GMEX Group has advocated for a while that traditional finance (TradFi) and decentralized finance (DeFi) need to have a bridge between them as they cannot operate in silos and as such have been positioning what we do to address this need in the global institutional financial markets. This includes the recent launch of our Digital MultiHub ‘network of networks.’

The capital market needs products and services, which combine both Tradi and DeFi enabled by cutting edge technology and regulatory compliance. The approach must take into account that legacy systems are not going away any time soon and also acknowledge the fact that there are multiple forms of digital market infrastructure as a result of a plethora of offerings on different blockchains. Added to this, institutional investors are largely off chain and even if they do come on chain, then they have challenges because there are so many chains.

This calls for the need for Hybrid Finance (HyFi), which delivers a hybrid digital market infrastructure solution with interoperability of multiple blockchains and API integration into traditional systems to ensure a cohesive approach.

To meet this challenge and satisfy increasing demand we are further strengthening the breadth of the GMEX offering with the acquisition of Pyctor. Pyctor is a digital assets post-trade market infrastructure technology offering, which now operates as an entity within the GMEX Group. This leading fintech provides regulatory compliant digital assets network & custody technology

Pyctor’s digital post-trade market infrastructure technology is designed for firms operating in regulated environments. It provides highly secure digital custody and transactional network services for a broad range of digital assets, as well as delivering interoperability between permissioned and public blockchains.

Before being spun out to GMEX Group, Pyctor was successfully incubated in ING Neo’s Amsterdam innovation lab in collaboration with major financial institutions and regulators and developed in collaboration with multiple blue chip financial institutions (both asset managers and banks) and regulators, with a focus on custody of digital assets. ING have found the right partner in GMEX to scale Pyctor to the next stage.

To address security/hacking risk, decentralized assets need a decentralized solution. Nonetheless institutional capital markets participants need flexibility and deployed capital optimisation whilst ensuring regulatory compliance.  They are in search of interoperability of public and private blockchains alongside API integrations into traditional platforms whilst being token agnostic and seeking broader and easier access through a multi-venue & multi custodian approach.

The GMEX and Pyctor combined offering addresses this with its combined Ecosystem as a Service enabling end to end trading, clearing and settlement flow. It provides the ideal connectivity between multiple trading parties and digital assets custodians, while addressing interoperability issues experienced in the market aligned with current and evolving regulations.

The overall offering empowers financial markets participants to securely issue, access, manage, store and transact digital assets in a regulatory compliant manner alongside their traditional assets whether they are off-chain or on-chain. This enables Finance 4.0 driven digital transformation to satisfy institutional demand to access and offer a full range of digital products and services alongside traditional ones

Background and Synergies

The Pyctor offering has a banking pedigree and it has been developed by understanding the challenges in adoption of digital assets and digital market infrastructure specifically for institutions. This is a perfect complement to the exchange and post trade market infrastructure expertise which exists within GMEX Group.

Culturally in terms of development ethos, strategically in terms of where the capital landscape is heading and technically in terms of approach and end-to-end synergy GMEX Group and ING seem very much aligned. This is very important when two organisations join forces and is the key to having a successful and holistic offering.

Added to this, the product fit is also very complimentary. Pyctor is an institutional grade digital assets post-trade digital market infrastructure technology offering encompassing custody and transactional network services via its decentralised permissioned and public blockchain interoperable operating model designed for capital markets participants operating in regulated environments.

Combining the Pyctor offering designed for global custodians, institutional issuers and other capital market actors with GMEX’s MultiHub provides the only end to end solution in the market that is TradFi standard API driven on the one hand and regulated DeFi driven on the other hand, with the ability to connect to multiple public and private blockchains.

Increasing regulation

Digital assets and the exchanges/ trading venues which facilitate them become increasingly regulated. Financial Action Task Force (FATF) guidelines suggest that Decentralized Applications (DApps) will need to comply with country specific laws enforcing FATF, AML, and Counter-Terrorism Financing requirements. This has spawned a new term called ‘Regulated DeFi’. This is seen as essential for DeFi to become more usable for institutions.

 

The fact that the GMEX and ING team that worked on Pyctor have successfully deployed financial products and services enabled by cutting edge technology in different regulatory environments is a major advantage. GMEX’s core digital market infrastructure technology is running successfully in multiple traditional and digital regulated exchanges across the globe with built in market surveillance alerts and risk management. Pyctor has successfully worked within different regulatory jurisdictions. In addition, Pyctor’s Travel Rule Module (Pyxis), offers FATF Rule 16 compliance and is compatible with the Travel Rule Protocol (TRP). It enables regulated DeFi and digital assets AML compliance.

 

Cutting edge technology

Pyctor runs a decentralised permissioned digital market infrastructure technology network which is designed to operate in regulated environments. It provides institutional grade custody and transaction services for digital assets utilising its patent-pending, multi signatory/multi-party approval protocol, deployed through of a distributed operating model Pyctor leverages on hardware technologies like Hardware Security Module (HSM) as well as software ones like proprietary Multi-Party Computation (MPC). The safekeeping solution provided by Pyctor is DLT agnostic and the benefits of this approach are increased security, resilience, 24/7 availability and risk mitigation.

The Pyctor offering is not only interoperable with multiple public and private blockchains, but also integrated into MultiHub, GMEX’s neutral ‘multi-asset network of networks platform as a service’ to interconnect multiple capital markets participants to facilitate greater asset portability with more efficient trading, clearing and settlement by connecting traditional and digital market infrastructure to foster interoperability.

Pyctor interfaced with MultiHub provides a complete end to end hybrid digital market infrastructure solution which bridges the gap between Traditional Finance (TradFi) and Decentralized Finance (DeFi) with an API and multiple public and private blockchain interoperability approach coupled with GMEX technology to enable the exchange and post trade operators at the nodes.

 

End to End Ecosystem

 

Glossary

Layer 1: refers to multiple private and public blockchains and their related protocols; Layer 2: refers to a technology or network operating on top of a blockchain to improve scaling and efficiency; typically a sidechain; and Layer 3: upper layer of market infrastructure technology and efficiency that MultiHub APIs and services represent.

 

In conclusion

Financial market infrastructure and digital asset infrastructure increasingly needs to become interoperable and combine and evolve into hybrid market infrastructure to enable HyFi. It is merely not sufficient to run centralized infrastructure and decentralised infrastructure silos.

With the Pyctor acquisition, GMEX Group consolidates its position as the first platform to offer an end-to-end Hybrid Finance (HyFi) solution that bridges the gap between off-chain Traditional Finance (TradFi) and on-chain Decentralized Finance (DeFi) with regulatory compliance.

Financial markets players can utilise this hybrid approach to connect their traditional systems to digital assets, globally, with almost any kind of participant, anywhere in the world, across jurisdictions. It can also align to their ongoing digital transformation agenda to consume and deliver services within the broader market in ways that also meet their broader ESG goals.

 

Using such hybrid solutions, capital markets players such as a banks, asset managers, brokers, exchanges, post trade operators and service providers are now able to seamlessly connect their private ledgers to digital asset markets.

 

For more information, please visit: https://www.gmex-group.com/pyctor-digital-market-infrastructure-technology/