Cowen Digital serves up crypto with a side of tradition

Speaking to The TRADE Cowen Digital’s co-leads, Eric Rose and Drew Forman say their newly launched division aims to mimic Cowen’s operations in equities.

Cowen Digital has launched into the market with the intention of bringing traditional workflows to the non-traditional digital assets market.

The initiative has been live trading with clients since the beginning of the year but was only announced publicly in March.

“We wanted to save the press release until we had a real product. That’s why you hadn’t heard of us until we were live trading with clients in physical tokens,” Drew Forman, head of Cowen Digital, told The TRADE.

Cowen Digital currently offers trading in 15 tokens, as well as USD stable coins. Forman and Eric Rose, head of execution at Cowen Digital, confirmed this should increase to 30 or 40 by the end of this year.

Mirroring traditional finance

The new trading and custody division at Cowen is intended to offer a mirrored service to that which it offers in the traditional equities markets including trading, research, sales, and investment banking services, among others.

“All of these services that we take for granted and where infrastructure is already built and is a well-established business across Wall Street in traditional finance, that’s what we’re trying to recreate here at Cowen Digital,” said Forman.

Institutional interest in digital assets has continued to creep up in the last year, however, infrastructure and regulation – or the lack thereof  – in this space remains a hurdle to a large portion of the traditional buy-side looking to begin trading in this market.

“There is a hole in this space in terms of digital asset coverage for institutions,” Forman added.

“The infrastructure to trade, settle, track, or source data is still very much in its infancy and our goal is to educate our customers on digital assets and also bring them into the investing environment and show them that they can invest in digital assets with a trusted partner.”

The division aims to offer institutional investors everything they would typically be offered in the traditional markets including corporate events and hosted dinners. It offers both high touch and low touch execution with anonymity available for those who want it.

“That’s a feature the equity markets have had for years. Our other work-streams are borrow and lend so the prime brokerage aspect of our business which we’re trying to roll out where customers who have Bitcoin and want to earn some extra yield on it can do so by lending it out,” said Rose. “We have customers who want to short Bitcoin and they need to borrow it. Again, the whole borrow and lend ecosystem for institutional digital assets is still in its nascence.”

Cowen Digital externally connects to buy-side order management systems (OMS). The team has also built out an OMS internally to control the flow of funds and manage other elements of the business including compliance, settlement and trade allocations for its internal order routing.

“Our goal is to not change anyone’s workflow in other asset classes for customers be able to trade crypto.”


Another key traditional element implemented by Cowen in a bid to mimic institutional workflows is its management of risk.

Typically to minimise risk, investors trading digital assets will need to have money on the digital asset exchange prior to doing a trade in a process called pre-funding.

“That’s not an institutional workflow that is a retail workflow,” said Forman. “What’s differentiated about Cowen Digital both in the high touch and display in the algos is that the only counterparty that you’ll be facing is Cowen Digital. There are no pre-funding requirements for trading so the workflow is very similar to trading equities where a client can route through their OMS.”

“That is part of the package that we’re trying to deliver so we will use our credit lines and our partnership and our liquidity venues to provide that liquidity for customers so they don’t have to wire us funds in the morning. It’s a very nuanced aspect of what we do but it really is materially different from the existing digital asset ecosystem.”

However, the division – targeted at Cowen’s 2,500 strong institutional client base – does not run a large book of risk, instead managing it through a risk committee, assigning credit risks to its clients and managing its limits across exchanges.

Organic and inorganic growth

Since its official go-live at the start of this year, Cowen Digital has expanded its remit significantly both through third party partnerships and through building out its technology inhouse.

It partnered with buy-side OMS provider, SS&C Eze, becoming its first institutional route into the cryptocurrency markets. The partnership meant clients using the Eze OEMS could connect through APIs to Cowen Digital and route orders, much like the workflow seen in equities.

Cowen Digital also partnered with PolySign as its custody partner, going on to lead a Series C financing in the company alongside Brevan Howard, Soros and GSR.

In-house, the firm has decided to build an OMS internally as it found the range of sell-side OMS providers available in the market fell short of its “unique” needs.

“We decided to build rather than buy which has allowed us the flexibility to add a tremendous amount of digital asset unique infrastructure needs whether that’s settlement or middle office but also allowing us to connect outside and manage our own internal order flow and our liquidity providers,” said Forman.

Looking forward

The pair confirmed that most institutional digital asset interest is currently concentrated on Bitcoin and Ethereum, with some interest in Solana and Avalanche.

The firm intends to launch a lending product in September, leveraging an investment it recently made in Digital Prime, a lending software company. It also intends to roll out its swaps and derivatives products in the fourth quarter.

Recent runs on cryptocurrencies and ongoing volatility across the digital assets markets have led several participants to urge regulators to step in before the ‘crypto winter’ sets in.  Since November, Bitcoin has lost 70% of its value while the high-profile, catastrophic collapse of stablecoins like Terra have resulted in a loss of faith in the settlement process. However, Rose and Forman remained optimistic that institutional interest would remain high despite the turbulence.

“It’s a six to 12-month lead time for getting people to buy into this as an asset. These are conversations that we’ve been having for the better part of a year now with many of the large asset managers and none of the work has been deterred. I think most people are excited to be able to get into the space with asset prices where they are now as opposed to where they were three to six months ago,” they said.

“We really believe that that digital assets will be the future of finance and that institutional investors will need to have some form of digital assets in their portfolios going forward.”