Custody Provider Legacy Trust Launches Crypto Pension Plan (#GotBitcoin?)
Cryptocurrency custody provider Legacy Trust is launching one of the first digital assets-based pension plans. Custody Provider Legacy Trust Launches Crypto Pension Plan (#GotBitcoin?)
The Hong Kong-licensed firm announced on Wednesday that the scheme will be on offer to both employees of participating firms and the self-employed, and will offer an underlying portfolio that includes cryptos as well as fiat currencies. It’s also expected to appeal to crypto investors.
Legacy Trust CEO Vincent Chok Said:
“We envisage that this will appeal to businesses who are active in the digital assets space, and who want to offer additional benefits to their employees to retain talent and recognise achievement. What better way to drive employee loyalty while allowing valuable staff to participate in the growth of the company and the digital asset space?”
The plan will be funded by either voluntary contributions or deducted directly from an employees salary. The pension will be paid out after retirement of the scheme member, or to beneficiaries in the event of their death.
Legacy Trust said the plan “addresses various tax concerns for digital assets holders,” though it did not offer any details.
In March, the firm partnered with hardware wallet maker Ledger to offer “institutional-grade” cryptocurrency custody.
By utilizing Ledger’s multi-signature cryptocurrency wallet management product Ledger Vault, Legacy Trust said at the time it would be able to “securely and efficiently” custody clients’ digital assets, such as bitcoin and ethereum-based ERC-20 tokens.
Winklevoss’ Gemini Crypto Exchange Launches Custody Service
The New York-based cryptocurrency exchange Gemini, founded in 2014 by twin brothers Cameron and Tyler Winklevoss, has launched its own custody service, Gemini Custody.
In a press release shared with Cointelegraph on Sept. 10, Gemini states that the newly launched custody solution will allow its customers to check balances, download account statements, initiate withdrawals, and grant auditors view-only access to confirm balances, transactions and activity.
Customers will also be able to trade their assets in custody on the Gemini exchange without waiting for them to be transferred from cold storage.
18 Supported Assets
Gemini Custody reportedly supports 18 cryptocurrencies including Bitcoin (BTC), Bitcoin Cash (BCH), Ether (ETH), Litecoin (LTC), Zcash, as well as the following ERC-20 tokens: 0x (ZRX), Augur (REP), Basic Attention Token (BAT), Bread (BRD), Dai (DAI), Decentraland (MANA), Enjin (ENJ), Flexacoin (FXC), Gemini dollar (GUSD), Kyber Network (KNC), Loom Network (LOOM), Maker (MKR) and OmiseGo (OMG).
CEO of Gemini Tyler Winklevoss said that the much-needed maturation of crypto as an asset class depends on custodial security. He added,
“From day one, Gemini recognized the need for a world-class custody solution that is secure, compliant, and easy to use for individuals and institutions around the world.”
Jeanine Hightower-Sellitto, managing director of operations at Gemini explained that institutional investors have demonstrated a clear and growing demand for crypto, but that some struggle to find a solution that fully meets complex regulatory and security requirements.
Tyler and Cameron Winklevoss recently said that they are open to partnering with Mark Zuckerberg on Facebook’s Libra stablecoin project. Cameron argued that Libra represents a step forward in the mass adoption of cryptocurrency.
Beyond Storage: How Custody Is Evolving to Meet Institutional Needs
The last few years have seen the formation of many crypto-focused hedge funds and venture capital funds, whose collective assets under management total in the billions of dollars: institutional investors including Blockchain Capital, BlockTower, Paradigm and Polychain, among others. These funds know the blockchain ecosystem as well as anyone in the world.
We’re grateful institutional investors who know crypto best are helping to inform the development of our custody product. Clients tell us what they need, and we partner with them to build what they require. Through this process, we’ve learned some lessons worth sharing because they offer meaningful insight into the crypto space and how it’s evolving.
1. Institutional investors want more from their custodian
Because digital assets are bearer assets, most investment activities involve handling the underlying private keys. This means custody plays a much bigger role in crypto investors’ day-to-day operations than in traditional finance. Whatever investors want to do with their assets – buy and hold, exit a major position, actively trade, participate in staking and governance – the custodian will be involved.
As such, institutional investors want custodians to make buying and selling digital assets as easy and painless as possible. What’s typically a multi-step process, including navigating exchanges and OTC dealers, finding the best price, manually transferring crypto from or to custody, is ripe for disruption by custodians. Regulated trading involves custody and custody relies on technology, which means providing even simple financial services (like the ability to buy, hold and sell an asset) requires highly advanced underlying infrastructure in the custody function.
Funds and institutions should be able to focus on their investment strategies without having to worry about security or moving millions of dollars in crypto between addresses. The onus is on custodians to enable their clients to sell or buy directly through custody.
2. Cold storage isn’t working for institutional use cases
Institutional investors are painfully aware of the major hot wallet breaches our industry has suffered and the chilling effect they’ve had on the whole ecosystem. To counteract the risks of online exposure, custodians have attempted to secure assets by generating and managing keys entirely offline through a manual human process called “cold storage.” Holding assets offline is necessary for security purposes, but institutional investors are frustrated with cold storage as it has traditionally been implemented.
Questioning the practicality of cold storage is not something we at Anchorage take lightly: As project leads for the Glacier Protocol, my co-founder and I helped develop a step-by-step method for bitcoin self-custody that relies on cold storage. Cold storage has been instrumental for the broader adoption of decentralized currencies, allowing people with non-technical backgrounds to safely store their crypto assets offline. It was and continues to be a sensible custody solution for many retail investors.
But cold storage comes with serious usability constraints, and institutional investors have complex usability needs that cold storage simply cannot satisfy.
For one, institutional investors have an obligation to their LPs to generate as much yield as possible on their behalf. Cold storage is an impediment to institutions’ ability to quickly execute trades. When a time-sensitive trading opportunity arises, custodians must be able to ensure that a client’s assets are readily accessible for trading at a moment’s notice. Traditional forms of cold storage can entail hours or even days of waiting to withdraw assets, at which point trading opportunities are lost. Institutional custody providers must develop solutions that make offline assets easily accessible and securely tradeable.
Second, institutional investors are demanding staking and governance, two forms of on-chain participation that require the use of private keys for online operations. Some cold storage custodians rely on delegation and proxy contracts, technologies that enable one key or contract to act on behalf of another. But not all projects allow delegated staking, and proxy contracts can increase surface-of-attack and introduce unnecessary risk.
As more projects come to market with mechanisms requiring active participation, institutional investors, which have a major stake in their investments’ health and success, will rely on their custodians to act accordingly and get the most out of their holdings.
3. Institutional investors require solutions designed for multi-person teams
The fact that institutional funds are managed collectively presents its own set of challenges. While “not your keys, not your crypto” has become a common refrain among adherents to the value of self-sovereignty, which individual should ultimately control crypto keys owned by an institutional fund?
We believe the keys must be controlled by a multi-person team. Providers are using different solutions to achieve this result: some use Shamir’s Secret Sharing (a cryptography algorithm that divides keys into multiple parts), others use physical controls. We at Anchorage associate a unique key with each user and require all sensitive operations to be signed by a quorum of user keys.
But multi-person approval is only part of the solution. The custodian must verify institutional intent – in other words, the custodian must ensure that a given operation represents what the client organization wants to do, and not just what a rogue individual or rogue group wants to do. We believe institutional intent is best verified by authenticating each human approver for a given operation, not just verifying possession of a shard or user key; and by enabling institutional investors to configure customizable quorums based on the nature of the operation, since different team members may have different domains of authority.
In sum, the role of custodians is evolving as the crypto ecosystem matures.
Institutional investors have different needs than retail users, while new coins that offer staking and governance demand on-chain participation. If the first wave of custody solutions was designed to help individuals hold and trade bitcoin, then the second wave will be trained on satisfying the needs of institutions and enabling full participation in all cryptocurrencies.
Hawaii Introduces Bill Authorizing Banks To Offer Crypto Custody
The Hawaii State Senate has passed the first reading of a bill authorizing banks to hold digital assets in their custody.
The bill was introduced on Jan. 17 by five state senators, including the only Republican member of the Senate, Kurt Fevella. It passed the first reading on Jan. 21 and was then referred to the committees on Judiciary and Commerce, and Consumer Protection and Health on Jan. 23.
The bill specifies the set of provisions which a bank must adhere to in order to provide custodial services for digital assets. Custodial services cover “the safekeeping and management of customer currency and digital assets through the exercise of fiduciary and trust powers under this section as a custodian and includes fund administration and the execution of customer instructions.”
In order for a bank to qualify as a crypto custodian, it has to adhere to certain standards regarding accounting and internal controls, maintain IT best practices, and comply with federal Anti-Money Laundering and Know Your Customer requirements.
Attempt To Provide Legal Certainty For Digital Assets
In addition to opening up bank regulations to include cryptocurrencies, the proposed law would classify digital assets under the Uniform Commercial Code — a set of federal laws in the United States that aims to provide uniformity in legislation surrounding sales and commercial transactions in the country.
Digital assets would then further be sub-categorized as either digital consumer assets, digital securities, and virtual currencies. All are classified as intangible personal property.
Furthermore, the bill specifies the manner of perfecting a security interest in digital assets and discusses various methods such as smart contracts and multi-signature arrangements.
The proposed legislation also authorizes courts to hear claims relating to digital assets.
With digital assets, their security interest, and bank custodial services defined, the state courts are also given jurisdiction to hear claims in both law and equity regarding digital assets.
Hawaii Loosening The Reins On Cryptocurrency
Hawaii has previously imposed strict requirements on firms dealing with cryptocurrency, causing the Coinbase exchange to cease its operations in the state almost three years ago.
If passed into law, this latest bill would not only give some clarity to classification of digital assets, bringing it in line with several other states. It would also set out a framework by which any compliant bank can act as a crypto custodian, which would potentially see Hawaii take a lead over many states in regulating this aspect of the cryptocurrency industry.
Coinbase Launches International Cryptocurrency Custody Arm
Major United States-based cryptocurrency exchange Coinbase has established an entity in Ireland to expand its crypto custody services to European institutions.
According to a Coinbase announcement published on Jan. 30, the new entity is called Coinbase Custody International and is based out of Dublin.
The firm’s services will be the same as those provided by Coinbase Custody in addition to taking over all the staking activities performed by the exchange.
Coinbase Custody initially began offering staking for select cryptocurrencies in March 2019, and expanded that service to international the following November.
The Advantages Of A Local Operation
While Coinbase Custody has been serving European clients in the United Kingdom, Switzerland, Germany, Finland and the Netherlands since 2018, a new dedicated entity allows for completely localized service.
Per the announcement, this will bring the advantages of local staff, localized service-level agreements and clearer compliance with EU law:
“Europe is our fastest growing geographic segment and our international launch is a direct result of client demand. By offering our services from the same region in which our clients are located, it’s our goal that they will benefit from greater legal and regulatory clarity.”
Coinbase also said that, over the coming months, it plans to add support for more cryptocurrencies and features to its international custody service.
Furthermore, Ireland boasts some of the lowest corporate income tax levels in Europe which, despite the protestations of lawmakers to the contrary, has earned it a reputation as a tax haven. Indeed, the country has the third-lowest corporate income tax rate among OECD countries as of 2019.
Growing Demand For Custody
As cryptocurrencies solidify their position as a new financial asset class, demand for services such as crypto asset custody is increasing.
Rohan Barde, a research and innovation manager at industry expert association Blockchain Zoo, explained that custody services are needed to attract institutional investors who wish to reduce risk and comply with regulatory standards.
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