Koine, a London-based UK regulated digital asset custodian, and Bitfinex announced on 13 May 2020 that they will jointly launch institution-grade custody and post-trade services. Koine will be providing the exchange with a series of services that can help professional traders to mitigate the counterparty and settlement risks associated with cryptocurrency trades.
In addition, customers of the British platform operator will have access to a so-called “post-trade service”, which is intended to protect their stock exchange transactions against credit risks on the one hand and the danger of insolvency on the other.
Through the collaboration, Koine customers who also have an account on Bitfinex will be able to obtain a line of credit on the Bitfinex trading platform using Bitcoin or other cryptocurrencies held with Koine.
In turn, through Bitfinex’s partnership with the UK Financial Conduct Authority (FCA), the also regulated company that operates the iFinex crypto exchange can now attract major investors interested in “institutional quality” offerings. The new format has been specially developed for the secure storage of client assets.
Speaking about the partnership, Hugh Hughes, Chairman and CEO at Koine, shared:
“Collaborating with Bitfinex to help bring new funds into their trading environment is an extremely important step in our evolution. It is leading exchanges like these that will benefit from the shift to a more traditional market structure that will quickly lead to institutional capital participation and the rapid growth of trading from algorithmic funds.”
Bitfinex, which caters some of its offerings to professional clients by supporting algorithmic and over-the-counter trading, claims the new suite of services will help to encourage institutional participation in crypto markets.
“We have always focused on building a service fit for institutional trading,” said Paolo Ardoino, CTO at Bitfinex. He sees the cooperation as “another step on the path towards massive institutional participation in the crypto-trading market”.
Koine’s custody solutions are clearly addressed to investors who, within the systems of partner brokers and exchanges, “secure storage and settlement within milliseconds are particularly important”. They enable institutional investors to access real-time statements for both digital assets and fiat funds money in their portfolios, eliminating the need for manual post-trading processes.
Koine’s storage model
Koine’s unique security model, which deploys Digital Airlocks, is neither “hot” nor “cold”. Both wallet models can compromise the security of private keys as a result of still needing to be “eye-balled” by staff. Moreover the private keys used for asset protection can easily be lost or stolen.
Koine’s solution uses three separated pieces of technology, dubbed “Digital Airlocks” as they function similarly to physical airlocks, as Phil Mochan, founder and Head of Strategy and Corporate Development at Koine, explained to Cointelegraph:
“Digital assets enter an outer airlock which might conventionally be called a hot wallet but we refer to as a transit account, as the funds are only held there momentarily before moving to the second airlock, when they are dematerialized onto a separate digital ledger and then transferred into a third airlock which is the vault for assets at rest.”
Noting that the external airlock is still vulnerable to attack, just as a conventional hot wallet would, Mochan stressed that the difference lies in the fact that “the median balance held there is nil, and we are insured for when it isn’t.”
Moreover, the whole process apparently occurs within a “sub-millisecond time frame” and relies primarily on hardware, rather than software.
Blockchain’s “single source of truth” removes the need for post-trade reconciliation
Aside from this approach to secure custody, Koine’s technology is designed to be almost wholly automated, without relying on human intervention, and can purportedly handle over 200,000 transactions per second.
Koine’s post-trade services are designed to remove the need for manual processes by removing blockchain assets from the trade cycle through a process of dematerialization.
Traditional markets — like those for equities and bonds — often dematerialize assets as well, he noted, yet they continue to use a multi-tiered trade model that demands intensive work on reconciliations.
By contrast, Koine’s delivery-versus-payment (DvP) solution uses a distributed ledger as a single “source of truth,” which Mochan likened to the model used by conventional central securities depository entities but without their multi-level custody structures.
Lastly, Koine’s service ensures continuous legal ownership of all crypto assets and (digitalized) fiat currency by custodying all assets involved in trades within a segregated ownership model:
“When a client wants to trade, then Koine locks the collateral of each side of the trade […] before trade execution occurs. This collateral locking is in a sub-millisecond time frame. Post-trade, upon receipt of the settlement instruction from the exchange, Koine conducts a DvP in sub-millisecond time frame.”
The collaboration with Koine comes just days after Bitfinex announced it is offering Bitcoin Dominance (BTCDOM) Perpetual Swap through its digital asset exchange. The platform claims Bitfinex Derivatives is the first derivatives platform to offer Bitcoin BTCDOM, which enables investors to take a position on the market weighting of the world’s biggest cryptocurrency.
For more information on providers of institutional custody solutions, visit https://digital-assets-custody.com/news/