Ambre Soubiran took a personal interest in blockchain technology before she made a career move into the space.

Soubiran, who worked in equity derivatives for 10 years at HSBC, describes her former industry of traditional finance as “highly standardized,” but she was often frustrated by manual processes in the middle and back offices that were still not automated. “The way traditional finance operates today is pretty much a digitized version of the old paper trading way,” Soubiran says. “There had not been a deep reshape of how we actually execute financial contracts.”

When Soubiran discovered blockchains like Ethereum, she says the notion of executing code in a decentralized fashion was the alternative she had been looking for. “I saw the opportunity instead of the threats,” she says.

Her attempts to get HSBC to utilize the technology were unsuccessful, and she now leads up Kaiko, a Paris-based cryptocurrency market data provider for institutions that is working directly with blockchain technology. Soubiran’s long-term vision for the company is to become the data provider for a blockchain-driven financial industry, an expansion of its early play to provide market data for enterprises and institutions looking to trade cryptocurrency.

The crypto data space is quickly filling up, both with upstarts like Kaiko, and major data providers.

Institutional interest in cryptocurrency markets continues to grow. The Wall Street Journal reported in February that institutions had traded $1.14 trillion worth of cryptocurrencies on the exchange Coinbase in 2021, up from $120 billion in 2020 and significantly higher than the $535 billion traded by the retail realm. Because cryptocurrency largely arose from the retail trading market, approaches to collecting and disseminating market data for the highly volatile asset class differ.

In some cases, traditional market data vendors are still examining how they will approach the challenge. In an email to WatersTechnology, a spokesperson for FactSet said the company is still determining its digital asset strategy, in addition to helping clients craft their own, and declined to comment further. Refinitiv also declined to comment for this story.

Bloomberg, for its part, has been considering its crypto data strategy since 2013. Alex Wenham, product manager for cryptocurrencies at the data giant, says the company’s first move into crypto markets was publishing bitcoin prices. “It was very important at that juncture—as it was an emerging asset class—to inform our clients around the price of bitcoin,” he says. As clients expressed interest in the market, Bloomberg added more crypto pricing services, with price transparency in mind. In 2018, it began covering the top 10 crypto assets, including bitcoin and Ethereum.

The company currently ranks the top 25 digital assets—the list will soon expand to 50—and uses a variety of filters to vet the thousands of available cryptocurrencies.

“The first part of our vetting process is only incorporating cryptos that have institutional custody,” Wenham says. Institutional crypto custody solutions and providers seek to safeguard crypto assets by preventing lost keys and hacks, primarily by enlisting the trust of a third party, as is done in traditional finance. But as the technology behind custody solutions becomes more sophisticated, they may offer a sense of security to institutions that have been hesitant to join the wilder, decentralized crypto fray.

The second filter looks at where assets are traded. Market structure in crypto includes both exchanges and OTC brokers, but in ranking trading venues, Bloomberg considers only exchanges due to their higher transparency standards. The exchanges are ranked, then categorized into three buckets: vetted, watchlist, and rest of market.

The third filter looks for assets traded on at least two exchanges. “That takes a universe of thousands of assets and gets it down to around 200 assets,” he says. “We then rank those 200 by market cap and turnover consistency.”

Exchanges, not created equally

Going deeper into crypto market structure, exchanges can be broken into two categories: centralized and decentralized. A centralized exchange uses a third party to help conduct transactions, while a decentralized exchange acts as a peer-to-peer network, uses a liquidity pool, and has no middleman. Notable centralized exchanges include names like Coinbase, Kraken, Gemini, and FTX, while decentralized exchanges include names like Uniswap, SushiSwap, and PancakeSwap.

Anton Katz, CEO of institutional crypto technology provider Talos, says both exchange types serve the same purpose of trading, though their tech differs. Centralized exchanges, like FTX or Kraken, utilize a matching engine that runs on dedicated servers belonging to the exchange operator, he says. Registered users access services through APIs or user interfaces and are typically required to pre-fund their transactions, meaning they must post funds before a trade is executed.

“All the users are known to the exchange, and all the funds are controlled by the exchange operator,” Katz says.

Decentralized exchanges operate in a different model. In most cases, users connect using their non-custodial wallets and are able to trade on the exchange immediately without the need to register with any central operator, he says. The user interfaces are different, and the API-level connectivity is done with a direct interaction with the applicable blockchain, resulting in a lack of identifying information about users and lack of control over funds. While the method is a purer and more progressive form of decentralized finance, it also means that regulated institutions could potentially trade with someone on a sanction list.

It’s for this reason that data providers such as Bloomberg have chosen not to source market data from decentralized exchanges at this time.

Missions in extraction

Part of Soubiran’s vision for Kaiko is utilizing blockchain technology to provide crypto data, both from centralized and decentralized entities, through traditional financial pipelines, as well as deliver it on-chain. But she says that extracting information from decentralized exchanges requires a different, more complex skillset.

“We have to run nodes, we have to understand the data, [and] we have to contextualize the data as it’s being published in blocks, and then transform that into traditional market data outputs,” Soubiran says. “For decentralized exchanges like UniSwap, there are no centralized order books. There’s no datacenter. Everything is in the blockchain.”

Data is not standardized on the blockchain in contrast to traditional market data. What might appear on the blockchain is that a user received one ETH, but to determine that this was the consequence of a trade, modeling and reverse-engineering the protocol are required. If done and formatted correctly, this data can appear similar to what is displayed on Coinbase or a traditional centralized marketplace like the New York Stock Exchange or Nasdaq.

Kaiko is not alone in wanting to extract information from the blockchain. Inca, a crypto market data provider, sees three data types as the keys to understanding what happens inside the cryptocurrency world: market data, technical and blockchain data, and natural language data.

Adam Zarazinski, co-founder and CEO of Inca, says technical and blockchain data can be important for analyzing projects in development and determining how decentralized a coin is.

“A lot of the projects being released, like a new blockchain or a fork of Ethereum [a process in which a copy of the blockchain’s state at a certain block is copied to make one’s own set of changes], that work is all being done publicly on GitHub. You can watch as people are coding on that project in real time,” he says. Inca collects and then analyzes that data.

Such data can prove helpful for regulators. In crypto, regulators have to consider whether a coin is an unregistered security offering. Public information like the number of exchanges a coin appears on, the number of hosted wallets that contain it, and GitHub metrics about a coin’s creators can be helpful to authorities.

Lastly, natural language and sentiment data from sources like social media is a mecca of information from Inca’s perspective. “Twitter and crypto are interconnected,” Zarazinski says.

Growing pains

With any emerging asset class, there’s room and need for maturity. S&P Dow Jones Indices rolled out its crypto indexing capabilities in December 2020 with Lukka, a crypto asset software and data company. S&P has also taken a minority stake in the company, in addition to using the provider’s proprietary crypto asset pricing data.

The first three indices came in May 2021 with the S&P Bitcoin Index, S&P Ethereum Index, and a mega cap index that is a weighted blend of the two. In the development of launching those three, Sharon Liebowitz, interim head of innovation at S&P Dow Jones Indices, says requirements were for only serious cryptos to be considered. “We set it up with minimum liquidity requirements, minimum market capitalization requirements,” she says. “We screened out, because of the nature of the market, anything that might be subject to sanctions or legal difficulties in the US or abroad.” Additional factors also included whether the coin had at least one whitepaper written about it.

Working with Lukka, S&P added a custodian screen to their indices and worked to define custodians who met minimum security and technology standards. Lukka did not respond to requests to comment.

Unlike traditional markets, crypto trades 24/7, and S&P currently provides indices from Monday through Friday with end of day timestamped at 5:45 pm. Liebowitz says there are aspirations to provide real-time indices.

As activity picks up, some on the buy side, such as crypto hedge fund ANB Investments, say that data is not a main focus right now.

“Even though we have algorithmic trading strategies running, and we do need data to feed the algorithms and to analyze the market—I would not consider our firm currently as extremely data-dependent,” says Jaime Baeza, CEO of ANB. Baeza, a former trader at Credit Suisse, says there can be challenges in building the tech to integrate with third-party providers.

Others like Kunal Sawhney, CEO of equity research firm Kalkine Group, see pertinent challenges in getting data to investors that need it.

“Aggregating such widely distributed data and presenting it in a form that the investor can rely upon is complex. This only serves as a dampener for a section of investors that may want to warm up to this asset class, but cloudy data deters them,” he says. “In the near- to medium-term, the space is likely to reel from these issues, especially when the crypto market has entered a deeply bearish phase. In the long term, and in the wake of obligations eventually imposed by regulators, we might see some improvements in how data of crypto assets is tracked and presented to make it comparable with data of listed stocks.”

It’s still early days in the world of crypto—both as an asset class and in terms of generating market data. Because of this, data vendors both big and small are trying to figure out how they play in this unclaimed territory. As has been true of most everything when it comes to data in the capital markets, how the crypto market data space is terraformed will be decided by institutional players.