Galaxy Ventures, the venture capital arm of Galaxy Digital, has led a $20 million funding round for Fence, a startup dedicated to revolutionizing the $6 trillion asset-backed finance market by harnessing blockchain technology. This market, where numerous transactions still rely on manual workflows, is poised for a significant overhaul. The funding round, which also included investments from Parafi Capital and Crane Ventures, aims to support Fence in developing software that manages the operational aspects of structured credit deals. Currently, the operational layer, encompassing tasks such as tracking loan pools, verifying collateral, and handling cash movements, is often fragmented and reliant on outdated tools like spreadsheets, PDFs, and email.
This can lead to slower transaction times and limited visibility for investors into the assets backing their investments. Fence seeks to replace these inefficient 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 its approach 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 reduced operational workload while tracking large volumes of loans on an ongoing basis. Notably, Fence utilizes blockchain as a back-end solution rather than a front-end product. The company focuses on using smart contracts to manage cash, collateral, and deal rules behind the scenes, without promoting tokens or crypto wallets to banks and asset managers. In a typical facility, lenders often wait days for loan data verification, report submission, and payment clearance.
Fence, however, streamlines this process by pulling information through APIs, conducting checks via software, and employing smart contracts to release cash when deal terms are met. Additionally, the company 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 receiving automatic payments in the event of ownership changes.
Montero emphasized that tokenization is only used where it adds value, stating, 'We don't want to be seen as a blockchain company. We're building the infrastructure for the capital markets.' The company currently oversees approximately $1.5 billion in assets across its platform, working with notable firms such as BlackRock and Fortress, and can onboard new deals in weeks, compared to the months required by standard processes.
The funding is expected to facilitate the company's expansion in the U.S. and enhance its product offerings, with the goal of reshaping the credit markets' operational efficiency through faster data processing and reduced manual steps.