Galaxy Ventures, the venture capital arm of Galaxy Digital, has led a $20 million investment round in Fence, a startup dedicated to transforming the $6 trillion asset-backed finance market by harnessing blockchain technology. This market, where many transactions still rely on manual workflows, is poised for a significant overhaul. The investment round, which also included contributions from Parafi Capital and Crane Ventures, aims to support Fence in its mission to create a more efficient and transparent operational layer for structured credit deals. Currently, the operational layer, encompassing tasks such as tracking loan pools, verifying collateral, and managing cash flows, is often fragmented and reliant on outdated methods like spreadsheets, PDFs, and email.
This fragmentation can lead to slowed transactions and limited visibility for investors into the assets backing their investments. Fence seeks to replace these outdated processes with a unified system that provides real-time data updates. According to Juan Montero, co-founder and CEO of Fence, this approach enables lenders to continuously monitor loan performance and cash flows, rather than relying on periodic reports. The company claims that its method can significantly reduce costs for major asset managers.
In collaboration with BBVA, one of Spain's largest banks with assets totaling $800 billion, Fence has reported lower funding costs for borrowers and a decrease in operational workload, all while effectively tracking large volumes of loans on an ongoing basis. Unlike many blockchain-based solutions, Fence utilizes blockchain as back-end infrastructure rather than a front-end product. The company focuses on using smart contracts behind the scenes to manage cash, collateral, and the rules governing these deals, rather than promoting tokens or crypto wallets to banks and asset managers. In a typical loan facility, lenders often wait days for loan data to be verified, reports to be generated, and payments to be cleared.
Fence streamlines this process by pulling information through APIs, conducting checks in its software, and using smart contracts to release cash when deal terms are met. Additionally, Fence can tokenize lender positions in financing vehicles and, in certain cases, the underlying loans or invoices, allowing for the transfer of positions, borrowing against them, or automatic payment upon changes in ownership.
However, tokenization is only employed when it adds tangible value. Montero emphasized, 'We don't want to be perceived as a blockchain company; we're building the infrastructure for the capital markets. While others focus on digitizing paperwork, Fence is rebuilding the underlying plumbing.' The company currently oversees approximately $1.5 billion in assets across its platform, working with prominent firms such as BlackRock and Fortress.
It can onboard new deals in a matter of weeks, a significant improvement over the months required by standard processes. The newly secured funding is expected to facilitate the company's expansion in the U.S. and further development of its product, with the ultimate goal of reshaping the credit markets through faster data processing and reduced manual steps.