Nomura’s Digital Division to Focus on Cryptocurrencies First, DeFi Later

Nomura’s new digital-asset subsidiary, announced earlier this week in a move that potentially catapults the Japanese investment bank ahead of U.S. and European rivals, will start by focusing on cryptocurrencies, the unit’s newly appointed CEO Jez Mohideen said.

Only later will the division, which will be based in Europe and given a title in the coming months, look into more exotic applications such as decentralized finance (DeFi) and non-fungible tokens (NFTs).

“To start with, I would say the top 10 cryptocurrencies by market capitalization we will be looking at opportunistically for market making and client services,” Mohideen said in an interview. “Then basically, we’ll go down further the market cap chain to see the opportunity based on institutional demand. So, also looking at DeFi protocols, if these get launched in our own launch pads, we will look to make markets there as well.”

While banks have been testing the crypto waters for some time, many have restricted themselves to trading, whether derivatives or exchange-traded products, or conducting research into various types of digital assets. Nomura was one of the first to explore safekeeping of crypto assets through the Komainu custody consortium, alongside investment fund CoinShares and storage specialist Ledger, and is also one of the first to say it plans to delve deeper into the ecosystem.

“Komainu is one of our first projects, where we learned a lot about the bottlenecks of this industry,” said Mohideen. “It’s one of our portfolio companies and, where necessary, we will of course leverage and use that solution.”

Know your DeFi

Nomura’s take on DeFi will similarly be focused on institutionalization. That’s because companies need to be able to identify their trading counterparties to be compliant with anti-money laundering (AML) regulations. As such, they tend toward DeFi pools that offer know-your-customer (KYC) and whitelisting, like Aave Arc, for example.

“We will be aiming to bring trust into this ecosystem,” Mohideen said.

NFT’s will feature in a later phase, and only as a carefully weighed commercial opportunity focused on the overlap between so-called Web 3 and traditional finance, according Mohideen.

“It’s at an early stage with NFTs, but we want to explore the infrastructure side, whether it’s collateral financing and seeing the opportunity that exists there,” he said.

Tectonic Terra

Mohideen declined to say which stablecoins might be incorporated within Nomura’s crypto business. The cryptocurrency industry was shaken last week by the collapse of the algorithmic stablecoin TerraUSD (UST).

“I think any true stablecoin needs to be fully backed by fiat and collateral. They will need to be correctly audited and that will bring its own risk rating. Based on that, we will make our choices.”

As for the effect on the wider market, Mohideen said many people may be asking, “is this the right time to go into crypto?”

“This is a tectonic shift. It takes time, and maturity comes with events like last week. It’s where weakness in the system will be corrected and also in some cases it will require further, tighter regulation. It’s never good when people lose money, but this should speed up the institutionalization of this asset class.”