- Prometheum addressed the controversy that has dogged the firm since its inception.
- Firm is poised to take advantage of tokenisation.
Crypto hates Prometheum.
Since Aaron and Benjamin Kaplan founded the firm in 2017, they have drawn the ire of crypto’s boosters.
The problem? The brothers have sided with Securities and Exchange Commission Chair Gary Gensler, saying the industry doesn’t need special treatment or tailored laws.
Instead, it should just suck it up and follow the rules.
Now, the team has a chance to prove its chops. On Wednesday, Prometheum’s launched its digital asset securities custody platform.
“Our goal is not to build a vending machine that’s full of memecoins and non-fungible tokens,” Aaron Kaplan told DL News, but rather “one that’s full of institutional products” that will allow financial institutions to take advantage of blockchain tech.
In other words, the platform aims to cater to Wall Street’s growing appetite for digital assets.
Prometheum now offers a blockchain-based market infrastructure for the trading, clearing, settlement, and custody of digital asset securities under US securities laws.
Financial institutions, corporates, and investment firms can keep their digital assets with the regulated platform. It supports Optimism and The Graph tokens, adding to its existing offerings for Ethereum, Uniswap, and Arbitrum, the company said.
It intends to expand to traditional securities like funds, stocks, and bonds on the blockchain.
The launch has been a long time coming.
Controversy
The Kaplans left their dad’s boutique Wall Street law firm to found Prometheum in 2017.
The startup puttered along in relative obscurity until it was catapulted into the centre of the SEC’s crypto crackdown in June 2023.
That’s when Aaron Kaplan was asked to testify to Congress on “providing clarity for the digital asset ecosystem.”
He told lawmakers that “there is a complaint path forward for crypto in the United States that the SEC has clearly laid out.”
Those comments put Prometheum in the crosshairs of the industry.
The SEC under Gensler had just sued exchanges Coinbase and Binance, as part of a wider crackdown.
Coinbase argued that cryptocurrencies are novel technologies and require their own careful, tailored laws.
As well-funded industry interests have taken their fight to Washington, they’ve found powerful supporters — including Republican presidential nominee Donald Trump.
In the weeks and months following the hearing, the Kaplans became the centre of several conspiracies. Crypto X accused them of being an SEC mouthpiece and America’s enemies — and even of being Gensler’s nephews.
Critics also accused Prometheum of raising money and then disappearing.
Why the silence? Aaron Kaplan said Prometheum has eschewed venture capital. Instead it raised $60 million in continuous funding from undisclosed investors. This provided the luxury of not having to rush products or services to market.
Prometheum gained its first licence — for an alternative trading system, a kind of digital exchange regulated by the SEC and the Financial Industry Regulatory Authority — in October 2022.
Getting an ATS licence is no mean feat. It took Prometheum about a year to obtain one.
That was a walk in the park, however, compared to the process of gaining a special purpose broker dealer licence, Benjamin Kaplan, who heads the company’s Capital unit, told DL News.
The SEC created the special purpose broker dealer construct in 2021, allowing brokerages to safeguard digital asset securities.
This excited the Kaplans. Prometheum couldn’t go live till it had a clearing, settlement, and custody arm to complement its ATS.
Believing regulators wouldn’t approve a platform that used third-party tech, Prometheum built its own multisig custodial platform from the ground up.
The founders spent a lot of time explaining the novel blockchain technology and how it could still be compliant while cutting out securities market middlemen — such as clearinghouses, transfer agents and brokerages — to regulators.
It paid off, the company attained its SPBD licence in mid-2023.
Vending machine
Since issuers don’t typically register crypto tokens as securities, industry critics have said that Prometheum is the “equivalent of an empty vending machine,” a platform with no products to list or custody.
However, listing crypto is a relatively minor aspect of Prometheum Capital’s long-term vision. Its licence allows it to custody anything defined as a security — including stocks, bonds, and funds.
Investment titans like BlackRock are touting the benefits of tokenised versions of traditional assets, such as expedited settlement.
Stiff competition
Prometheum ultimately wants to expand to retail investors, and provide a true public market, akin to a stock exchange.
On the way, it’s also looking at markets like registered investment advisors, which must park client assets, such as exchange-traded funds, at regulated venues.
That’s especially urgent as the SEC strengthens regulation for this segment. Last week, the regulator sued defunct RIA Galois Capital Management for failing to safely custody client assets by keeping them with FTX.
Prometheum faces stiff competition. For one, it’s no longer the sole SPBD. On Tuesday, tZERO Digital Asset Securities said it had gained the licence.
The Kaplans are optimistic that, armed with its licences, Prometheum is in a strong position.
“We have our heads down. We’ve been doing this for seven years, and we’ll continue to do it,” Benjamin said.
Joanna Wright is a regulation correspondent at DL News. Got a tip? Email at joanna@dlnews.com.