Digital Gamma announced today its newest offering, TPR (Tri-Party Repo). The firm says that by using the TPR protocol, two counterparties can engage in a borrow/lend transaction with greater transparency and reduced capital requirements, lowering risk and cost as compared to current market solutions.
Ari Pine, co-founder of Digital Gamma, says: “Repo sits at the centre of modern financial markets. Digital Gamma is committed to bridging the gap between traditional finance and crypto. Efficient borrow/lend can increase everyone’s customer base.”
Currently, when borrowing crypto, it is common to post 150% collateral with a market maker while the market maker posts nothing. With TPR, Digital Gamma acts as an administrator between two counterparties, creating a transparent bilateral transaction that requires both parties to post margin. Default risk is mitigated with frequent rebalancing – keeping the notional value of the repo in balance, according to a statement.
“This is another great example of how far the cryptocurrency space has come to establish itself as another investable asset class for institutions,” says Kevin Kang, founding principal of BK Coin Capital and an early user of Digital Gamma’s TPR. “Creating an efficient crypto-repo market will provide greater liquidity and also give institutional investors a sense of comfort knowing that cryptocurrency has the same market structures as other traditional asset classes.”
Digital Gamma designed TPR to be a straightforward rules-based protocol. The firm believes that increased transparency will grow the overall market and change how participants borrow and lend crypto. A few early TPR transactions have cleared between Gemini customers.
“Gemini is excited to have Digital Gamma utilising Gemini Clearing and Gemini Custody to efficiently and securely conduct their transactions,” says Jeanine Hightower-Sellitto, managing director of operations, Gemini. “We value working with innovative companies like Digital Gamma that are building bridges to move the cryptocurrency industry forward.”
Applications for Digital Gamma’s TPR extend beyond spot transactions. For example, the protocol works for options as well. A risk management protocol familiar to capital markets professionals may play a critical role in finally ushering in broader institutional adoption of crypto.
Digital Gamma was founded by Pine and Paul Sacks, two capital markets veterans, who have built out a suite of crypto offerings aimed at professional and institutional clients.