Nomura's new digital assets subsidiary, announced earlier this week and potentially catapulting the Japanese investment bank ahead of U.S. and European rivals, will initially focus on cryptocurrencies, according to the unit's newly appointed CEO Jez Mohideen.
Only later will the unit, which will be based in Europe and given a name in the coming months, look at more exotic applications such as decentralized finance (DeFi) and non-fungible tokens (NFTs).
"I would say that initially we will look at the top 10 cryptocurrencies by market cap opportunistically for market making and client servicing," Mohideen said in an interview. "Then we will basically go further down the market cap chain to see the opportunities based on institutional demand. As DeFi protocols are rolled out in our own launch pads, we'll look to make markets there as well."
While banks have been testing cryptocurrencies for some time, many have been limited to trading, whether derivatives or exchange-traded products, or exploring different types of digital assets. Nomura was one of the first to look into crypto asset custody through the Komainu custody consortium, along with investment fund CoinShares and storage specialist Ledger, and is also one of the first to state that it plans to dive deeper into the ecosystem.
"Komainu is one of our first projects where we learned a lot about the bottlenecks in this industry," Mohideen said. "It's one of our portfolio companies, and we will certainly use that solution as needed."
Know your DeFi
Nomura will similarly focus on institutionalization at DeFi. The reason is that companies need to be able to identify their trading counterparties in order to comply with anti-money laundering (AML) regulations. As a result, they are leaning toward DeFi pools that offer KYC (know-your-customer) and whitelisting, such as Aave Arc.
"Our goal is to bring trust to this ecosystem," Mohideen said.
NFTs will be considered at a later stage and only as a carefully weighed commercial opportunity focused on the intersection between so-called Web 3 and traditional finance, Mohideen said.
"We're still at an early stage with NFTs, but we want to explore the infrastructure side, whether it's collateral financing, and we want to see what the opportunities are there," he said.
Tectonic Terra
Mohideen declined to say which stablecoins might be integrated into Nomura's crypto business. The cryptocurrency industry was rocked last week by the collapse of algorithmic stablecoin TerraUSD (UST).
"I think any real stablecoin has to be fully backed by fiat and collateral. They need to be properly vetted, and that brings its own risk assessment. We will make our decisions based on that."
As for the impact on the broader market, Mohideen said many people are wondering if this is the right time to get into cryptocurrencies.
"This is a tectonic shift. It takes time, and maturity comes with events like last week. This is where vulnerabilities in the system are corrected, and in some cases, further, stricter regulation will be needed. It's never good for people to lose money, but this should accelerate the institutionalization of this asset class."