Back in 2018, just when the founders of San Francisco based Mudrex thought it was a good time to launch a cryptocurrency exchange for Indian investors, the Reserve Bank of India banned trading in the country. The setback, just week before the scheduled launch on April 15, 2018, served as a eureka moment for the five founders of the San Francisco based startup.
“When the regulatory body was not in support there was no reason to build a platform only for India... Instead, we focused on a larger global audience. We also realized that the exchange format was a very commoditized offering... Building an exchange globally was a solved problem, there were already big names,” founder and CEO Edul Patel told TechCircle.
So, Patel and the rest of the founding team -- Prince Arora, Alankar Saxena and Rohit Goyal – got to work on “how to use... cryptocurrency.”
“At that time, you could only do two things with it (cryptocurrencies); use it for payments which would be expensive and time consuming or trade it. And cryptocurrency is a 24X7 trading asset class. Trading manually was difficult. So, we (Mudrex) worked on algorithms and tools to automate this trading process,” Patel said.
The final version of the platform was launched in October 2018 and by December the startup had 100 customers. In January 2019, it was selected for Y Combinator’s accelerator programme. By March that year, it touched 500 customers.
“By then we started seeing an interesting pattern in our customer behavior. A lot of users sharing their algos in the investing community started getting requests from others on how to invest through the trading app,” he said, adding, “But to do that you either had to hand over your algorithms to them or give the money to the person to trade on your behalf. Obviously, none of it made sense and there was a trust issue to solve.”
Picking the right algorithm
Mudrex currently has partnerships with most of the top global cryptocurrency exchanges. The user needs to link his or her exchange account to Mudrex. The startup’s platform has simplified the investing process wherein the investor doesn’t have to think through each stock (in this case cryptocurrency) and can instead choose a plan based on comparing the returns, performance of the portfolio and market performance.
“We have simplified it to that extent. You don’t have to look at the algos or how it works. You have to only check the returns from the algorithms, how it has traded and trended, what are the risks of investing in it etc. You can go on our platform and look at the top algos that we have selected, the ones which have performed better and choose it. You can also choose exchange wise. Suppose you choose Binance, you can look at algos listed for it and the fee you need to pay,” Patel explained.
The platform uses its proprietary software to check and select the algorithms that would deliver high risk reward and scraps the rest. Patel calls it a performance scoring mechanism. The algorithms are linked to a particular cryptocurrency spread over short- and long-term investing strategies. While choosing algorithms for cryptos, the startups analyses long terms, a year and a half at least, focusing on the track record of the algo. It checks if the algorithm has been able to deliver consistent returns. “If we see any red flags, it is removed. Only 10% of the algos submitted gets accepted,” Patel said.
Mudrex currently has 20,000 users and of those 2,500 users are actively creating algorithms. As of May this year, the platform has $12 million worth of cryptocurrencies allocated through these algorithms.
The users creating the algorithms earn 1-1.5% per month, which is similar to expense ratio or cut earned by fund managers of mutual funds on the total value assets managed. Of that, 30% commission goes to Mudrex.
Patel claimed that the investors have been getting 8.5-9% returns month-on-month. “Our focus is on ensuring that if a person is not making money, they should at least not lose it,” he said.
While most customers start with an investment of $500 dollars across cryptocurrencies, they often end of increasing their investment to $4,500, which is the platform’s average ticket size. The platform suggests its users diversify and invest in 3-5 algorithms for at least 6-9 months to get steady returns.
Mudrex claims to have broken even in February this year and hit $1 million in annual recurring revenues in March, its first profitable quarter. Nearly 35% of its business comes from Europe, 30% from the US and only 3-5% from India.
Robust product pipeline
At present, Mudrex is working with Binance on an enhancement for the product. It will soon launch a wallet integrated with Binance, using the exchange’s underlying technology. This will enable users to buy cryptocurrencies directly from the Mudrex platform using any payment modes such as UPI.
“We are building that brokerage onboarding layer, which will make it easier for more users to connect. At the time of launch we will be available at 80 countries and across 70 different currencies,” Patel said.
The startup is also looking to link multiple cryptocurrencies to each algorithm. The enhancement of tools to create these algorithms is also underway. It plans to launch different types of cryptocurrency-based indices, which will be accessible at a single click.
Another product to look forward to will be their savings account product. “We are creating a savings account product, where the investor can come and deposit their tokens with us, which will get invested in a debt fund format. This will easily give 5-6% return per year. This one is a very low risk and low return product,” he said.