A recent $20 million funding round, spearheaded by Galaxy Ventures, the venture capital arm of Mike Novogratz's Galaxy Digital, is driving the adoption of blockchain technology to transform the $6 trillion asset-backed finance market. This market, where many transactions still rely on manual processes, 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 layer of structured credit deals. This layer, which encompasses tasks such as tracking loan pools, verifying collateral, and managing cash flows, is often fragmented across multiple firms and reliant on outdated tools like spreadsheets, PDFs, and email. As a result, transactions can be slowed, and investors may have limited visibility into the assets backing their investments.
Fence aims 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 can continuously monitor loan performance and cash flows, rather than relying on periodic reports. This approach has the potential to reduce costs for large asset managers. In partnerships with BBVA, one of Spain's largest banks with $800 billion in assets, Fence has reported lower funding costs for borrowers and reduced operational workload, while successfully tracking large volumes of loans.
Unlike other companies, Fence utilizes blockchain technology as a back-end solution, rather than a front-end product. The company focuses on using smart contracts to manage cash, collateral, and deal terms, rather than promoting tokens or crypto wallets to banks and asset managers. In a typical facility, lenders may experience delays of several days while waiting for loan data to be verified, reports to be generated, and payments to be processed. Fence streamlines this process by leveraging APIs to retrieve information, running checks in software, and using smart contracts to release cash when deal terms are met.
Additionally, the company 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 employed where it adds significant value. As Montero emphasized, 'We don't want to be perceived as a blockchain company; we're building the infrastructure for the capital markets.
Others may focus on digitizing paperwork, but Fence is rebuilding the underlying plumbing.' The company currently oversees approximately $1.5 billion in assets across its platform, collaborating with prominent firms like BlackRock and Fortress. It can onboard new deals in a matter of weeks, compared to the months required by 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 revolutionizing the credit markets through faster data and reduced manual steps.