Behind the scenes Fintech Paxos is conducting crypto efforts on Wall Street

Wall Street is finally turning a corner when it comes to crypto – and a startup that has established itself as a critical link between the two worlds is gearing up despite the decline in crypto.

Paxos provides blockchain infrastructure for businesses to offer crypto features and services, from tokenization to the purchase, inventory and sale of crypto. It is part of a new class of fintechs that has emerged to help traditional companies access the new world of infrastructure and offer crypto services to their customers.

The startup has raised $ 540 million to date, is valued at $ 2.4 billion, and has established relationships with companies such as Bank of America, Credit Suisse and Mastercard.

“They come to us to use our technology and our regulatory stack as both the technology, but also licensing to offer these services,” Walter Hessert, Paxos’ Chief Strategy Officer, told Insider about his typical client.

PayPal and its subsidiary Venmo allow both users to buy, sell and hold bitcoin and other major cryptocurrencies by leveraging Paxos on the back end. The same applies to LatAm fintech’s Mercado Libre and Nubank.

Paxos’ partnership is similar to the challenger banks and its back-end banking partners. Even if you’ve probably heard of Chime, you’re less likely to have come across The Bancorp Bank or Stride Bank. But they are the reason why online banking can offer debit cards and

check account

without a national banking license.

Just like

neobanker

need back-end banking partners who have the necessary regulatory approval and technology to offer financial products, traditional Wall Street firms need to partner with a crypto partner to offer digital asset features.

Wall Street facilitates crypto

The head of the country’s largest bank in JPMorgan may be one of the clearest signals of the industry’s changed attitude towards digital assets and their underlying technology – and how nuanced it can be. JPMorgan’s CEO and Chairman Jamie Dimon went from calling the asset class “a scam” in 2017 to praising crypto’s underlying technology, blockchain, just five years later in its annual shareholder letter in 2022.

In fact, established financiers, from Goldman Sachs to Citigroup, have begun to embrace the technology in the last year. And global venture funding for blockchain startups increased to $ 25.2 billion last year – a more than 700% jump between 2020 and 2021 – according to CB Insights.

Another driver of Wall Street’s embrace of crypto is “that this is ultimately just another rail on which these assets can move – and there is a lot of complexity in holding and trading and moving digital assets or tokenizing non-digital assets. to digital assets, “Hessert added.

For example, Paxos’ stock settlement service, used by Bank of America and Credit Suisse, enables faster processing due to its underlying blockchain technology.

These companies “take advantage of us to be able to turn cash and US stocks into tokenized forms of more transparent and closer real-time settlement than is available today,” Hessert said.

Looking ahead, Paxos is looking at a bigger chunk of the Wall Street pie when it comes to asset tokenization. In 2019, Paxos expanded to gold-backed tokens with Pax Gold, and that’s just the beginning.

“There are $ 700 trillion of financial assets in the world and Paxos, our big bet is that over time – it could take 20 years – but that all of these financial assets will be effectively replatted on the blockchain,” Hessert said.

Other key candidates include entering foreign exchange markets through the emergence of tokenized fiat currencies, real estate and digital types of real estate, such as non-fungible tokens, he added.

And while

bear market

has put downward pressure on the crypto industry, this is not Paxo’s first rodeo.

Fintech has been around since 2012 and endured the crypto winter of 2018. The current downturn has seen “ebb and flow of interest and motivation to integrate these solutions,” Hessert said. But the company views the accelerated integration of crypto and blockchain over the past two to three years as offsetting the current withdrawal, he added.

“There is definitely a different sentiment in the retail cryptocurrency market than there was two months ago,” said Hessert, but having Paxos’ core product focused on the infrastructure layer between institutions has helped isolate the company somewhat from cryptocurrency trading.

volatility

.

“Just because there is a sharp drop in the price of the underlying asset does not mean that it is a less exciting or important technology that is being used,” Hessert said.