Canadians looking to buy cryptocurrency have hundreds of options. The majority of Canadian businesses selling it, however, get it from the same company.

As Canada’s cryptocurrency-trading sector started to take off in 2018, Phil Sham, Andy Leung and Jae Moon spotted an opportunity. All the apps, ATMs and other businesses starting to sell crypto to Canadians needed a way to plug into global markets in order to source that crypto at the best price. The trio left careers in finance to start Aquanow.

“We provide a lot of the plumbing,” said Sham, now 38 and CEO of the Vancouver-based company. “We identified that there’s a gap in the market that we can probably help address and solve.”

Aquanow doesn’t disclose its funding or valuation—it’s backed by the New York City-based private equity firm Radian Capital and its ownership is heavily concentrated among its founders and employees, Sham said. It works as a liquidity provider, aggregating the best pricing from major global crypto exchanges for clients selling crypto to end customers. Aquanow claims its client list includes the majority of Canadian crypto businesses. The other major player in the Canadian liquidity provider market is Chicago-based DV Chain.

Aquanow has also expanded internationally in about 30 countries around the world, working with both clients in the crypto sector and traditional finance clients looking to enter the sector, transacting billions of dollars worth of volume monthly.

Aquanow’s rise to become a key player in the Canadian market—and increasingly globally as well—highlights how interconnected and borderless the crypto industry is. Canada may be the first country in the world to develop a regulatory regime for cryptocurrency-trading platforms, but it can’t keep the rest of the world out—nor should it try, sector insiders say.

The average customer of Canadian cryptocurrency-trading platforms likely isn’t aware that their purchases involve a connection to global markets. The colloquial term for these businesses—“crypto exchanges”—further confuses their role. Most Canadian cryptocurrency-trading platforms actually function more like brokerage firms, connecting customers who want to buy and sell crypto to larger marketplaces and charging a spread, or the difference between the price the platform purchases the crypto asset for on the market and what it charges the customer.

Crypto-trading platforms can negotiate individually with major global marketplaces, such as Binance and FTX, or they can hire a liquidity provider like Aquanow. When a customer posts an order for a certain cryptocurrency—Bitcoin, say—the trading platform will source the Bitcoin from its liquidity providers, which are in turn plugging into marketplaces around the world to find the best price. Parts of the Bitcoin that ultimately end up in the customer’s account may have come from several different exchanges.

Sham said Aquanow convinced its first clients to sign up by offering a better price than they could get by working with the big global exchanges on their own. Today, the company’s sales pitch also includes the ability to essentially outsource all of a crypto business’s back-end functions, offering consulting services to determine a business’s needs and providing the software infrastructure and necessary liquidity.

“From our customers’ perspective, what they mostly focus on is distribution and marketing,” Sham said. “[They can] basically outsource most of the plumbing to us. You get all the crypto complexity [and] we have economies of scale.”

Lori Stein, co-head of McCarthy Tétrault’s Fintech Group, said the Canadian market for traditional global assets functions in a similar way.

“The reality is that Canada is a very small market,” she said. “Our marketplaces and our dealers often source liquidity on foreign marketplaces. That’s normal.”

An element unique to the crypto sector, however, is the fact Canada is ahead of the rest of the world when it comes to regulating it. Most of the major global marketplaces restricted use by Canadians following a crackdown on the sector in 2021 and securities regulators have yet to register any platforms based outside the country.

The orders laying out the conditions registered Canadian cryptocurrency-trading platforms must operate under typically state that the platforms must vet their liquidity providers for fair pricing, regulatory compliance and market manipulation, but do not specifically say which global exchanges they can and cannot work with. Sham confirmed major foreign exchanges are both among Aquanow’s clients and where the company goes to source crypto assets and pricing for Canadian clients, although the firm does not disclose which ones specifically.

Sham said the current state of regulatory affairs for liquidity providers, in which the onus is on the platforms working with them to ensure they’re good actors, is working well. “Most people are working with us. So I think hopefully, regulators are happy, and we’re happy because we have business,” he said. 

Matthew Burgoyne, co-head of the digital assets and blockchain group at Osler, Hoskin & Harcourt in Calgary, said he advises crypto-trading platform clients not to enter into direct agreements with global exchanges that have run afoul of Canadian securities regulators. Working with a liquidity provider with access to those marketplaces, however, is probably too many layers back for regulators to be concerned, he said.

“Canadians need to be able to access foreign sources,” Burgoyne said. “A lot of these exchanges probably wouldn’t be able to start and have a business at the beginning without relying on someone else’s order book.”

As the Canadian crypto-trading platform industry continues to grow and professionalize, it may rely on liquidity providers less. Three of the 10 registered platforms are now authorized to operate their own marketplaces in addition to acting as brokerages.

Vancouver-based crypto company WonderFi owns both types of platforms—Bitbuy, which is registered as a marketplace and investment dealer, and Coinberry, which is registered as a dealer only. Dean Skurka, WonderFi’s president and interim CEO, said he hopes to grow Bitbuy to the point where it can compete with Aquanow and serve as a liquidity provider itself.

“The bigger our marketplace gets, the more viable it is to serve as a liquidity provider to some of these smaller venues,” Skurka said. 

As Aquanow’s original client base matures, Aquanow itself is expanding into new business areas. Sham said infrastructure for crypto payments in e-commerce is a growing part of the company’s business and Aquanow is increasingly hearing from institutional clients in traditional finance.

“The most important thing for us is really listening to what our clients want, which is ultimately what the retail customer wants,” Sham said. “[Aquanow helps] encapsulate a lot of the complexity [and lets] our business clients focus on what they do best.”

Clarification: This story has been updated to clarify the source of information about Aquanow’s market share.