Alpaca targets prime brokerage expansion amid tokenised stock growth

US brokerage technology firm Alpaca intends to launch a prime brokerage business in Q1 2027, capitalizing on the surge in demand from hedge funds and institutional investors who trade across both cryptocurrency and traditional markets, according to a Bloomberg report. Alpaca, which provides trading and custody infrastructure to financial institutions, aims to broaden its services into financing, securities lending, and other prime brokerage offerings as tokenized equities gain popularity.

Speaking to Bloomberg, CEO Yoshi Yokokawa explained that this strategic move is designed to enhance capital efficiency for institutional investors who oversee positions on both digital asset platforms and conventional exchanges. Prime brokerage services could become increasingly crucial as trading firms seek to hedge tokenized equity positions against underlying shares or derivatives across various venues.

Currently, Alpaca manages over $3.5 billion in underlying US equities backing tokenized products issued by more than ten companies, including Binance, Coinbase, and Crypto.com. These holdings have surged eightfold in value over the past year. The company faces the challenge of converting tokenized stocks into their underlying shares, a prerequisite for incorporating greater leverage into these transactions.

Alpaca is exploring solutions such as netting arrangements to reduce collateral requirements by offsetting obligations between trading counterparties, akin to mechanisms utilized in traditional clearing markets. This expansion will necessitate additional balance-sheet capacity. Alpaca raised $135 million in equity and $300 million in debt earlier this year and plans to finance its prime brokerage activities through a mix of internal capital, borrowing, and credit facilities.

The move coincides with other digital asset firms broadening their institutional financing services. Crypto custody provider BitGo has identified prime brokerage as a future growth driver, while Coinbase has reported rising demand for its prime services. Alpaca's forthcoming launch reflects the intensifying competition to provide institutional trading infrastructure as digital assets and traditional securities markets grow more interconnected.