Copper: The World’s Largest Custodian for Institutional Investors — An Interview with Takatoshi Shibayama

Last month, BitLending, which I am involved in, set up a booth at the Japan's largest Web 3.0 conference, "WebX," held in Tokyo for two days and I had the opportunity to interact with various people. My impression of the visitors was that many were not industry insiders, but rather general public. There were also many students and foreigners.

I happened to talk to a lady at the booth, and I found out later that she was the head of a certain US asset management company, one of the companies that had applied for a Bitcoin ETF with the SEC, when a familiar face appeared at a talk session.

The enthusiasm was palpable. Those who went to the venue for the first time probably felt the excitement of having wandered into Disneyland, and the expectation of the beginning of some amazing innovation. It is not wrong to think that this is the current state of Japan's Web 3.0. However, I would like to emphasize here that this is still in the growth stage.

On the other hand, looking at the world, the world's largest Web 3.0 conference, "TOKEN2049," is well-known as the world's largest Web 3.0 conference, and both the number of visitors and exhibitors is at least twice as large as Japan's. I think this difference is simply due to differences in markets.

Just because it is a Web 3.0 product, you might think that it can expand globally without borders, but the reality is not that simple. Not only do national regulations differ in each region, such as Europe, America, Asia, and the Middle East, but the situation is also different for each ecosystem in each field, such as the nature of users, supply and demand balance, and trends.

This is probably why the world's top exchanges such as Binance, Coinbase, and Bybit are not exhibiting at WebX. The same thing can be said about each field, such as payments, real estate, security, financial services, games, and NFTs.

Given that, Japan is truly an island on land. This is exactly what it means to become a Galapagos, and it's just deja vu for Japanese products. While building a unique path domestically, we must also consider a certain degree of international standardization with an eye on global expansion so as not to fall behind our overseas competitors. How many years has it been since I thought that at least we should be on the same page when it comes to taxation?

It seems that WebX will be held on the same date at the same venue next year, but this kind of large-scale event is a big milestone for us in the industry. What do we want to be like next year? Will we even survive? We will need to upgrade in many areas, including the number of visitors and exhibitors.

This year will be an unexpectedly hard battle for both the exhibiting projects and the organizers who gather exhibitors and advertisers. I'm sure I'm not the only one who is living with a sense of crisis that we are still hanging on by a thread. That's how hard it is to make a living in a new industry.

The theme of this article is "Custodian." It's probably a word that most readers are unfamiliar with. In the context of finance, custody refers to a service that stores and manages financial assets. A custodian is a business that safely stores clients' assets and provides related services such as settlement of transactions, asset management, record keeping, and reporting.

One of the keys to the maturation of the cryptocurrency industry is an increase in players. Just as the market has recently reacted sensitively to the inflow and outflow of Bitcoin spot ETFs, it is an absolute necessity for traditional financial giants such as BlackRock to enter the market in various ways.

This time, we will focus on Copper, the world's largest custodian for institutional investors. They provide safe asset storage services that avoid the risk of hacking and theft, and infrastructure services for efficient trading and settlement in the market, but they are also working on new initiatives to further promote the spread of cryptocurrencies.

This time, through an interview with Takatoshi Shibayama, Head Director of Asia at Copper, we will delve into the current state of the industry from the company's growth strategy and future prospects.

The wealth of experience gained from seeing various aspects of the industry together is a weapon that has garnered support from institutional investors.

Nagatomo: Thank you for your hard work at Korea Blockchain Week. First, please tell us about your career.

Shibayama: Thank you. I originally came from an investment bank, and within the investment bank, I was in a department that traded on its own account. There, I invested in non-performing loans and credit-related assets, but after the Lehman Shock in 2008, I moved to a hedge fund. From 2009, I did distressed investing and high-yield investing in Asia.

I first spent three years in Singapore, then moved to the US hedge fund Davidson Kempner Capital Management, then spent three years in Hong Kong, and returned to Singapore in 2015 to start a hedge fund called 3D Investment Partners with a friend, and invested in value in Japanese stocks. I worked in investment for roughly 20 years, and then I entered the blockchain industry.

Nagatomo: When did you start to become interested in crypto assets?

Shibayama: Around 2018, about three years after launching 3D Investment Partners, the company's AUM reached about $1 billion, and that's when I started to become interested in the blockchain field.

Personally, I had been investing in Bitcoin since 2016, but around 2018, various companies began to emerge in the crypto asset industry, and I thought it would be interesting to create a new industry from scratch, so I left the hedge fund to my friend and entered the crypto asset industry.

Nagatomo: What made you start working at Copper?

Shibayama: Actually, there was a story before I joined Copper. At first, I thought it would be interesting to think about how to create a blockchain in the enterprise, so I started a project on my own. At the time, I was creating a blockchain system for a Singaporean company with the support of a Japanese company, but then COVID hit and all of these projects disappeared.

In the midst of all this, I happened to have a friend who was an advisor to Copper, and he asked me if I could meet him because Copper wants to enter the Asian market. That's how I joined Copper in 2021.

Nagatomo: Thank you. Please tell us what kind of company Copper is.

Shibayama: Copper was founded in the UK in January 2018, and it was originally started by about five people. The original background to its launch was that the founder had seen various exchanges going under due to incidents and accidents, and while talking with institutional investors, he thought about what kind of custody service could safely protect assets, and created Copa.

Our main product, ClearLoop (a product that supports investors in trading more safely and quickly by combining real-time settlement at exchanges with asset security), is supported by institutional investors, but ClearLoop was not there from the beginning. With the vision of creating such a product someday, we started by creating a custody service system like Fireblocks that can safely send assets to various places.

Clearloop started in June 2020, so it's been more than four years. We've been in business for quite a long time, and during this period, the exchange we were connected to actually went bankrupt. Even so, we were able to safely protect our customers' assets.

Recently, other custodian companies have been creating products like Clearloop, but I don't think any of them have experienced a market cycle yet. In that respect, we have actually experienced two cycles, so this experience is very valuable. I think this experience is definitely a major reason why Copa is supported by institutional investors.

Nagatomo: I also hear from my friends in the industry that Copper is the largest custodian in the world and has a reputation for being very experienced, but from your perspective, who do you think is the number one custodian in the world?

Shibayama: That's a difficult question. I think each custodian targets different types of customers. For example, BitGo in the US, Zodiac and KOMAINU in the UK are basically companies that take custody of assets and store them, so they don't have a product like Clearloop.

In that sense, BitGo is a large company, so I think that its customers cover a wide range from retail to crypto projects, and since it is based in the US, if it has relationships with BlackRock and others, I think that it will have a reasonable asset size.

There are also custodians that are attached to exchanges. For example, Coinbase and Binance's "CEFU" are examples. Custody was originally a business included in exchanges, but it was separated and started to be offered as a service for institutional investors.

There are also companies like Fireblocks that only provide wallets. As you can see from what I've just said, everyone has quite different goals, so

it's difficult to say that one is the biggest in general. Even if they are the same custodian, the content they do and the customer base they target are different. As for us, we provide services to institutional investors rather than retail investors, so we are probably the largest in that market.

We will realize two ideas with our main product, Clear Loop, and attract many investors who have never been involved with crypto before.

Nagatomo: Please tell us about the recent updates to Copper.

Shibayama: Clear Loop is our most well-known product. To put it simply, it is a product that can avoid risks such as exchange bankruptcy and hacking, but we have been trying and testing since last year to further evolve Clear Loop and create a new product. As a result, we have been able to put two ideas into practice.

The first is that last year we established a company called "Copper Security" in Abu Dhabi, and this company obtained a securities license. I was thinking about how to bring traditional institutional investors into crypto. For example, security tokens and RWA (real-world asset) tokens have been talked about a lot recently, but I've been working on the infrastructure to see if it's possible to make option investments on Deribit (a cryptocurrency derivatives exchange based in the Netherlands) using T-bill tokens (Treasury Bills) and money market funds (MMFs) as collateral. I think permission will be granted and the service will be able to start around October this year, and the first one will be, for example, holding collateral with T-bill tokens at Copper Securiy, and investors will be able to use the same value as collateral as initial margin without sending the assets themselves to Deribit using a clear loop.

It's like a US dollar margin. This will allow investors who have never touched crypto to enter the market, and if the T-bill token is circulating at an annual interest rate of 4 to 5%, what was previously 0% using USDT or USDC will now be able to hit a 4 to 5% return. We have heard from our customers that they are looking forward to the release of this, so I think it will be one of the big news stories this year.

Nagatomo: Thank you. Please tell us about your second idea.

Shibayama: The second is lending for institutional investors. This has already been released as a package called agency lending. What it is, for example, is that people with a lot of assets want to use this for lending. In normal lending, the borrower trades the lent tokens on an exchange somewhere, but if the exchange goes bankrupt, the assets will be lost.

So, by using agency lending, you can cover not only the risk of exchange bankruptcy, but also the risk of hacking. We have also started a program to lend cryptos such as dollar-denominated stable coins, Bitcoin, and Ethereum, and this is currently being piloted by several companies.

Copper Security exists as a stepping stone to increase liquidity and market capitalization by involving traditional finance.

Nagatomo: If we could create a lending product that could be completed within the clear loop, large institutional investors would be able to manage their funds with peace of mind. Next, please tell us your opinion on the custody situation in Japan.

Shibayama: I'm not familiar with the systems of Japanese custodians, but from what I've heard from my friends, I get the impression that it's unclear whether there are any products that are worth leaving Japan. I was also thinking of selling Copper in Japan, but there are no institutional investors in Japan in the first place, so I don't think there's any point in selling. Therefore, we are not looking at the Japanese market.

Considering the demand for custody in Japan, I think there are only customers in Japan who hold crypto long-only, so I think it would be difficult to grow the product beyond that.

Nagatomo: What do you think is the reason there are no institutional investors in Japan?

Shibayama: One is that taxes are high. The second is that I think the hurdle for asset managers (asset management companies) to enter crypto is high. This part depends on the market. The nature of crypto is very different in Asia and Europe and the US, so I think the situation in Japan is unique.

Nagatomo: Now that Copper has established a new company with a securities license in Abu Dhabi, does that mean that you will be focusing on expanding in the Middle East in the future?

Shibayama: Yes. The reason we started Copper Security in Abu Dhabi is because we cannot expect future expansion if we only focus on crypto. If new hedge funds and trading firms were being established at an accelerating rate, the story would be different, but there are not that many players.

We started Copper Security with the aim of involving more players, such as traditional finance, in crypto. We thought that if we didn't make such moves, liquidity would not increase and market capitalization would not grow, so we needed to lay the groundwork for that.

We will lead the industry as the infrastructure necessary for the future financial ecosystem that plays a supporting role behind the scenes of the products we use every day.

Nagatomo: What are your impressions of traditional finance and regulatory authorities in the Middle East?

Shibayama: It seems that banks in Abu Dhabi and Dubai are quite interested. They won't invest directly, but we have heard from them that they want to be indirectly involved in our product.

Nagatomo: BitLending, which I am involved in, also uses Copper's Clear Loop. It is the world's first retail lending platform, and it has been very well received by our customers. I feel that innovation in security is essential for the industry to mature.

Shibayama: Our custody service is not for retail, so some readers may not understand, but I would be happy if you knew that such a system is functioning behind the products you use every day and that there are companies that safely protect your assets.

As I mentioned earlier, our challenge in the future is how to get major players in traditional finance involved in crypto. To achieve this, we believe it is important to broaden the scope of operations so that they can be carried out in various ways, and to continue to explore new trading methods in line with the changing times. We would be delighted if we could lead the industry as an essential infrastructure for the financial ecosystem of the future.

▶▶Clearloop is an institutional investor service that connects multiple exchanges into one trading loop, enabling real-time settlement. Assets are protected within Copa until just before trading, so safety is guaranteed.

Profile

Takatoshi Shibayama

Head of Revenue, APAC Copper.co

Head of APAC Revenue at Copper.co, a cryptocurrency prime and custody service. He began his career at investment banks such as JP Morgan and Goldman Sachs, and then joined Davidson Kempner Capital Management, a US hedge fund. He then co-founded 3D Investment Partners in Singapore, which has approximately US$1 billion in assets under management.

Columnist

Hiroki Nagatomo

JADE VENTURES Founder, J-CAM MIDDLE EAST COO

Born in 1988. Started a business while studying at Yokohama City University. Developed multiple businesses such as a staffing agency and a restaurant, with a focus on sales promotion for a major telecommunications carrier. After transferring his business in 2018, he traveled to more than 30 countries, mainly in Europe.

Through cultural exchanges in food, lifestyle, and socializing, he learned that wealthy people overseas are paying attention to crypto assets. Later, after meeting Mr. Niitsu, the representative of J-CAM, he launched "Bit Lending", an asset formation platform for the web3.0 era in 2022. His innovative ideas that overturn common sense have raised the industry standard of crypto lending and earned him the support of many users.

He currently lives in Dubai, and while contributing to many businesses in the BizDev field of global companies with his unique network and footwork, he also interviews prominent people in the industry as a columnist.

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