A recent $20 million funding round, spearheaded by Galaxy Ventures, the venture capital division of Mike Novogratz's Galaxy Digital, is set to transform the $6 trillion asset-backed finance market by harnessing 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. 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tasks such as tracking loan pools, verifying collateral, and managing cash flows, is often fragmented and reliant on outdated methods like spreadsheets, PDFs, and email.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 delayed transactions and limited visibility for investors.
Fence aims to replace these processes with a unified system that provides real-time updates, enabling lenders to continuously monitor loan performance and cash flows, rather than relying on periodic reports. According to Juan Montero, co-founder and CEO of Fence, this approach can significantly reduce costs for major asset managers. In collaborations 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.
Fence utilizes blockchain as a back-end solution, rather than a front-end product, to manage cash, collateral, and deal terms. The company does not promote tokens or crypto wallets to banks and asset managers; instead, it employs smart contracts to facilitate these processes. Typically, lenders may experience delays of several days while awaiting loan data verification, report submission, and payment clearance.
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, Fence can tokenize lender positions in financing vehicles and, in some cases, the underlying loans or invoices, allowing 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 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 paperwork, while Fence rebuilds the underlying infrastructure.' The company currently oversees approximately $1.5 billion in assets across its platform, collaborating with firms like BlackRock and Fortress, and can onboard new deals in weeks, compared to the standard process which takes months. 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 operational framework through faster data processing and reduced manual steps.