James Stickland is one of the twenty most influential people in crypto right now according to Financial News. So we wanted to find out what Elwood Technologies offers institutions in terms of digital assets trading infrastructure. He explains what the recent March Madness in the Financial world means for trading opportunities and risk management. Plus Elwood has big News in the Finoverse so stay tuned!
Walter Jennings: Elwood Technologies offer institutional digital assets trading infrastructure. Essentially, they offer the roads and bridges to get big banks, neobanks, and financial corporations to the digital markets faster. So I caught up with their CEO James Stickland, not once, but twice in the past month to bring you this episode. First, we wanted to fully understand what Elwood brings to the Web3 world, but then the financial world did a loop and Elwood had some big news, so we caught up again. So stay tuned to hear both parts of the conversation. But to get us started, I wanted to know how institutions are approaching digital asset markets and how it's changed over the past year. James, I wanted to really start the conversation by looking at demand for your services almost as a proxy for where institutions are in their adoption of digital assets. So, you know, uh, has the volume of business changed at all in the last six months with the alterations going on in the market?
James Stickland: Look, very much the dynamic has changed. You know, and clearly I would say the appetite's still very aggressive and very engaged. Um, but I think the needs have changed. I think if you rolled the clock back a year ago, there was a huge amount of appetite for institutions to trade the digital asset markets and less about some of the structure buildings, some of the foundational elements that are required, um, and more about being active in trading.
Walter Jennings: Right. So during the heady markets, it was really getting the traders up and running, and now they're looking at more systemic work.
James Stickland: A hundred percent. Yeah. I think people are now going back to the foundations, and, you know, they're building out basics that are required to build long-term, you know, trading strategies and long-term access to the market.
Walter Jennings: And James, to put this in context, for our listeners who don't know Elwood, can you introduce us to your institutional platform?
James Stickland: Yeah, so the blatant sales pitch from our perspective is Elwood is an order management, execution management, but primarily a portfolio management software for digital assets, and portfolio management for us, you know, encompasses, you know, a full suite of capabilities including risk. So, you know, we were a real middle office layer, across people's entire digital asset exposure.
Walter Jennings: So James, that really is then kind of a white label digital asset trading solution for institutions so that they can just put it in, layered across their systems and provide their traders and their customers access to a whole new range of products.
James Stickland: Yeah, very much so. And you know, and delivered in a regulatory framework. Um, so yes, we're a software company, but the sort of importance for us is to make sure that we, you know, we've been institutional by design. So we've already started the path of obtaining all the most regulatory licenses that you would expect.
Walter Jennings: And James, we started off the conversation by saying that a year or two ago, everyone was keen to get into crypto and digital assets so they could trade. But now they're building out their systems. Are we getting towards broader, wider acceptance? Are you dealing with a bigger client base now that you have got 175 folks?
James Stickland: Yeah, very much so. And I think that, as we all saw, there was a sort of gold rush of late 2020, 2021, where people were just, you know, trying to maximize the, the immediacy of opportunity. I think now the large-cap institutions, the tier one banks that we're working with, you know, some of which are investors in the firm are going back to making sure that they actually can really run the strategies, you know, effectively and appropriately. You know, can they back test? Can they shock? Can they, you know, run risk models? You know, can they do vol? You know, can they have via calculations, etc. So all of this opportunity, which is very standard, you know, assets and capital market structures, you know, is now being deployed into digital, which I think should give everybody in the market more comfort that now the large cap providers are starting to, you know, enter into the space. There should be far more, you know, trading opportunities and counterparty interactions.
Walter Jennings: Yeah, it's certainly going to do wonders for volume and liquidity to have that level of institutional trading on a regular basis. James, how do you navigate the regulatory network? Because we're dealing with global institutions that are working with assets that are treated fundamentally different, market to market.
James Stickland: Look, I think that's, you know, obviously Elwood has its position to ensure that we're interfacing and kind of directly engaging with the regulatory landscape, treating it very much like a security for safety sake in many respects, there is a lot of grey areas as we know, and sometimes, you know, funds and sometimes, you know, technology providers, uh, benefit from that grey area. You know, we're probably a little more boring, you know, which is hopefully a good thing. And we'd much rather sort of, you know, have the black and the white of the scenario of understanding how we can manage the assets. So yes, we've gone through virtual currency licensing and, you know, FCA licenses underway etc. So, you know, we're to adopt a very sort of regulatory first approach, you know, very compliance and risk approach, which allows us to work with larger cap institutions in a framework that they're used to. That's important.
Walter Jennings: I was just gonna say, if it's any consolation, I come from regulated financial services myself, I understand the demands for large institutional traders and also frankly, the requirements for dealing with public monies. Uh, you know, there are a lot of requirements in the way, but crypto itself has suffered from trust and reputation issues. How has that impacted your clients and your business?
James Stickland: Yeah, look, I think that the sort of broader infrastructure, you know, basically fallen foul of some of the issues that we all saw last year in the open market with, you know, Celsius or three arrows or FTX and etc. So, you know, not to repeat everything that's in the public domain, but what it's definitely provided is a nervousness around a lot of clients. You pre-funding and do they trust the counterparties that they're working with. So, you know, we are already working with some very early stage connectivity challenges, you know, with the market, the fact that it was built for retail rather than built for institutional, you know, for flows and volumes. Then we're now having to sort of try and deal with some of the other complexities, which are, you know, elements that exist in traditional markets, you know, prime services or pre-funding, they're very non-obvious kind of actions that happen in traditional markets.
Walter Jennings: James, tell me what you've seen in the aftermath of FTX in terms of, is there a flight to quality for the exchanges? Where are the institutions feeling comfortable conducting their trades?
James Stickland: Well, look, yeah, I think you're bang on, there's definitely a flight to quality. You know, all the things that you probably would expect were happening across the industry. There really weren't, you know, even just due diligence on some of the venues, the LPs that existed, you know, we were sort of blindly trading with counterparties without any real depth of verification and validation. So there's a lot of, you know, let's go back to the basics, right? Let's verify who we're working with, ask them for accounts, you know, crazy as that might seem, you know, we do it in traditional markets, why wouldn't we do it in digital? Um, you know, ask for audited accounts, you know, start to look at "can you trust the counterparty models that you're working with?" And that I think has definitely changed the dynamic of the way that people want to work with more grown-up institutions that are willing to be a bit more transparent. Um, that also I think, you know, lends itself quite nicely to, you know, the fact that people are asking to trade a lot more on credit, um, rather than pre-fund, if there is a lack of trust, um, you know, or with counterparties and LPs rather than necessarily even with centralized exchanges. So I think the market dynamic's definitely a one to your point of safety, but transparency in safety, and look, we're working in the blockchain, that's the whole point of it. You know, rather than necessarily trying to be too opaque.
Walter Jennings: What's your AI strategy?
James Stickland: Look, everyone's got an AI strategy, right? If they're not writing their cvs and their cover notes, then they're at least trying to be up front of it from a technology stack standpoint. So, look, I think there's a lot of value in the algorithmic trading world. You know, we'll start to see how that evolves in AI as well. There's also gonna be a big leap and a big opportunity in derivatives, where AI lends itself incredibly well, and systematic trading, right? All these things that, you know, when you're as tired and old as I look, and have been in the markets for a while, you know, they're things that have happened over the last 10 years or 25 years if you've been here long enough. And all these structures and strategies are now starting to really come to life in digital.
Walter Jennings: James, you're backed by Goldman Sachs and Barclays. They've invested in Elwood. How does that relationship work?
James Stickland: It's important to bring real strategics to the cap table. You know, and it's important in the industry that we're in as well, because, you know, obviously there's such big participants, you know, Citigroup is also part of that crowd, and people like Two Sigma are also, you know, part of the cap table because they can influence the direction of travel, both from a product standpoint and also from a standards perspective as well. So, you know, we want to adopt the best standards. We wanna take the council and direction from our investors to make sure that we're able to adhere to that and that they shape the product and the utilization of that product. You know, having come from large cap banking myself at places like JP Morgan and HSBC, far better that you invite them into the tent, you know, rather than trying to keep them arms length. So yeah, you know, we're blessed by having at least four or five strategic partners as part of the cap table, that obviously are helping us as part of the customer journey.
Walter Jennings: Fantastic. Now, James, you were recently crowned one of the 20 most influential people in crypto. What impact do you hope to have on the industry and why'd you get that nomination.
James Stickland: I think it was an error, but look, I'm hoping it wasn't an error. The reality is, you know, we're in the infrastructure space and the foundations of this asset class will be built on the infrastructure. Um, you know, so I hope that the reason for the acclaim, is very much about helping to build the direction of the asset class and the intersection between traditional finance and digital. Um, it's a heavy crown as they say, you know, let's hope I'm there next year in the same list. The reality is though, if we can start to drive a direction and a message that allows people to participate at scale, we all benefit. You know, the pool gets bigger, the participation gets better, the participants get more professional, and this market genuinely benefits from the blockchain technology that we're all so keen to drive forward.
Walter Jennings: Well, James, we're at a point in our show we call News in the Finoverse, I do know you used the term blatant sales pitch earlier, so if you want to count that as your news, is there anything that's happening in Elwood or, with yourself that you want to share with the listeners?
James Stickland: Look, I think that the big thing for us in the blatant sales pitch extension is, you know, risk is a big area of opportunity for Elwood, and a huge opportunity for the market. Again, we are not trying to be the purveyors of boredom, but we are definitely trying to make sure that people enter this market with a full understanding, and that they're able to back test the model and really build the structures and strategies that many of the market participants weren't doing a year and a half ago. You know, we were spending a lot of time talking to clients that were using spreadsheets to manage their risk profile. And the last time I checked, that wasn't the greatest way of running a book. So I think the blatant sales pitch for us is definitely risk is gonna be a big thing for 23, and people building out professional institutional stacks of technology that will drive the success of this market.
Walter Jennings: Fantastic. Now, Jim's, just prior to the show, we'd heard from your colleagues in comms about some new partnerships. Are there any news in that area that you wanted to share?
James Stickland: We've made some integrations. We've probably increased the engineering count here by about a third. So we've grown substantially in the last six, nine months. You know, I think we have 20 plus quants these days, trying to help people with things like risk models and trying to help people with true portfolio management software. So, we're disproportionately geared towards engineering and product. We're north of a hundred of those, you know, in the organization. We're in the process of now announcing more clients that are sort of building out here.
Walter Jennings: Yet. He couldn't tell us what just then, however, a few weeks later he could. So, James, last time we spoke, you mentioned some integrations were coming, but it was all a bit hush hush just then. So we've waited till today, what's happening?
James Stickland: So the news from our side is Elwood integrated and partnered with Fireblocks. Obviously it's a huge opportunity to give clients a better understanding of their full portfolio, you know, a real institutional grade full trade lifecycle engagement. So, you know, the good news with a partner like Fireblocks is, you know, they share a lot of the same thought process. They also share a lot of the same client opportunities. So yeah, it will mean that, inside of Elwood you can directly partner with the Fireblocks network.
Walter Jennings: And what is it in Fireblocks that is of particular interest to yourself and your institutional clients?
James Stickland: I think there's real value around how Fireblocks kind of enables you to secure, transfer the digital assets effectively. Clients are looking for that turnkey type solution now, they're used to it in financial services of traditional assets. You know, they want a single place that they can interface, they can move their assets from custody that they can sort of invoke, and that they can feel secure about their assets as it moves through the network. And then they want a full representation of where that sits, where it resides, and clearly the value of it.
Walter Jennings: I certainly know that since we spoke a few weeks back, there's been a lot of, um, financial Madness in March. And wanted to ask what it's been like for you and your clients, particularly with the US regional banks, facing such challenges.
James Stickland: Look, it's been another crazy few weeks in the asset class. I think that there's been opportunity as much as there's been challenge. What we've certainly seen is obviously people moving funds in real time from exchange to stablecoin and out of stablecoin to Cash and then back again. And there's been a huge amount of uncertainty, of some of the longevity of the banking infrastructure providers. So, do you feel comfortable with your assets, you know, solely in one location? No, nor should you. It's a standard in terms of what we do with traditional assets and our own cash positions in a personal capacity. So, you know, many institutions are now going through the process of finding good banking partners, finding good rails providers that they're comfortable with, so that they can effectively onboard offboard, fiat to crypto and crypto to fiat. But also, you know that they can use the most relevant, stablecoins to ensure that they have the most seamless, but also, you know, risk management kind of process with their funds.
Walter Jennings: I know just last month, Elwood rolled out advanced risk management tools. It seems like they were very timely indeed, with what's going on at the moment. How has this changed the way the institutions are approaching risk, particularly in the digital asset class?
James Stickland: Yeah, look, I think you know obviously shameless plug from our perspective, we've been super keen to make sure that people operate with very sensible risk policy, and give them the tools to be able to do that. You know, our institutional clients are very expectant of those risk tools to be available as they are with other more traditional assets. We are blessed to be able to have a great set of products that we can enable our clients to really portfolio manage, you know, the risk scenarios. You know, they can shock the books and they can back test the model and all the sorts of things you would expect, portfolio mapping and portfolio management to really do. And I think the next opportunity here on this from a risk perspective starts to look at counterparty risk modeling. Now you can do that in real-time so that these markets start to solidify and some of the final building blocks, fine solid ground, it also allows everybody to operate with a low risk model or certainly a very conscious decision in terms of how they're operating with the counterparties that they're subscribed.
Walter Jennings: How has the current market volatility impacted Elwood and your kind of order book of outstanding clients or opportunities? Has it been a net negative, net positive or no change?
James Stickland: Look, I think, you know, it's net positive and clearly I would say that, right? But, you know, we are not financially exposed through this process ourselves. Obviously what we're keen to do is make sure that the clients that we work with have got the most sensible and solid technology and insights that they can use to be able to manage through these turbulent times. So there's, continued desire to want to use platforms and technology that helps, give people visibility. I think that's what we're all seeking at the moment, is being able to make very conscious decisions in terms of, where we allocate capital, where we leave capital. How much risk is associated to those relationships. So our clients are fed well, thankfully, for themselves we'd like to think we're a big part of that in terms of the technology landscape. But also I don't mean to sound trite, it takes a village too here, right? You know, there's a community-type opportunity where, I work with some competitors, right? I work with partners, we're better off, all trying to corral around the value of the asset class, and increase the opportunity as opposed to it creates some sort of destabilization, which clearly impacts everybody.
Walter Jennings: Yeah, that's one of the major themes. We're hosting an event in June here in Hong Kong, Radical Finance Asia, and really looking at the integration across the Web3 community, because you say it takes a village, but it also takes a lot of developers, and it takes people all from CeFi to DeFi to really truly understand how to make this work in a way that aligns with the institution's other asset class objectives.
James Stickland: Yeah, you're right, and the event I'm sure is gonna be a great opportunity for people to kind of come together, you know, share ideas, share concerns, right? You know, an opportunity, and a fabric that we can, weave together. I think there are lots of very broad and polarized opinions, but the reality is, anybody that's spending time in Web3, as the same conviction, which is the power of digital asset class, the power of the blockchain and distributed ledgers. So I think that we'll all find common ground, and therefore there's so much opportunity for us to partner in, exactly the same way that, you know, banks and central authorities have been partnering through some of these turbulent times with the challenges of Credit Suisse, or the more traditional asset classes, like, you know, we have to consistently partner here with the same conviction.
Walter Jennings: Now, risk comes in all formats, and Elwood themselves have been victims of a scam. Last year, a fraudulent mobile app was released in China and Taiwan, the app was impersonating the Elwood Technologies brand using their logo and color palette and trying to get users to purchase Bitcoin and other digital assets without necessarily providing the coins. So I wanted to know what were some of the lessons learned from managing that issue.
James Stickland: What do they say? The better that you get, the sharper the knives. So I think, reality for us is we always need to be in front of any impersonators of the business. You know, obviously security's a big thing for us here, as you would expect us to have, but also just being a bit more front footed with the narrative of the business so that people, you know, who is the official Elwood, and who is maybe an Asia based impersonator with an app that's trying to do some consumer type trading. We're gonna be a bit more forward, with our marketing narrative this year, and next year. We've been very reluctant reclusive thus far. Um, you know, really focused on trying to build product. But yeah, owning the narrative is definitely something that we're gonna focus on this year.
Walter Jennings: James. We ask, as part of our interview for people to name a song that they would wanna take with them on their journey or the kind of music that powers their day and, uh, was interested to hear for our segment Waves in the Finoverse. James, what music comes to mind for you?
James Stickland: Look, I'm obviously here in the UK so it would be remiss of me not to think of Bri Hop. Therefore, you know, bands like Oasis, you know, feature heavily. Um, you know, so yeah, Live Forever is definitely, probably a metaverse statement, a blockchain statement, and very much an Elwood statement. So yeah, Oasis' lived forever, is definitely asong of choice.
Walter Jennings: Oh, I definitely, will be enjoying listening to that. Thank you for your time, James, and that great introduction to Elwood and the conversation around institutional interest in crypto. It's been a great conversation.
James Stickland: Thank you very much. Appreciate it.