by Sarah Butcher 25 July 2022
We may be in a crypto winter, but there are signs of activity in the frozen north. Not only has Barclays just taken a stake in crypto custodian Copper, but people are still moving from the traditional finance to the crypto sector. Just don't call it crypto, though.
"We're targeting institutional clients and so we refer to digital assets," says Katia Babbar, co-founder of Immersive Finance, a new derivatives platform for the crypto industry. "We're building a risk management system for digital assets and decentralized finance."
Babbar has plenty of experience of the nomenclature in traditional finance: she was formerly a managing director and head of electronic FX trading at Lloyds Bank in London. Her co-founder William McGhee comes with a traditional finance pedigree too: he was latterly a senior quantitative researcher at Citadel Europe, after a period of global head of quantitative analytics and global head of machine learning for electronic trading at NatWest Markets. "We have both built derivatives models and derivative risk management systems and have spent our careers working with traders finding value," says McGhee.
Immersive Finance has been over six months in the making, and Babbar says the recent tribulations in the crypto market make it more rather than less relevant. "Before the crash, spreads were good and it was less necessary to be diligent about risk management. Now, we're in a different scenario where looking at risk is paramount." The founders for failed crypto hedge fund 3 Arrows Capital would undoubtedly agree: "Risk departments were very relaxed about like the kind of risks that we were taking,” they told Bloomberg last week.
Babbar and McGhee have already built a suite of risk models for trading derivatives of digital assets. "It's not lift and shift – you can’t take models that work in FX and move them across to crypto," says McGhee. The intention is to allow clients to trade crypto derivatives without the huge investment in risk infrastructure that's usually associated with derivatives books.
McGhee has authored papers on using AI to generate risk models, and machine learning has been incorporated into Immersive Finance's products. Because digital assets are still in their infancy, it's been necessary to generate synthetic datasets to run the models on. AI has also been used to make the models faster.
So far, McGhee and Babbar have five people in their core team. More hires are likely: "We will be growing in London and New York," says Babbar.