SoftBank-backed fintech DriveWealth adds crypto and takes on Coinbase


Bob Cortright of DriveWealth

Source: DriveWealth

DriveWealth, the SoftBank-backed startup that helps fintech companies including Revolut offer stocks, is getting into cryptocurrency trading, CNBC has learned.

The New Jersey-based startup, valued at $2.85 billion in a recent fundraising round, is acquiring a crypto company founded by Harvard-educated quants and launching two subsidiaries to manage and execute transactions, according to DriveWealth CEO Bob Cortright.

Unlike the consumer-facing businesses Coinbase or Robinhood, DriveWealth is a behind-the-scenes player. He helped popularize split trading by allowing partners such as Revolut and Block’s Cash App to offer their users slices of shares. DriveWealth claims to have over 100 partners worldwide with a total of 15 million investors.

The startup, founded in 2012 by Cortright, has been an under-the-radar beneficiary of the retail boom. DriveWealth rose from a reported valuation of $200 million in 2020 to $2.85 billion in August, backed by investors including SoftBank’s Vision Fund, Point72 Ventures and Insight Partners.

Its acquisition of Crypto-Systems will allow DriveWealth to begin offering bitcoin and ethereum trading to its partners in April or May, Cortright said. By owning an end-to-end crypto-trading system, including an algorithmic trading platform, the CEO said he hopes to bring greater transparency to digital asset markets, which trade around the clock. 7 days a week, on a fragmented global network of independent exchanges.

“In the crypto space right now it’s still the Wild West, prices are everywhere,” Cortright said. “There is very little price discovery and there is little consistency with spreads. We want to change that.”

“Unsustainable” costs

Cortright is a former forex trader who helped create several electronic trading platforms, including one that was acquired by Bank of America in 2006. He believes that just like with retail participation in the forex markets there Two decades from now, crypto trading costs will crash. as regulators get involved and competition increases.

“It’s unsustainable, I mean, customers trading on Coinbase, trading on this trade spread, it’s too much,” he said. “As regulatory environments tighten around crypto and clients focus more on spreads and efficiency, we cannot continue in a world where you can charge 200 basis points on a trade.” One basis point is equal to 0.01%

Coinbase, the largest US crypto exchange, charges retail customers through a complicated system based on transaction size and payment method. Fees can reach 4.5% or more, and Coinbase also collects a spread on top of transaction fees.

In its latest earnings call, Coinbase said it was testing a subscription model as it expected longer-term fee pressure.

“To become a commercially viable product, you can’t have those kinds of transaction costs. It’s coming out of customers’ wallets,” Cortright said. “We’ve done this before, we understand that.”

It’s not just trading, payment and personal finance apps that want crypto, which is the most in-demand product among partners, despite the recent drop in digital assets. Now e-commerce companies are lining up to allow customers to earn cryptocurrency rewards, Cortright said. He declined to name the companies.

“A lot of up-and-coming fintechs or merchants want to offer it because people want to trade it,” Cortright said. “The digital wallet guys want it because it’s part of building an investment portfolio. But even the big, established e-commerce players are finding that when surveying their customers, a huge percentage want own crypto.”

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