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The blue fox: the rise of DeFi and the founding of Metamask Institutional

The_blue_fox_the_rise_of_DeFi_and_the_founding_of_Metamask_Institutional

MetaMask is one of the most well-known self-custodial Ethereum software wallets in the cryptocurrency ecosystem. Its signature Orange Fox avatar plug-in serves as a gateway to the world of Ether-based tokens, decentralized applications (DApps), and decentralized finance (DeFi).

The retail browser plug-in wallet had more than 30 million users around the world in 2022, and it has slowly shifted its focus to serve an increasing number of institutional users who want exposure and asset management in the growing DeFi space.

Elizabeth Mathew, who is in charge of growth and partnerships at MetaMask Institutional (MMI), spoke with Cointelegraph at the company’s booth at Token2049 in Singapore. Most users are used to the orange color of the MetaMask logo, which stands out against the blue background of the Blue Fox.

MetaMask Institutional (MMI) has been around since October 2021, when large amounts of money started flowing from institutions to DeFi marketplaces through the standard MetaMask retail wallet.

The service came about because it was important to meet the needs of institutional users. Custody access was one of the most important things to think about in order to give a wallet a wider range of operational controls. This was done by separating roles and responsibilities for a wallet that belonged to an entity.

Mathew said that the second factor was having legal access to DeFi, which is run by smart contracts and liquidity pools and doesn’t have a real custodian or person in charge.

“A very unique challenge is that you don’t know who your counterparty is in DeFi, but we have inbuilt tools within MMI that gives you the ability to screen a DeFi pool pre and post trade,” Mathew explained.

Engagements with institutional users who were using the retail platform to manage digital assets worth millions of dollars led to the need for a specialized institutional offering.

“It was shocking, the kind of risk management we saw from institutions. They had millions of dollars of assets kept within their browser plugins, or retail MetaMask browser with a hardware wallet and a spreadsheet. That was really how the earliest crypto funds were getting involved in the space.”

Mathew made it clear that this wasn’t good for organizations that trade and do DeFi, as well as organizations that use Web3 for things other than trading. This made MetaMask think about how any company, not just traders or firms that manage funds, could connect to Web3.

Intentional design

It took more than a year to make MetaMask Institutional, and Mathew said that the team decided on purpose not to become an asset custodian.

MMI aggregated across a small number of reputable custodial stacks because different parts of an institution’s portfolio needed different techniques and custodial technologies:

“Different organizations have very different needs, in terms of how they interact with Web3. Some may be high frequency trading-style operations that require low latency and programmatic access. And then another organization might be interested in engaging with their fan base using an app suite which is very different.”

Mathew emphasized MMI’s efforts to not be vertically integrated at the custodian layer, but rather to be aggregated horizontally through service providers who specialize in the governance layer and custodial settlement layer. MetaMask Institutional now has eleven custodial partners, five of which are in Asia, a region where MetaMask is becoming more involved.

Mathew says that the fact that the 11 custodial partners already work with more than 1,800 organizations from a wide range of industries will be a key factor in getting businesses and service providers to join Web3:

“When they want access to Web3, they’ll essentially turn to their facility and say, ‘turn on my Web3 access.’ Everyone’s not ready for it yet, but we’re certainly having conversations with institutions that are thinking about this more long term than some of the short term speculative opportunities.”

Who Uses Institutional MetaMask?

Mathew said that 250 organizations had signed up for and were using MetaMask Institutional, and that the other 1,800 organizations that use MMI custodial service providers could also join.

Access to DeFi markets is still the main reason people use it, but just under half of the users are companies looking for operational controls over token portfolios or token investments in specific projects:

“Our earliest adopters were crypto-native or DeFi focused funds and today on the platform, about 60% of organizations are professional DeFi portfolio managers and the 40% are not DeFi traders.”

MMI has tried to keep the same look and feel of the Orange Fox retail plug-in, with a familiar user flow that lets the user connect to any Ethereum-based DApp and its tools. Mathew explained that when a user tries to confirm an action that is linked to a specific custodial wallet address, the way it works is different.

“Depending on whatever governance policies that you have set for that particular wallet, you can have a multi-approval setup, you could have filtering done at the protocol level.”

Mathew also talked about how institutions’ willingness to take risks and their exposure to the cryptocurrency market have changed. In the past, companies were uncomfortable with access through browser extensions. Instead, they preferred to be part of private chains.

This is now different. Organizations, like investment banks, that have done multi-year pilots on private chains are now showing up and saying, “That’s changed. Organizations including investment banks that used to be doing multi-year pilots on private chains are now showing up saying, ‘we want to be looking at real Web3 use cases, we need to do the hard work and understand what it takes from an operational standpoint.’ It is a steep learning curve.”

Because MMI has custodial service providers built in, the platform doesn’t always know which one will best meet the needs of a certain institution. The best thing to do is for users to get their hands dirty and start playing around with the platform’s different features and ways to control them.

“There’s a stack for any kind of use case you can think about, just open up an MMI wallet and then put some positions down, even on a test net. Those are the kinds of conversations we’re having with institutions within capital markets.”

In light of newsworthy events that happened in 2022, institutional investors are thinking twice about giving large amounts of money to third-party intermediaries. This is because the collapse of the Terra ecosystem sent ripples through space.

“I think people have taken a step back in realizing that they have placed trust within counterparties that may not have been adequately quantified. Sure you have access to the asset class through centralized intermediaries, but then, what is the price you’re paying for that?”

MetaMask Institutional is also thinking about improving the education and information available to participants before they use the platform. This is to help institutions find the best type of custodial access through its partnerships.

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