Safety: the key post-FTX requirement
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For many institutional investors, the possibility of gaining exposure to digital assets always comes down to the same question: how can we be sure that the funds will not disappear?
The collapse in 2022 of the FTX exchange platform, at the time presented as a benchmark player for financial institutions, has left its mark and prompted companies in the sector to raise their level of security and transparency. "Two years ago, the main issue revolved around the price of services, but recent events have shifted the priority to the security of funds," confirms Jacques Lolieux, co-founder of prime broker Aplo.
"This security must be demonstrated on several levels: resilience in the face of hacking, and then vis-à-vis third-party providers such as exchange platforms," he stresses. Aplo assures its customers that funds are never entrusted to third parties, except when there is a need to trade on an exchange. "Funds are immediately repatriated to us and held with the highest level of security," he explains.
For its customers who need them, Aplo offers segregated accounts. This is not the case for everyone, as leaving the management to Aplo allows access to a wider range of services, but it is often a sine qua non when clients come from traditional finance. "Our mission is to meet all compliance standards," insists Jacques Lolieux.
"For digital assets to be adopted by large institutional clients, the specifications they are used to must be met," warns Arnaud Grünthaler, a partner at Fieldfisher, "and it is quite likely that the traditional heavyweights will only agree to work with companies that are regulated by the AMF and belong to their world," he notes. Leading the way are SG-Forge (a subsidiary of Société Générale) and CACEIS (a subsidiary of Crédit Agricole).
It is no coincidence, moreover, that Alphacap Digital Assets, which offers digital asset services to independent asset managers, has designed its model around account segregation. Alphacap is a subsidiary of Mata Capital, a traditional investment heavyweight with two billion euros under management. "Each of our clients has his or her own cryptographic address and can check in real time what is on it. This is irrefutable proof for those who wonder whether there is a risk in FTX," says François Laviale, managing partner of Alphacap. The company retains access to the funds, but the risks of theft or piracy are kept at bay by a multi-signature system shared between several companies in the ecosystem (whose names are kept secret). "Even if someone barges into our offices with a gun it will be impossible to empty the accounts," he explains.
"Investors ask a lot of questions about how digital assets are kept," agrees Marina Beaudean, in charge of France and Benelux for 21Shares, one of the largest ETC issuers. "They want to know how secure it is and above all whether there are any external safeguards," she points out.
In the case of 21Shares' ETCs, the digital assets are held at Copper and Coinbase Custody. "We work with them because they guarantee an institutional level and quality. Coinbase Custody has notably been selected by BlackRock to hold the bitcoins for its future ETF.
For its competitor CoinShares, the assets are held by custodian Komainu (a joint venture created by Ledger, Nomura and CoinShares). "When a customer wants to buy $50 million worth of our ETC, crypto-assets are sent to the custodian before being certified by an independent administrator," explains Jérôme Castille, in charge of compliance for CoinShares in France. "We have virtually eliminated counterparty risk, so if CoinShares went bankrupt the assets would still be safe," he insists.