Crypto exchange Seed CX aims to lure Wall Street by undercutting its behemoth rivals

Seed CX, the Chicago-based cryptocurrency exchange, announced Wednesday that its trading platform is live — and now the firm is waiting to see if its cheap trading costs will lure Wall Street to its venue. 

The firm, led by Edward Woodford, facilitates the exchange of spot bitcoin for institutions, though soon it will support other coins. Dozens of large institutional clients currently trade on its platform, and the exchange plans to support trading of ether, litecoin, and bitcoin cash at the end of January. It will also roll out trading of certain crypto derivatives in 2019. 

To start, however, the firm is gatecrashing the crypto world with some of the lowest fees in the industry. For market takers (folks who need to immediately execute a trade), the fees stand as high as 8 basis points or 0.08%. That's a fraction of what rivals Coinbase and Gemini charge to make a similar trade on their institutional-grade platforms. At Gemini, takers can pay as much as 100 basis points, whereas taker clients of Coinbase can pay as much as 30 basis points. Trading fees on crypto exchanges are notably high relative to the Wall Street world. "People are getting eaten," one industry insider said. 

Woodford said pricing is just part of its plan to draw Wall Street firms to its platform. "It is no more important than smarter risk management, better account management, improved contract and tic sizes, avoidance of conflicts of interest, customer support, and so on," Woodford said. "Institutions want all of that."

To be sure, Dave Weisberger, CEO of industry data provider and technology firm CoinRoutes, said that traders are still better off using multiple exchange venues, noting: "any trader that trades via single exchange interfaces is throwing money away." He noted that U.K.-based LMAX Digital is cheaper, charging takers as little as 2 basis points. 

Furthermore, Coinbase and Gemini offer much deeper liquidity than Seed CX, although it is early days for upstart firm.  

As for Seed CX, the firm will offer one currency pair to start — USD and bitcoin — but it plans to offer trading between cryptos and other currencies including euros and yen later this year. That will allow institutions looking to trade between different cryptos and fiat currencies to conduct their trading without having to go to multiple exchange venues, Woodford said.

"Many groups do not want or cannot under their mandates have the overhead of another entity in another jurisdiction," he said. "The crypto markets are highly fragmented in part due to fiat on-ramps. Having multiple pairs on platform will help consolidate liquidity. It also creates interesting tri-currency arbitrage trades."

The firm also has a market maker incentive program that could lure trades to the platform. "Further, a market-maker incentive program featuring larger and tighter quote size requirements provides deeper liquidity to participants," a press release said. It's not clear if incentives will include rebates, payments to certain traders for routing orders to their venue. Woodford declined to comment on the program's specifics. 

Seed CX has competition waiting on the horizon. The firm, which has raised $25 million, will have to compete with ErisX and Bakkt, the crypto exchange run by Intercontinental Exchange, when their platforms go live later this year. 

Disclosure: The Block reporter Isabel Woodford is Ed Woodford's sister. She has no ownership stake or financial connection to his business.