Rails, a decentralized crypto exchange, has successfully raised $6.2 million in efforts to fill the void left by the 2022 crash of FTX, co-founder and CEO Satraj Bambra exclusively revealed to TechCrunch. The startup is now gearing up to launch its offshore service in crypto-friendly countries, with the exception of the US.
Watched closely by the crypto community, Rails is attempting to bridge the gap between centralized and decentralized exchanges by developing both underlying technologies.
The funding round was led by Slow Ventures and also saw investments from CMCC Global, Round13 Capital, and Quantstamp. The capital will primarily be used to expand the team of engineers and enhance licensing and regulatory strategies to achieve full compliance, according to Bambra.
While FTX faced several challenges, such as mismanaging customer deposits, Rails stands out for its secure customer deposit system and involvement in the lucrative market of crypto derivatives, specifically perpetual futures trading. This is an area where institutional players have been at a disadvantage since the collapse of Sam Bankman-Fried’s exchange.
“There’s a big gap, especially on the perpetual [futures] side with how institutions like to have exposure,” Bambra stated.
The startup was founded by Satraj Bambra, his wife Megha, and former Grindr COO Rick Marini. The couple previously founded crypto wallet BlockEQ, which was acquired by Coinsquare for about $12 million CAD in 2018.
Bambra mentioned that they have received interest from hedge funds looking to enter the crypto market, but have no means of doing so. Rails hopes to cater to this demand by providing a platform for market makers and institutional clients to trade.
For context, perpetual futures contracts are traded in relation to the spot price. This means that investors are not buying actual bitcoin, but rather contracts linked to the price of another asset, such as stablecoin USDC. According to Bambra, this allows for more controlled risk management and is the main focus of Rails.
Typically, investors rely on banks, financial institutions, and exchanges to hold their funds. However, Rails is taking a different approach by offering self-custody options. This means that owners have full control over their assets.
Rails has already onboarded over $10 million in early funding through private means. The exchange is set to launch publicly in September or Q4 of this year, with select beta testers getting access to the platform in May.
Currently, Rails is not available in the US and Bambra says they are still finalizing where it will be accessible. When asked about potential jurisdictions, he mentioned that they are not ready to disclose this information yet.
“We just want people to use their money, and that’s why we have decentralized custody,” Bambra explained. “It’s a marriage between centralized computing and decentralized custody.”
The combination of centralized computing and decentralized custody allows for efficient risk management and fast trade execution, while also giving users ownership of their funds.
Bambra believes that to address the issues faced by FTX, the solution lies in on-chain technology. While they saw the strength of centralized computing with FTX, it was not as reliable when it came to decentralized exchanges like dYdX.
However, for Bambra, a hybrid model of centralized and decentralized technology is more beneficial than being fully on one side or the other.
“For people who haven’t traded crypto before that want to, it’s difficult and cumbersome. For people who trade it day in and day out, they aren’t comfortable putting the size they used to put on decentralized exchanges,” Bambra added.
Here, users will get a seamless, centralized experience without realizing that everything except their funds is decentralized. All trade executions will be centralized, while funds will be held in smart contracts that can be audited, removing the need for intermediaries.
The team at Rails aims to bridge the gap between centralized and decentralized technologies through the use of cryptography and blockchain. This will provide users with a comprehensive view of trade execution and fund management.
After its public launch later this year, Rails plans to focus on expanding its social features, including leaderboards, and partnering with industry players to enhance its product.
“We’re very product focused,” Bambra stated. “We’re not an opportunistic startup.”
