OpenFi: BitGo
In this post, I take a look at BitGo under my OpenFi framework. While not a DeFi app, BitGo provides services to support the DeFi ecosystem in many ways, from its wallet and custodial services to its support of WBTC.
O: Opportunity - How large is the Total Addressable Market? Does the project disrupt an existing market, or does it create a new market?
Score: 5/5
Founded in 2013 by Mike Belshe and Ben Davenport, BitGo is a digital asset services giant operating in a number of different areas, including wallets, custody, brokerage services, and more. The overall TAM is as big as crypto itself. According to CoinMarketCap, at the time of writing, the total crypto market cap is hovering at just under $1.1 trillion. Of course, this is after the overall crypto market grew by 300% in 2020.
Speaking strictly to BitGo’s main wallets/custody business, total crypto assets under custody across all providers were estimated to be between $400 million -1 billion in 2020. Exchanges ranked at the top of the list but are more retail-focused. BitGo, on the other hand, targets institutional investors with assets worth $1 million or more. Larger players like nationally chartered banks are slowly going to be moving into the space. I will be watching closely as BitGo grows with the overall market and as the space develops with new players.
P: Product - How innovative and differentiated is the product? Is there product-market fit? How easy is it to use the product (i.e. good user interface and experience)?
Score: 4/5
BitGo has 4 distinct product offerings:
Wallets & Custody: The bread and butter of BitGo’s business; BitGo offers both hot and cold storage wallets. There are three tiers including personal wallets, business wallets, and top-level BitGo qualified custodian services. As a qualified custodian, the storage custody is administered by BitGo Trust Company—a regulated Trust Company under the Division of Banking in South Dakota. Cold storage assets are held in segregated accounts with regular audits and stringent reporting processes.
Prime Services: Prime brokerage trading platform, stablecoin lending, and off-chain settlement services with trusted partners
Portfolio Management: Friendly UI with robust portfolio performance and tax services
API SDK’s: for wallets and trading platform integration
BitGo is also the official custody partner for WBTC, a popular wrapped version of Bitcoin on the Ethereum network. Unlike many of the other OpenFi projects I’ve reviewed, I did not have an opportunity to test out the product directly. For the purposes of this post, I’ll cover the main comparisons with other players in the space:
Assets Supported: According to reporting by Hexlant, BitGo covers 11 total digital assets, only behind Ledger Vault and Hexlant covering 24 and 12 assets respectively. A closer look reveals that among these assets, there are hundreds of ERC-20 tokens supported as well. This covers a vast majority of commonly used tokens.
Insurance: BitGo covers $100 million in losses, in line with the average across other custody providers. Competitor Ledger Vault covers $150 million while Coinbase covers $225 million.
As more institutional money moves into crypto, the need for institutional-grade custody and wallet solutions will increase. BitGo has a solid foothold as an institutional custody provider and will continue to be going forward.
E: Experience - Does the team have any previous experience building software and technology? Is the team well-versed in blockchain? What previous experience does the team have to ensure success?
Score: 4/5
Based in Palo Alto, BitGo has over 100 employees around the world. Key team members include:
Mike Belshe (Co-Founder & CEO) - Mike was one of the first dedicated engineers on the Chrome team at Google. He was the creator of the SPDY protocol and the lead author of HTTP/2.0. Prior to Google, Mike took on various executive roles at start-ups including Netscape and Good Technology, and has an engineering background.
Chen Fang (CPO) - Chen has had over a decade of experience in fintech and traditional technology companies. He was the co-founder of Lumina, an institutional portfolio management provider for digital assets.
Pete Najarian (Chief Revenue Officer) - Pete joined BitGo from Xapo where he was Senior Vice President of Institutions. Prior to Xapo, Pete held numerous positions in banking, first at UBS, then Royal Bank of Scotland.
BitGo has received seed VC funding from Redpoint Ventures, Goldman Sachs, Galaxy Digital, and others.
BitGo’s team is filled with individuals who are either founders or have deep institutional or technology backgrounds. This is evident when analyzing their products - all offerings are institutional grade with enterprise adoption in mind.
N: Network Effects - Will more people in the network benefit when others join? Are there high switching costs and stickiness in using the platform?
Score: 4/5
Custody is typically an area where volume makes a big difference. Custody providers make money on interest from your crypto deposits, just like a traditional bank. The space has quite a few players, but the major ones have most of the market share. When a provider does well, they are also able to expand and offer ancillary services.
On the flip side, most custody providers ensure minimums are held in custody from each partner. This both acts as a failsafe for a stable business and ensures long term (and oftentimes exclusive) relationships. As one of the dominant players in the space, it would be a painstaking process (and impractical one at that) for a project to move to another digital custody and asset management provider.
From an institutional perspective, Bitgo is also able to create network effects from its large client base, i.e. a new client will potentially be able to integrate with the hundreds of other supported exchanges and businesses integrated with Bitgo.
F: Fundamentals: Do the underlying unit economics make sense within the current network? How quickly are users growing? How much value has been transacted or locked up?
Score: 5/5
BitGo, again, is a bit different from most projects on OpenFi as they provide institutional-grade services without offering a platform with its own native token economics. As such, I’ll be taking on a more traditional finance lens in this review.
Across its various service offerings, BitGo’s bread and butter is definitely its wallet & custody services. BitGo currently oversees over $20 billion in transaction volume each month on its platform. The company earns passive income on assets custodied with insurance covering up to $100 million in losses. This business model is very sustainable as long as assets are being transacted and locked on the platform. Long-term, as long as BitGo is able to sustain its existing relationships, financial success would come hand in hand.
I: Incentives - Are there proper cryptoeconomic incentives in place for network stakeholders and users to support blitzscaling?
Score: N/A
Since BitGo is mainly a service provider, I will omit the score from the category from the total. However, BitGo was one of the original minters of WBTC and that’s something we should talk about. WBTC started as a joint venture between BitGo, Ren Protocol, Kyber Network, and a few other partners back in 2019. Now, it’s the 13th largest coin by market cap at almost $4 billion.
WBTC is an ERC-20 version of BTC where the underlying BTC token is custodied. This allows for a few things to happen. Holders of BTC will not need to sell or swap their tokens to interact with the Ethereum network. This allowed users access to the benefits Ethereum network had to offer over BTC at the time, including smart contract capabilities, faster transaction speeds, and DeFi tools, like DEX’s, that only allowed for Ethereum trading pairs. As other layer 1 protocols with faster throughput and higher scalability than Ethereum are developed and bridges connect each of these networks, I’d expect to see other types of wrapped assets coming to the forefront.
Total Score: 22/25
A few years ago, when I first started my crypto journey, the infrastructure was very underdeveloped. Especially for an investor coming out of institutional finance, the ecosystem just did not allow for large amounts of capital to be invested securely. BitGo, along with other providers out there, is changing that. With regulators taking on a less skeptical and more open approach these past few months, I believe we will see more players entering the market. I look forward to seeing BitGo’s progress over the next few months. Institutional money will be coming into crypto markets at a breakneck pace, and I believe BitGo is perfectly positioned to reap the benefits.
