In a significant move to transform the $6 trillion asset-backed finance market, Galaxy Digital has led a $20 million investment in Fence, a startup dedicated to streamlining the operational aspects of structured credit deals. The funding round, which also included investments from Parafi Capital and Crane Ventures, aims to capitalize on the potential of blockchain technology to overhaul the traditionally manual and fragmented processes that dominate the industry. Fence's innovative approach involves developing software that handles the operational layer of these deals, from tracking loan pools to verifying collateral and facilitating cash movements, all of which are currently often managed through outdated methods such as spreadsheets, PDFs, and email. This antiquated setup can lead to slowed transactions and reduced visibility for investors into the assets backing their investments.
By introducing a unified system that updates data in real-time, Fence seeks to replace these inefficient processes, enabling lenders to continuously monitor loan performance and cash flows rather than relying on periodic reports. The company asserts that this approach can significantly reduce costs for major asset managers. In collaboration with BBVA, one of Spain's largest banks, overseeing $800 billion in assets, Fence has demonstrated the potential of its system to lower funding costs for borrowers and decrease operational workload while tracking large volumes of loans on an ongoing basis.
Notably, Fence's utilization of blockchain is focused on back-end infrastructure rather than front-end products, employing smart contracts to manage cash, collateral, and the rules governing these deals without promoting tokens or crypto wallets to banks and asset managers. This strategic use of blockchain enables the automation of processes such as data checking, report generation, and payment clearance, which typically take days. By integrating information through APIs, running checks in software, and utilizing smart contracts to release cash upon meeting deal terms, Fence accelerates the entire process. Furthermore, the company can tokenize lender positions in financing vehicles and, in certain cases, the underlying loans or invoices, facilitating the transfer of positions, borrowing against them, or automatic payment upon changes in ownership.
However, tokenization is only applied where it adds tangible value. Fence's approach is distinct, as it focuses on building the underlying infrastructure for capital markets rather than simply digitizing paperwork.
The company has made significant strides, currently overseeing approximately $1.5 billion in assets across its platform, working with prominent firms like BlackRock and Fortress, and capable of onboarding new deals in mere weeks compared to the months required under standard processes. The secured funding is set to propel Fence's expansion in the U.S.
and further develop its product, driven by the conviction that enhanced data speed and reduced manual steps can fundamentally reshape the operational landscape of credit markets.