Decentralized finance (DeFi) protocol DFlow has raised $5.5 million in a financing round led by crypto venture capital firm Framework Ventures, the project said on Tuesday.
Other investors in the fundraise included Coinbase Ventures, Circle Ventures, Cumberland, Wintermute Ventures, Spartan Group and ZeePrime. DFlow previously raised $2 million in a seed financing round in early 2022.
DFlow is a DeFi protocol that allows market makers to purchase order flow directly from wallet applications, with the guarantee that the market maker will provide execution at the best price. DFlow defines best price as the lowest public price aggregated against both centralized and decentralized exchanges.
The firm says current crypto trading is costly to retail customers and lacks the execution quality characteristic of traditional equities markets.
“If you look at equities markets, retail investors don’t trade directly on the NYSE, they trade on Robinhood against market makers, who may hedge on NYSE,” said DFlow founder and CEO Nitesh Nath, who previously worked as a quant researcher at the Chicago-based trading giant DRW. “We’re improving that system in crypto, but the high level ideas are similar.”
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In traditional equities markets, brokerages such as Robinhood (HOOD) strike deals with institutional market makers like Citadel to sell them order flow from retail investors. The practice, called payment for order flow, came under scrutiny during the House Financial Services Committee hearing on the Gamestop trading frenzy.
The crypto version of this practice would see market makers place bids with wallet applications for the privilege of trading against trades placed through the wallet. DFlow says blockchain technology would bring transparency to the “black box” process of payment for order flow, as the market maker auctions would be visible on-chain and enforced by smart contract. It will also introduce an open-source reputation tracking algorithm to score market markers, meaning the public can review the criteria used to select market makers.