What does the company/project do?
Cryptalgo is a Swiss based fintech firm building a platform to serve the institutional market for cryptocurrencies. The platform will give asset managers access to aggregated crypto markets by combining the order books from multiple exchanges into one liquidity pool.
The platform will also allow exchanges, asset managers and individuals to exploit risk free arbitrage opportunities created by mispricing between exchanges.
This is a platform being built for a market that barely exists today, but is expected to grow rapidly in the next five years.
How advanced is the project?
The development road map began in the second quarter of 2017 and one of the primary components, Algotrader, is now being tested in a live environment. The remainder of the components of the platform are scheduled to be completed by Q1 2019.
The project is currently conducting a pre-sale funding round. A decision on whether a public token sale is needed will be made based on how well the pre-sale goes.
The total token supply will be 320 million, and the hard cap is $38 million. Half of the tokens will be available to investors, 15 percent will go to the team and the remaining 35 percent will be used for business development.
What are the tokens used for and how can the token value appreciate?
ALGO tokens will be used to pay fees for trading services and for third-party applications. Institutions will not be obligated to pay their fees using tokens, but will receive discounts if they do. Token holders will earn accumulated discounts, and will be able to sell the portion of a discount they are not using.
The token economy is designed to incentives staking for access to the platform, which the team hope will slow the velocity of tokens within the economy. The token supply will be finite, and a portion of any fee paid with tokens will be burnt, implying controlled deflation over time.
The Algotrader product (see below) will provide a strong value underpin for the token. ALGO tokens will allow holders to earn profits from lucrative arbitrage strategies and from market making, by investing a multiple of the value of the tokens they hold. This will not only allow them to earn alpha rather than beta in the crypto market, but because access to Algotrader will be limited, could make the token worth many times the initial investment. This gives the token a unique value underpin which is not dependent on network effects or the performance of the crypto market as a whole.
Team & Advisors
Cryptalgo has a very big team, with vast experience in the industry it is targeting. Perhaps even more important is the fact that the team already has relationships within the industry, which will make selling the product a lot easier.
The CEO is Francisco Portillejo Hoyos, an investment banking veteran who has worked in several areas of the industry, at UBS, Citibank and Reuters.
The CTO is Ram Shaffir who has a background in software development with a particular focus on trading software.
The advisory team is 14 strong and includes people from a wide range of industries including asset management, cyber security, investment banking, fintech, insurance and PR.
Cryptalgo’s solutions can be divided into three categories all operating on the platform’s Galaxy trading backbone.
The first, cryptocurrency brokerage services, will provide a trading gateway to institutions and broker dealer services to exchanges and companies. The trading gateway will give clients a view of an order book aggregated from multiple exchanges and access to liquidity pools. It will also integrate with institutional risk management systems.
The asset management solution will provide clients with a suite of financial instruments. Cryptalgo will also act as a market maker for these products by accessing the liquidity pools its other solutions provide. The products will include derivatives, ETFs, ETNs and other index tracking products.
The third solution, Algotrader, will be made available to a range of clients, including asset managers and individuals. The product exploits pricing inefficiencies between various exchanges.
Institutions will need to pledge a minimum of $1 million for access to Algotrader, while individual investors will require a certain number of tokens for access.
Profits earned by Algotrader will be split between users and the platform. Users access Algotrader by funding a smart contract with a cryptocurrency for a specific period. The platform’s share of the profit generated by the contract starts at 20 percent of the first 50 percent return, and rises to 50 percent for returns above 250 percent.
Strength and Opportunities
Cryptalgo is targeting one of the world’s biggest markets. Institutions around the world manage assets worth in excess of $49 trillion dollars. If just one percent of that was moved into crypto assets, it would represent a $490 billion opportunity. The potential size of the market also means, trades will be large, and so will fees.
Furthermore, the crypto market is new and inefficient. Because it is not yet regulated, barriers to entry are low and a large number of exchanges have been opened, leading to liquidity problems and pricing inefficiencies. A platform that can give institutions the opportunity to exploit the pricing inefficiencies will be in a strong position.
Finally, the team has vast experience and strong relationships within the financial markets around the world. This may give it a strong advantage over competitors that have teams from a tech background.
Weaknesses and Threats
Because the opportunity is so large, there are already several other well-funded platforms being built to target the same market. Investment banks and brokerages also have their eye on this market.
The team doesn’t appear to have a lot of depth in terms of members with a background in technology, particularly cryptography and blockchain technology. That doesn’t mean they don’t have the right people, but they are not represented in the white paper.
Pricing inefficiencies between exchanges may narrow quickly, which would mean the arbitrage opportunity would only exist for a limited period. Still, the opportunity may give Cryptalgo an opportunity to build market share quickly.
Whether or not the platform itself needs to operate on a blockchain may be open to debate. One might argue that a traditional brokerage model could serve the market just as well.
Cryptalgo is launching into a potentially very large and competitive market. The team has the right depth and type of experience to tackle the market, and will be able to leverage existing relationships.
There are two big risks. The investment banks and brokerage firms that already deal with asset managers are likely to add similar services to their product suite. There is also no guarantee that an institutional market for cryptocurrencies will emerge.
The significant risk and large potential reward gives Cryptalgo an asymmetrical payoff profile as the size of the potential gain could be many times the investment. Anyone investing in ALGO tokens at this stage should treat the investment as highly speculative and only hold a small position.
There may also be opportunities to invest at a later stage in the secondary market, particularly if Cryptalgo begin forging relationships and signing new clients.