A recent $20 million funding round, led by Galaxy Ventures, the investment arm of Galaxy Digital, is set to transform the $6 trillion asset-backed finance market by integrating blockchain technology. This market, where many transactions still rely on manual workflows, is poised for disruption.
The funding round, which also included investments from Parafi Capital and Crane Ventures, will support Fence, a startup dedicated to developing software for the operational aspects of structured credit deals. Currently, the operational layer, which encompasses tasks such as tracking loan pools, verifying collateral, and managing cash flows, is often fragmented and reliant on outdated methods like spreadsheets, PDFs, and email.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 can lead to slower transaction times and reduced visibility for investors into the assets backing their investments. Fence aims to replace these outdated processes with a unified system that provides real-time data updates.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, lenders will be able to continuously monitor loan performance and cash flows, rather than relying on periodic reports. The company claims that this approach can significantly reduce costs for major asset managers. In collaboration with BBVA, one of Spain's largest banks with $800 billion in assets under management, Fence has reported lower funding costs for borrowers and reduced operational workload while tracking large volumes of loans.
Fence's use of blockchain is focused on back-end infrastructure rather than front-end products. The company utilizes smart contracts to manage cash, collateral, and deal terms, without promoting tokens or crypto wallets to banks and asset managers.
By leveraging APIs, software checks, and smart contracts, Fence can accelerate the release of cash when deal terms are met, significantly reducing the waiting time for lenders. Additionally, Fence can tokenize lender positions in financing vehicles and, in some cases, the underlying loans or invoices, enabling investors to transfer positions, borrow against them, or receive automatic payments in the event of ownership changes. However, tokenization is only used when it adds value.
As Montero emphasized, 'We don't want to be seen as a blockchain company; we're building the infrastructure for the capital markets. Others digitize the paperwork; Fence rebuilt the plumbing.' With approximately $1.5 billion in assets under management across its platform, working with firms like BlackRock and Fortress, Fence can onboard new deals in weeks, compared to months under standard processes.
The funding will enable the company to expand its presence in the U.S. and further develop its product, with the goal of reshaping the credit market's operations through faster data processing and reduced manual steps.