The advent of cryptocurrencies has brought decentralization to finance. These types of coinage are entirely digital and not backed by central finance authorities. Despite the legal and financial risks, cryptocurrencies such as Bitcoin and Etherium are used every day in commerce. However, there are a greater number of esoteric coins that are not traded in enormous volumes. For someone interested in purchasing cryptocurrencies, they may face problems associated with liquidity when trading. John Peurifoy, Kevin March, and Van Phu recognized the demand for a safe, compliant, and accessible platform to exchange cryptocurrencies at stable prices and created Floating Point Group (FPG). Floating Point Group is a cryptocurrency trading platform leveraging smart order routing to provide a “single point of access to digital currency markets.” The New York City-based startup has recently raised $2 million from venture capital firms, serial angel investor Naval Ravikant, and many mainstream financial institutions.
Floating Point Group cofounders Kevin March (left), John Peurifoy (middle), and Van Phu (right).
Kevin March
In modern, everyday finance, the trading of securities, or financial instruments signifying monetary value, is done on public exchanges such as the New York Stock Exchange or the NASDAQ, or privately through alternative trading systems such as dark pools. Buyers and sellers of securities are matched through the exchange or trading system, and the orders are executed. The fulfillment of these trades is done through a technique called smart order routing. Smart order routing allows for trades to be optimized across multiple exchanges with respect to time, price and order volume. The key innovation that smart order trading brought to modern finance was the ability to avoid the fragmentation of liquidity by accessing multiple exchanges or trading systems simultaneously.
In trading, liquidity is a measure of whether an order can be executed with minimal effect on the price of the security being exchanged. If supply equals demand, the price ideally should be the same during a trade. However, this rarely happens in developed markets because of fragmentation and the reduction of larger orders willing to stand still at a particular price in the market. Instead, many institutional firms will opt to slice their order up into smaller digestible pieces to not tip their hand as to their true intentions and have another participant trade ahead of them. Later executed smaller orders also may occur at a different price than the original single large order. The difference between these prices is called slippage. A physics analogy suggests slippage is the equivalent of friction in trading securities.
Smart order routing is taken for granted when trading securities today, as it minimizes the slippage of executing an order. However, with cryptocurrencies, it is sorely needed. For lesser-traded coins, there is a corresponding lack of liquidity in their respective markets. Stringent and evolving regulations combined with the necessity for sophisticated technologies to produce and trade these digital coins complicate matters more. Thus, buyers and sellers of these cryptocurrencies must interface with one another directly to establish the exchange price rather than through a centralized, modern trading platform. The absence of a centralized trading system leaves cryptocurrency trading in a state similar to pre-smart order routing finance, where slippage occurs in nearly every trade. These current barriers prevent the growth of these digital coin markets and their broader mass adoption in everyday commerce between individuals and institutions.
The size of the cryptocurrency market is challenging to estimate. The vast selection of cryptocurrencies worldwide and their respective values when compared to the U.S. dollar directly complicate matters. Nevertheless, the market capitalization of the most stable and popular digital coins provides a benchmark for the current and future prospects of cryptocurrencies as a whole. Bitcoin, the most prominent and well-known digital currency, has a market cap of $123.02 billion (at the time of writing). The next two largest crypto market caps, Ethereum and Ripple, have respective values of $15.72 and $7.79 billion. These cryptocurrencies’ respective market capitalizations reflect the immense value and enormous growth of using digital currencies to transact as mass adoption increases. FPG is working towards a future where cryptocurrency trading is more accessible for accredited and retail investors alike.
FPG has built critical infrastructure to allow cryptocurrency trading at scale between various actors. Their core product is an application programming interface (API) that is used as a single point of access for customers to perform all of their trading needs. The API has three main features. First, it allows customers to connect directly to exchanges. Second, customers are automatically linked to FPGs internal database containing critical market data. Third, the API provides the option for automatic cold-storage trade settlement or executing an order directly from an offline digital wallet. The cofounders believe that a single point of access approach for cryptocurrency trading simplifies the technological burden traders have to take on just to execute simple trades. More importantly, the fragmentation of liquidity problem is now solved, as liquidity becomes centralized through their API-facilitated platform.
As liquidity aggregates, the potential slippage that can occur minimizes, saving both FPG and its customers’ money on order execution fees. The lower costs, the lower the barrier for traders who do not use FPG to enter its ecosystem. This virtuous cycle is FPG’s network effect at scale, simultaneously lowering costs while increasing revenue through exponential growth in exchange volume.
Developing a scalable trading platform with increasing utility required the combination of Peurifoy’s, Phu’s, and March’s technical and business acumen. Peurifoy is an MIT graduate with dual Bachelor’s of Science (S.B.) degrees in Computer Science and Physics. Before FPG, Peurifoy worked as a physics researcher. Phu also obtained his S.B. in Computer Science from MIT as well. He was previously on the founding team of ZenBusiness, a high-performing legal tech startup. March dropped out of his Bachelor’s of Science degree in Entrepreneurship and Biotechnology from the University of Missouri-Kansas City to start FPG. Before founding the startup, he performed bacterial genetics and cancer research. The experiences of the three cofounders blend to produce the best-in-class platform for the digital currency markets.
Disclosure: I was previously an investor at Rough Draft Ventures, which has invested in Floating Point Group.
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