a very large scale to all digital assets. We hoped to allow digital assets to really fulfill their promises and thereby empower them to organize economies.

We strongly believe every single asset should have digital representation. The market for digital assets should be much bigger than the current crypto market.

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Pandaily: We are still very far from that ideal condition that you mentioned. Based on your introduction, Keyrock is not a crypto company. It is instead a digital asset company. The definition of digital assets should be broader than crypto.

Kevin: I wholeheartedly agree. If you look at Venn diagrams, so to speak, you have the digital asset that is still mostly composed of crypto today, but digital assets can and will be much broader than that on the line. Keyrock, as a company, aims to provide liquid digital assets, which are a much bigger order of magnitude than crypto alone is today. That is why everything that we have built in the past five years was to make sure we have the system and the scalability to allow us to capture that growth in the next five to 10 years. We are building with a very long-term mission.

Pandaily: The market today is different from five years ago. What is the biggest difference in your observation?

Kevin: Many applications that we have today did not exist five years ago, like DeFi, lending protocols, etc. The market is much more mature compared to 2017, but certainly not fully matured. Thus, we can see today’s collapses are much bigger than they would have been five years ago.

However, even if we witnessed collapses like LUNA and FTX, for example, I still feel the market has in general gotten better in terms of professionalism and long-term missions on both the centralized and decentralized sides. There has been a tremendous improvement in people’s understanding of how the market infrastructure should work. In 2017, when we were discussing with potential clients, we had to explain what market maker was and why it was important, but it is no longer necessary now.

Pandaily: As you mentioned, there are multiple collapses and the overall crypto market is bearish. There was a bear market as well starting in the second year the company was founded. That must be a very hard time for a newly founded team.

Kevin: It was. We founded the company on December 6, 2017. The price of Bitcoin was just above $20,000 for the first time. The price stayed there for one more month and then went down in the following two and half years. The conditions were challenging, but at the same time, we were just getting started. We had to build our systems, algorithms, business model, and client relationship in a much more difficult environment. If you managed the team to grow year over year in such an environment, you would be stronger. Interestingly enough, Keyrock was founded when the market bubble burst and many companies went bankrupt. Five years later, when the market was again in a tough position, Keyrock closed another large round of funding to accelerate our growth. Those bear markets are, of course, challenging, but they make you practice, they make you stronger, and they make you create opportunities. I’m quite grateful that we founded the company when we did and we learned a lot.

Pandaily: And now we have another bear market.

Kevin: There is a bear market, of course. Both prices and volumes are lower compared to them one year ago. But as I said, we have much more solid ground than we did back then. In 2017, everything was crazy for ICOs, and there was nothing there because all those companies just started to build their products.

Now, there are lots of things that people inflated and were over-optimistic about, but let’s look at what exists, look at what is already there. Consider the grounding of the industry and the promises of what it can bring. Read the involvement of very large institutions in the crypto market. We are not where we were five years ago. Although there is the same logic of over-optimism that happened five years ago, the market is different. There is no single moment when I talk about the recent crisis I will be asked, does crypto have a future? Certainly, it does! Institutions might collapse, but the technology has proved promising.

Pandaily: When the technology has been recognized more widely, more players are entering the market. Although you do not need to explain what a market-maker is to your client anymore, you might now need to explain why the client should pick you up over other competitors. Please tell us what makes Keyrock special.

Kevin: When you think about market making, it’s very easy. You log on to an exchange, open a bid, open an ask, and you are now a market maker. What is hard is how to do that on hundreds of markets at the same time under every market condition. This is what makes market-making extremely complicated. As a market maker, you are always against the market. When everybody wants to buy, you sell. What everybody wants to sell, you buy. You need to be able to measure risk and provide the level of liquidity that you agree on with your clients.

I think that there are too many things that make us stand out. One is the scalability of our systems. As I said, within the last five years, we have spent a lot of time focusing on our infrastructure and our core system to make sure that we can provide satisfying liquidity for every single digital asset in the next 10 to 15 years. That means we did not focus on immediate growth most of the time. We need to make sure the ground is very solid and the system allows us to expand to larger scalability for the number of markets that we can open with a lot of resilience and robustness.

The second is client service orientation. When you look at our vision, we empower tokenized economies. We work with clients. We are not a prop trading shop. At some point, we developed prop training activities, but the core of our identity is to empower tokenized economies, to work with pro projects, and to provide liquidity as a service with very strict service level agreements. We are there to support those projects. No matter what happens in the market, we are here.

I believe the scalability of our product and the client service orientation are our edge competitiveness that cannot be replicated.

Pandaily: Both sound very challenging. It looks like Keyrock has around 100 employees at the moment. How do you complete those two challenging tasks with such a compact team?

Kevin: It’s indeed that we are not a very big team yet, but we are growing. We expect to double the team this year. As I underscored, we have a very long-term mission. We focus on doing things right, which allows us to be efficient in resource use.

Pandaily: It’s pretty ambitious to double your team within one year, especially during the bear market.

Kevin: We did it last year! We have been doubling earlier this year. Unfortunately, there are many companies that are in trouble and reducing their teams, which means that there is a lot of amazing talent in the market. Also, I think the funds we recently raised are very positively helpful for us to attract new hires.

Pandaily: I noticed that you are hiring talent outside Europe, although most of your teams are still based in Europe. Could I understand that the recent funding is partially related to your globalization plan?

Kevin: As a company, we work 24/7. We have clients from all over the world. The team is already global in that sense. We opened an office in London and are opening one in Switzerland. Singapore is going to be the next before we start looking at the US. We are getting a stronger footprint internationally by opening offices and having a presence, which is part of the reason why we were looking for this round of funding.

Pandaily: Different countries have different regulations about crypto. I think that will be a very big challenge to your globalization plan. How are you facing such a challenge?

Kevin: If you are a centralized entity, there needs to be the same oversight as is in traditional finance markets, because many of the risks are the same. It makes sense that our activity should be regulated.

When we do an international expansion, we will start with questions on which jurisdiction we are going to expand to and what type of licenses we need to apply for. Those questions are where we get started. We will carefully review each regulation policy and estimate the commercial potential. We will make sure to continue being fully compliant in all of our activity jurisdictions in the future.

Pandaily: As you implied, Keyrock is still pretty centralized currently. Crypto communities always have discussions on centralization versus decentralization. With the growing trend of decentralization, what is Keyrock’s plan for the future?

Kevin: As a market-maker, we bridge between buyers and sellers, we bridge between institutions and retail. And certainly, we need to bridge between centralized and decentralized worlds. I think we’re going to evolve towards a paradigm where you have both centralized and decentralized forms. I firmly believe that we will have both.

Keyrock provides liquidity on both centralized and decentralized venues. We are looking at how we can empower those fully decentralized tokenized economies as well. I think Keyrock is playing a key role to bridge two sides together. Today, CeFi still has a much bigger market than DeFi, but DeFi is going to grow much faster and eventually reach a balance. Keyrock will keep eye on both centralized and decentralized markets, bridge them, and make the overall market as liquid and efficient as possible.

Pandaily: It looks like you have faith that there will be a mixture of CeFi and DeFi eventually. Is that part of the reason why you are recruiting many people with a traditional finance background into your team? Some crypto founders once told me that they feel there is a gap between traditional finance and crypto finance. A lot of traditional-finance people cannot get used to the crypto market.

Kevin: There are differences, but the crypto market also needs to learn from the traditional market. I think that if people with many years of experience in the traditional market decide to make a jump and start working in crypto, most of them have the right mindset of looking for how things could work differently. At least they are interested. There is going to be a lot of learning for them for sure. They need to understand something that might be completely different in this market from the traditional one. But I think someone with a traditional finance background and an open mindset to learn will have an easier onboarding process into the business.

Pandaily: Could I conclude that you are not a completely crypto-native firm? Unlike many crypto people, you believe the future will be a coexistence of centralization and decentralization and you are much more friendly to traditional finance.

Kevin: Yes. I mean, for me, centralization and decentralization are paradigms. Both of them have added values for different use cases. If you look at the traditional world, I can go fully decentralized and get all my cash in a mattress. Outside of banks entirely. But I don’t do that, as there are some advantages in trusting a centralized body if that centralized entity is trustworthy. The key thing here is the choice. As a market participant, you should be enabled to decide when to go to centralized places and when to go to decentralized entities. What makes digital assets so important is enabling people to have options.

Pandaily: My last question is – we know the team just closed the Series B funding round – how are you planning to make use of the money?

Kevin: There are three main parts. One is international expansion, as previously mentioned. We are already available 24/7 worldwide, but we need to have a stronger footprint regarding jurisdiction across different locations. One is on the product side. We want to provide more services and products. We are very much pushing and ramping up what we do on OTC trading, RFQ trading, and so on. We need corresponding products and services to support our ambitions. The last one is to include more trading instruments. We are still predominantly working on spot markets, but futures and options will be our very big focus in January.