Sprocket Inc. is a new kind of crypto exchange.
Featuring an order book, routing engine, asset management, advanced trading, and wallet, Sprocket’s platform is setting out to launch crypto-trading into the age of “digital asset trading 2.0”.
Sprocket chairman and co-founder Fred Thiel is Chairman of the Board for one of the largest German cybersecurity companies, which develops cryptographic technology used by Tesla, banks, major passport issuers, and nation-states. He is also the chairman of Sequent Software, which makes the tokenization software used for digital wallets in phones for people like Visa, Mastercard, Google, and Samsung Pay.
Sprocket recognizes that trading In digital assets is challenging today, and things will have to change for the market to mature.
“There is not much liquidity,” says Mr. Thiel. “You have to buy crypto, and open an account on a handful of exchanges. With the volume on exchanges today, it is very difficult [to trade these markets]. The top exchanges together do less than ten percent of global volume of bitcoin.” There are both pricing inefficiencies and volume inefficiencies.
If you do a $50,000 trade you can impact the price of Bitcoin significantly on one exchange. “It’s called slippage,” he says. “Tests have shown that on many exchanges this can affect the price by up to 8%. Friction incurs costs, and that is something institutional and large traders don’t want. Theft is a big issue as we have seen in many cases. There is also regulatory and jurisdictional risk.”
Sprocket’s proposed frictionless, real-time trading across exchanges from a single wallet does not require transfers. If you want to place a large trade, the system divides trade amongst any available exchange and executes that trade for you.
A connected network will interface with exchanges and third party exchanges to create the single largest network of exchanges.
The Sprocket suite includes an S.E.C. compliant token, an enterprise grade and redundant order book and routing engine with the ability to secure millions of trades per minute with low latency, near instant liquidity and secure execution. Other services include an exchange wallet, an offline wallet, and advanced trader’s dashboard.
SproXLI will be the asset management, clearing and settlement, liquidity holder and asset distribution module for the Sprocket Platform. By interfacing with the blockchain nodes, SproXLI will provide interfaces to the external world like traditional banks interface to SWIFT and other global funds distribution services.
“if you can aggregate the liquidity in a network with a global order book and single wallet so that traders can trade across these markets, that is a very impactful story,” Mr. Thiel said at Start Engine’s ICO 2.0 Summit, which took place in Santa Monica on April 20, and takes place again on Friday, October 19.
The Sprocket platform is decentralized with a centralized order book. Any exchange can work as a backup to others. It provides the ability to create jurisdictional specific trading rules.
“A US citizen can trade certain things, and a European citizen can trade other things,” says Mr. Thiel. “Certain jurisdictions in Asia allow securities tokens, while others won’t. Our system will have full jurisdictional individuality and customization based on the KYC-verified account holder.”
Sprocket’s system includes a proprietary blockchain for providing liquidity amongst exchanges. The blockchain will feature a smart contract-based escrow function.
“The goal here is to effectively build an immutable record, so any exchange that works with us knows the exact state of our trades with them and can settle on our private blockchain,” says Mr. Thiel.
Europe and Asia have taken different approaches than the U.S. For that reason, Sprocket, whose development team is based in Zug, Switzerland (known as Crypto Valley), is primarily focused on Europe and Asia for the platform. Sprocket Inc. looks to be in beta at the end of the year.
“The regulatory environment is changing,” predicted Mr. Thiel at a Start Engine Summit. StartEngine is a crowdfunding platform that often overlaps with blockchain. “Within the next 18 months banks globally will be able to hold and trade virtual currencies based on G20 standards.”
This would be a game changer.
“The minute banks provide liquidity into these markets, the numbers in the securities market and equities market will be a reality in the cryptocurrency markets, because a lot of equity will flow into these markets,” he says.