Founding a Web3 startup in the wake of the crypto crises may have seemed crazy to some. It probably still does. Here’s why we did it.

We’re so excited to announce the closing of our first funding round led by Sino Global Capital with participation from leading Web3 firms including Circle Ventures, Polygon Labs, Kronos Ventures, Kyber Ventures, Outlier Ventures, alongside some outstanding angels who are leaders in both venture capital and Web3.

On the back of this announcement I thought it would make sense to explain why we founded OpenTrade in the first place.

OpenTrade is a venture that sits at the intersection of our strongest convictions about the direction of travel for financial services and markets and internet-native, permissionless financial infrastructure.

First, a bit about our stories as founders. Jeff and I met freshman year at Washington University in St. Louis and quickly became best friends.

We fell down the Bitcoin rabbit hole in 2012 and haven’t looked back since. We founded a Bitcoin think tank with college friends that quickly merged into a company building one of the first and for a time, only Bitcoin wallet in the iOS app store. With that company we pitched and won our school’s business plan competition where OpenTrade CTO Tom Niermann was a judge (even though neither of us took a single class in the business school). That company pivoted multiple times. One of those pivots became one of the first companies in the world to build a USD-pegged stablecoin and tokenize RWAs (invoices) on a public blockchain. Tom invested in that company and later joined the board of directors.

Over the past decade we’ve worked together on several market defining projects that sit at the intersection of financial services and markets and blockchain and cryptoasset technologies, especially global trade, payments, and transaction banking. We’ve had the pleasure of working with both leading crypto and Web3 firms, starting on the ground floor of our industry, as well as some of the largest financial institutions, multinational corporations, and technology companies in the world.

We’re not speculators, we’re builders. We started in this industry before it was cool and we will go down with the ship if necessary, because the lessons we’ve learned over the past decade, both good and bad, have ingrained in us the following core convictions.

These are the reasons we founded OpenTrade.

Internet-native, always-on digital dollars running on public blockchains like USDC will rewire financial services and markets across all sectors, especially ours.

Starting with our work on a bitcoin-based USD stablecoin back in 2014 (before stablecoin was even a word), through to our experience at Centre — a consortium run by Coinbase and Circle that sets standards and governance for USDC — to now, building OpenTrade on USDC and Circle infrastructure, our conviction in this has only grown stronger.

The first and only reason we got into Bitcoin in the first place was its potential to democratise access to financial services and provide them to the people and businesses in the markets who need them most. Nothing has changed in this regard.

Today’s payment systems are walled gardens (actually more like castles) that are shockingly expensive, prone to error and fraud, opaque, brittle, complex, and exclude those who need them most. They have little to no ability to interact with the computer programs that manage commercial activity giving rise to the need for a payment. Today the vast majority of money moves by passing spreadsheets and flat files back and forth via rudimentary means like email and SFTP. Even today, 81% of businesses in the US pay other businesses with paper checks and 40% of all b2b payments in the US are still made with paper checks — a technology more than a millennia old. Yes, you read that right.

There are still 1.4 billion people on the planet who don’t have access to a single bank account and billions more who are severely underbanked, lacking access to basic financial services that most readers of this blog will take for granted.

In spite of these shortcomings, the US dollar remains one of the strongest enablers of commerce and economic prosperity in the history of mankind. Over the past 75 years and still today, it holds dominant market share across every major measure: (1) currency underlying export invoicing (2) foreign exchange reserves held by governments and central banks (3) international and foreign currency banking claims and liabilities (4) central bank swap lines (5) foreign currency debt issuance (6) OTC foreign exchange transactions (7) international currency usage and (8) foreign holdings of government debt.

It seems glaringly obvious to us that it’s time the US dollar went through its 0-to-1 upgrade. Programmable, internet-native digital dollars like USDC represent that upgrade. USDC allows anyone to move dollars at the speed of the internet 24/7/365, in a form function native to the internet, in an infinitely programmable way, requiring nothing more than an internet connection.

And despite what you may have read in your favourite financial journal, stablecoins are thriving. In 2022, they processed $7 trillion of transactions. Even more, this number only includes on-chain settlements, not trading volumes on centralised exchanges. Including trading on centralised exchanges, the actual number is much, much higher. For comparison, Visa processed $12 trillion in transactions over the same period.

Peter Johnson, co-head of venture at Brevan Howard Digital, believes that stablecoin volumes had already surpassed Mastercard and American Express and predicts that in 2023 on-chain stablecoin volumes will surpass the aggregate volume of all four major card networks.

This is an incredible feat; it took stablecoins less than a decade to reach a milestone that took Visa and Mastercard decades to reach.

The democratisation of dollars and the capabilities that programmable, internet-native dollars like USDC provides are profound. There is no sector of financial services / markets, commerce, and daily life that can’t benefit from these capabilities in ways both known and unknown. No where is that more true than in the two remaining convictions, described below.

DeFi infrastructure and stablecoins like USDC are powerful primatives that can rewire the way trade and supply chain financing is provided across global supply chains, to the benefit of all businesses, but especially to those in the markets that need it most.

Trade and supply chain finance is one of the largest sectors of financial services at over $9 trillion a year in annual turnover. Over 80% of all global trade utilises some form of trade or supply chain finance. Without it, cross-border trade and thus the global economy would be gridlocked. Despite this, it remains one of the most backward and antiquated sectors of financial services globally. It’s still primarily paper based, fraught with risk, extremely complex and costly, and excludes the businesses that need it most. This year the Asian Development Bank reported the trade finance gap — the measure of unmet demand for trade finance — reached an all time high of $2 trillion, a disproportionate number of that being small businesses.

The combination of DeFi and payment stablecoins like USDC can solve some key issues leading to such a gap, and in doing so, transform the way buyers and suppliers pay one another and the way lenders, especially non-bank lenders, finance global supply chains and the businesses they consist of. Stablecoins on their own bring many transformative benefits, including but not limited to:

• Enabling 24/7/365 real-time, programmable, digital dollar payments across global supply chains, down to the smallest of suppliers

  
  

• Greatly reducing or entirely eliminating reconciliation costs by programmatically linking payments to the invoices (and other trade assets) to be paid and financed

  
  

• Improving transparency into payment status by providing all parties real-time visibility into a single source of truth, reducing or eliminating billions of hours spent chasing down errors, discrepancies, and fielding calls from suppliers asking “where’s my money?”

  
  

• Eliminating the need for bespoke integrations into antiquated, expensive, and inefficient correspondent banking networks & payment systems — like email or SMS, through a single account and single integration, enabling USDC holders to move dollars to anyone with an internet connection, at the speed of the internet

When you combine composable DeFi infrastructure with payment stablecoins, the results can be truly game changing.

For one, we can begin to move trillions of dollars of trade and supply chain finance assets off of spreadsheets and PDFs and into programmable, internet native forms. In doing so, we can make them transferable peer-to-peer, in real time, 24/7/365. This is a foundational building block required to greatly increase liquidity in these markets, the end result being more financing can be offered to more businesses, especially those who need it most.

We can provide a single source of truth for ownership of these assets, which greatly reduces fraud risk and provides lenders access to verifiable data they need to underwrite borrowers in a timely manner. Again, this means more access to more financing, at a lower cost.

We can also enable fractional ownership and the packing / repacking of trade and supply chain finance assets into diversified financial products which can be sold to non-bank investors, both reducing risk and expanding available liquidity. This means investing in globally supply chain finance assets can, for the first time in history, be as easy as buying a stock on Robinhood.

Next, we can make trade and supply chain finance products composable and interoperable across other Web3 and DeFi services, opening up an entirely new realm of possibilities and allowing us to build entirely new products and services, many of which are yet to be discovered.

And in the not too distant future, many supply chains could become entirely autonomous — and commerce may be, in large parts, machine-to-machine. Smart-warehouses, autonomous trucks, cargo ships, and trains, IoT connected machines, and more are already being integrated into global supply chains. In this brave new world, an internet-native payments and financing infrastructure will be required to facilitate payments and financing between machines operating global supply chains.

The implications of these capabilities are profound and immeasurable.

Tokenisation of real world financial assets through the use of open source, composable smart contracts can make financial markets more transparent, more efficient, more liquid, and more accessible to those who need it most.

We agree with financial giants including Blackrock, Citi Bank, Bank of America, JP Morgan, Franklin Templeton, and others that the tokenization of financial assets can be the “killer app” that brings public blockchains mainstream. Larry Fink, Blackrock CEO says “…tokenization is the next generation for financial markets”. Citi Bank expects tokenization of real world financial assets to grow by a factor of 80x in private markets and reach up to almost $4 trillion in value by 2030.

The Monetary Authority of Singapore is working on a DeFi applications for FX and bond trading with JP Morgan and DBS. JP Morgan has already processed $700B in short term loans on DeFi infrastructure for its clients. The writing is on the wall. We believe this is no longer a question of “if” but rather and “when?” and “who?”

We also believe this will take time; years in some cases, over a decade in others. Such a broad-based rewiring of will start in specific sectors of financial markets, with structured finance being a prime candidate for an immediate upgrade.

Structured finance today is yet another multi-trillion industry that remains an extremely manual, paper based business, to the detriment of all involved. The business logic, rules, and workflow governing structured finance transactions, which are by their nature complex, multiparty, and cross-border, exist primarily on paper and are enforced manually by human beings across a large number of intermediaries, all of whom collect tolls throughout the transaction lifecycle. The movement of money involved in these transactions, including funding, fee waterfalls, collections, fee disbursement, and many more is all managed by disparate systems which are entirely disconnected from these paper structures and the rules and obligations that govern them. Yet structured finance underpins trillions of dollars of economic activity and is a key enabler of credit distribution and risk management across all economic sectors.

By bringing structured finance on-chain and tokenizing real world financial assets, we can greatly reduce and eventually entirely eliminate reliance on antiquated, paper-based structures and processes, reduce or eliminate the need for countless intermediaries and their tolls, and bring the benefits of structured finance to an entirely new audience of both borrowers and investors.

In doing so, we can create entirely new and better financial products that distribute credit and manage risk in ways previously both impossible and unknown.

Conclusion

It’s the convictions described above that led us to found OpenTrade, a venture that operates at the intersection of payment stablecoins like USDC, supply chain finance, and structured finance. Our platform brings bear all of the benefits described above and more.

We can provide investors seamless access to a suite of on-chain structured financial products that are backed by investment grade, liquid financial assets. Our initial products, launching in 2023, will include liquidity pools for liquid assets like U.S. Treasury Bills, commercial paper, agency MBS, repo and reverse repo facilities, and investment grade supply chain finance. The supply chain finance products embed USDC payments and financing directly in B2B networks and platforms.

All our products are secured using time-tested, bankruptcy remote legal structures that ensure investors are fully protected both on and off-chain, all while ensuring users can continue to operate entirely on-chain. All of our products are built on a protocol comprised of composable, open-source smart-contracts and USDC and Circle’s battle hardened payments infrastructure, which has supported trillions of dollars in transactions without incident.

For investors, we can provide one-click exposure to safe, liquid, short-term financial assets via digitally native assets backed by real companies, economic activity, and cash flow, all while delivering an unprecedented level of operational efficiency that expands profit margin. For Web3 businesses, funds, and investors, this means access to on-chain structured products that provide stable, predictable returns that are uncorrelated to crypto price speculation — a staple of any professional treasury management strategy and something sorely needed in Web3 today.

For borrowers, we’re making internet-native, on-demand financing available to businesses of all sizes 24/7/365 from a global network of non-bank funders. This means access to a much faster, cheaper, and more efficient form of payments and working capital finance than exists today with legacy solutions, especially for the businesses in markets that need it most. Our API-enabled services mean USDC payments and financing can be embedded in existing interfaces, ensuring businesses do not need to change their existing ways of doing business.

For B2B networks and systems, including ERPs, accounting software, procure-to-pay networks, AP/AR and invoice automation systems, eCommerce providers, and more, we’re providing liquidity-as-a-service — connecting their customers directly to a global network of non-bank funders to request and receive the financing they need, when they need it.

This allows providers to differentiate in a crowded market, win more mandates, monetise existing trade flows, and reduce reliance on bank financing and the cost, friction, and inflexibility that comes with it.

And finally, as commerce becomes increasingly autonomous and business-to-business payments and lending becomes machine-to-machine payments and lending, we will be extremely well positioned to serve as an internet-native financial infrastructure underpinning the financial activity across autonomous global supply chains and financial markets.

To conclude, we’re beyond excited to prove to you why we believe so much in these convictions and to deliver a market defining product to the world.

This funding round from such great investors was early validation of these convictions, but we’re still on Chapter 1, Paragraph 1 of this story. We’re back in the saddle, doing what we love — BUIDL.

Stay tuned.

Yours truly,

Dave Sutter, Co-Founder & CEO

OpenTrade