The 2017 ICO (Initial Coin Offering) boom has come to an end, leaving a number of crypto startups struggling to raise funds this year. Yet one fintech startup that once passed on the opportunity to launch an ICO is currently experiencing a hiring spree.
Cobalt, a startup focused on re-engineering the trillion-dollar institutional foreign exchange (FX) market, has just hired five experienced professionals to lead the rollout of the company’s shared infrastructure.
We are thrilled to welcome Bob Linton, Dan Evans, John Fitzgerlad, Nitin Talwar and Kamaldeep Bhachu to the rapidly expanding Cobalt team. They bring a breadth of FX experience across the interdealer and prime broker space and have an intimate knowledge of the competitive landscape as well as financial institutions’ systems. Each will play a key role in reengineering the FX market from the ground up, getting rid of legacy systems and replacing them with new technology that is more suitable for the low-latency FX market of today,” said Darren Coote, managing director of Cobalt.
While Cobalt once identified as a “distributed ledger startup” in 2017, Cobalt’s co-founder, Adrian Patten, told me that traditional DLT and blockchain technology was not a good fit for the company’s infrastructure due to issues with indexing and processing. Upon determining the correct technology to use, Cobalt has been able to hire five new professionals to help transform the FX market.
“Cobalt’s recent hiring spree isn’t due to a fundraising round. And unlike other ‘blockchain’ projects out there, Cobalt is applying ‘blockchain-like’ capabilities to re-engineer the FX market by creating a shared view of trade data,” said Patten.
Based on a shared database system, Cobalt’s infrastructure aims to optimize risk management and slash costs up to 80 percent for banks trading in the FX market. The foreign exchange market requires processing, indexing and reconciliation of many transactions at high speed. While Cobalt first looked at using traditional DLT, the team quickly realized this technology wouldn’t work for what they sought to achieve.
“We were looking for data immutability, not for transfer of financial value. Our project, ‘Babylon,’ uses a ‘block matrix’ rather than a blockchain network to make any tradable data set immutable at scale,” explained Patten.
For example, Cobalt is a centralized, standard trading system that uses Babylon to create a unique record once a shared contract between a buyer and seller is completed. A hash value is then generated through a SHA-256 algorithm, which is part of a set of cryptographic hash functions that was designed by the United States National Security Agency (NSA).
Each transaction on our platform has its own hash generated by the SHA-256 algorithm. We then put those hashes on a high-speed, secure network where the hashes are distributed on a number of nodes. Each node can process over 2 million hashes per second. This is designed to handle massive volumes of data and high speed, all at a relatively low cost. We have a centralized system, but with distributed immutability. In other words, we can make any data set immutable at scale,” said Patten.
The Truth: A Single-Shared Transaction
If successful, Cobalt could solve the massive cost on post-trade processing and foreign exchange for major banks that individually spend up to a billion dollars a year on FX post trade. According to Patten, the high cost of post-trade processing is due to the fact that banks lack consistent data.
“We’ve created a single shared transaction of the truth. Once our customers have this data set, there can’t be any differences. So there is never a difference in data for those counter parties that process a thousand transactions a day in the same currency. Our customers can settle at the end of day, rather than paying every single one of those thousand transactions,” said Patten.
And while foreign exchange solutions such as Traiana, along with centralized messaging platforms like Swift, handle trillions of dollars of transactions per day, FX trade remains fragmented.
“There has been no investments made in post trade for 15 years. Now, institutions are looking for the savings that we can provide. We recently showed one bank that we could cut the post trade cost in one of their divisions by 50 percent, which is tens of millions of dollars a year,” explained Patten.
Hiring Due To Success
Although it has taken Cobalt three years to get to the level where they are today, the company has confirmed that they are now generating revenue. As a result, Cobalt has been able to bring on more professionals to help build out their solutions.
“We are hiring because we are being successful. We spent over three years getting here, but we have been cautious growing the team. We even looked at doing an ICO once, but just couldn’t justify it,” said Patten.
