A substantial $20 million funding round, headed 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 numerous deals still rely heavily on manual workflows, is poised for disruption.
The funding round, which also included investments from Parafi Capital and Crane Ventures, is supporting Fence, a startup focused on developing software to manage the operational aspects of structured credit deals. The operational layer, encompassing tasks such as tracking loan pools, verifying collateral, and facilitating cash movements, is often fragmented across multiple firms and still relies on outdated methods like spreadsheets, PDFs, and email. This setup can lead to slower transaction times and limited visibility for investors into the assets backing their investments. Fence aims to replace these 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. The company claims that this approach can significantly reduce costs for major asset managers.
In partnerships 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 successfully tracking large volumes of loans on an ongoing basis. Fence utilizes blockchain technology as a back-end solution, rather than a front-end product. The company does not focus on promoting tokens or crypto wallets to banks and asset managers.
Instead, it leverages smart contracts behind the scenes to manage cash, collateral, and the rules governing these deals. Typically, lenders may wait several 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, 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 payments automatically in the event of ownership changes. However, tokenization is only used when 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 digitize the paperwork, but Fence has rebuilt the underlying infrastructure.' The company currently oversees approximately $1.5 billion in assets across its platform, working with prominent firms like BlackRock and Fortress. It can onboard new deals in a matter of weeks, compared to the months required under standard processes. The funding will enable the company to expand its presence in the U.S.
and further develop its product, betting that faster data and reduced manual steps can fundamentally reshape the operational aspects of credit markets.