A recent $20 million funding round, spearheaded by Galaxy Ventures, the venture capital division 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 focused on developing software to manage the operational aspects of structured credit deals.
The operational layer, which encompasses tasks such as tracking loan pools, verifying collateral, and facilitating cash movements, is often fragmented and reliant on outdated methods like spreadsheets, PDFs, and email. This can lead to slowed transactions and limited visibility for investors into the assets backing their investments. Fence aims to replace these manual 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 reduce costs for major asset managers.
In collaborations with BBVA, a prominent Spanish bank overseeing $800 billion in assets, Fence has reported lower funding costs for borrowers and decreased operational workload while tracking large volumes of loans. Fence utilizes blockchain as a back-end infrastructure, rather than a front-end product. The company does not promote tokens or crypto wallets to banks and asset managers. Instead, it employs smart contracts to manage cash, collateral, and deal terms behind the scenes.
In a typical facility, lenders may experience delays of several days for loan data verification, report generation, and payment clearance. Fence streamlines this process by pulling information through APIs, performing checks in software, and using smart contracts to release cash when deal terms are met. The company can also tokenize lender positions in financing vehicles and, in certain cases, the underlying loans or invoices.
This enables investors to transfer positions, borrow against them, or receive automatic payments if ownership changes. However, Montero emphasizes that tokenization is only used where it adds value. 'We don't want to be perceived as a blockchain company. We're building the infrastructure for the capital markets,' Montero stated.
'Others digitize the paperwork. Fence has rebuilt the underlying infrastructure.' The company currently oversees approximately $1.5 billion in assets across its platform, collaborating with 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 facilitate the company's expansion in the U.S. and enable it to further develop its product, with the goal of reshaping the credit markets through faster data processing and reduced manual steps.