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Bitfinex and Koine to provide institutional-grade custody solutions

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Bitfinex, the largest US dollar bitcoin exchange by trading volume, and Koine, a UK based digital asset custody provider, announced the partnership on May 13. Users of the BNC Pro platform were notified of that announcement at that time.

The post-trade custody solutions are institutionally focused, and for Koine customers. Additionally, 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 traditional financial markets, a custodian is a financial institution that provides a secure storage service for financial securities to minimize the risk of loss or theft. In the blockchain space, custodians provide the same services but tailored to institutional crypto asset investors.

Crypto custodians securely store crypto assets for investors who want to minimize the potential loss of funds due to a lack of technical expertise or are required to use a qualified custodian by law. Due to the technical challenges involved in securely storing and managing crypto assets, crypto custodians provide a critically important service.

Koine, which was founded in 2017, provides a full suite of compliance, governance, risk management, and auditing services to its institutional customers. The platform has been designed to provide its customers with tools to manage assets in a low-latency, high-volume environment while retaining a high level of security.

Approximately two dozen institutions, funds, and family offices have chosen Koine for custody of their digital assets while fully adhering to regulated market practices. The company is licensed by the UK’s Financial Conduct Authority as an Electronic Money Institution. Koine also engaged US Capital Global Securities at the beginning of the year to advise on a $50 million equity raise the company was conducting.

In a statement regarding the partnership, Paolo Ardoino, CTO at Bitfinex, said, “In this collaboration with Koine for the delivery of custody post-trade infrastructure, we make another step on the path towards massive institutional participation in the crypto-trading market.“

Koine has opted for a procedure they dub as “Digital Airlocks” for moving and storing their customer’s cryptocurrency, rather than the more established “hot” or “cold storage.

Commenting on this technology, Phil Mochain, founder and head of strategy and corporate development at Koine, stated: “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.”

The external airlock, just as a conventional hot wallet would be, is still vulnerable to various forms of attack, but 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.”

The technology is designed to be almost completely automated 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.

Koine’s platform ensures a user has continuous legal ownership of al their digital assets by keeping 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.”

Custody of digital assets that cater to institutional investors’ needs has been an area of intense development over the past few years. While the specific list of services differs from one provider to another, the majority of crypto custodians offer an enterprise-grade cold storage solution, fork management, asset insurance, and around the clock customer service. Some custodians, such as Coinbase Custody also offer staking support and on-chain governance participation.

In the digital asset markets, SEC-registered crypto hedge funds, blockchain venture capital firms, RIAs, and family offices make up the bulk of digital asset custody clients. The number of pension funds and mutual funds that are investing is still small as the regulatory hurdles to invest in high-risk alternative assets for these types of funds remain considerable.

With a healthy number of qualified crypto custodians to choose from, including some backed by major Wall Street firms, the barriers for institutional investment in the cryptocurrency space are gradually being lowered.

Mutual funds and insurance funds, who have some of the strictest investment constraints, may soon be able to start venturing into digital assets now that the technical and cybersecurity risks of holding crypto assets are no longer an issue.



Bryce Galbraith, Khareem Sudlow