Trading in Cryptocurrency Increases Demand for Crypto Custody
Fusang Vault is the latest service added to the expanding cryptocurrency spectrum. It is to be launched by asset management company, Fusang Investment Office in Hong Kong as demand for crypto-custody increases among its private family office clientele. The crypto-custody demand has also come from institutional clients in the fourth financial quarter, says Henry Chong, the CEO of the investment firm.
Explaining the function of asset custodians, Chong said that the third party is an essential component in custodian banking, just as in traditional banking systems. These independent third parties are necessary to hold assets “on behalf of clients” and to “audit” the digital assets at regular intervals.
Chong shared that, “Digital assets are akin to bearer bonds, whereby whoever that is holding the security is presumed to be the owner, and there is no registration of ownership information of the security. Hence, the way we keep digital asset secured is of paramount importance.”
The new addition of services
Crypto-custody is an emerging service in the decentralized coin transaction systems. One of the first to offer this service has been US crypto-exchange operator, Coinbase. These services are necessary for safeguarding and controlling digital assets since transactions are in multiple numbers and are required for fund transfers, setting up of withdrawal limits and providing audit trails.
Fusang Vault’s custody services will be delivered by collaborating with insurers to cover losses by way of cybersecurity insurance coverage. The demand for such specialized services in the crypto industrial has multiplied with the increase in the number of people using it for multiple types of transactions. As individuals, as well as financial institutions, are conducting their transactions outside of exchanges and over the counter, the need for newer crypto transaction stages is evolving.
Service Contract sets the rules
As crypto-custody services are yet to be regularised across the industry, the rules by which these providers will play are undefined. In the current scenario, the terms and conditions of service will favor the service providers predict industry experts.
Simmons & Simmons partner Jolyon Ellwood-Russell reiterates the current flux in the crypto-custody service delivery level because of the lack of regulation in this segment. Users will only have to fall back on the terms and conditions in the contract in case of any mentioned loss.
According to Jolyon, several legal issues are not reflected in such contracts. Illustrating this issue, he draws reference to the legality of the custodians. He questions the ‘capacity’ of the custodians and asks if they are holding such assets as a trust. If the latter case is true, then assets will be considered outside of the estate of the custodian in terms of insolvency.
He adds that mere nomenclature of services, namely separation or segregation of accounts will not automatically mean secure returns in case of insolvencies. The investor assets though protected may not be recoverable from the liquidator as well, the debates.
Cryptocurrency usage is on the rise, in most countries where digital assets are a big part of the financial ecosystem. The need for third-party safe-keepers akin to banking institutions is emerging to be an important component as blockchain technology moves into mature stages of the transaction.