The bank provides segregated accounts, which, it asserts, offer better customer protections when compared to the standard omnibus accounts.
Wyoming-based Custodia Bank has announced the launch of a Bitcoin custody platform for fiduciaries, investment advisers, fund managers, and corporate treasurers. The platform was approved by the Wyoming Division of Banking and is available in some US states.
1/ BIG NEWS!! Custodia’s #Bitcoin custody platform recently went live. Custodia is a *BANK* built by Bitcoiners & we offer segregated (not omnibus) custody accounts on our custom-built Bitcoin custody platform. Our whitepaper describes how we’re different: https://t.co/O6lgaWdSxK
— Custodia Bank ™ (@custodiabank) November 7, 2023
The bank provides segregated accounts, which, it asserts, offer better customer protections when compared to the standard omnibus accounts that are common in the digital asset custody industry. According to the whitepaper, the omnibus model carries great risk in terms of storage, transfer, and potential rehypothecation of customer digital assets. In addition, omnibus accounts face the risk of bail-ins in case of bankruptcy.
Segregated accounts on the other hand, described by the bank’s CEO Caitlin Long as a “property-rights-respecting Bitcoin custody service,” are said to “minimize those risks and improve transparency and auditability.” The whitepaper details how the segregated account model for Bitcoin custody, also called the UTXO (Unspent Transaction Output) custody model, works.
“In the segregated account model for Bitcoin custody, a customer delegates digital asset storage to a custodian that stores the digital assets in-place, on-chain. Assets are not moved and cannot be pledged or rehypothecated to another party for any reason. Nor are the assets moved internally by the custodian, which […] minimizes significant risks inherent to digital asset custody that have contributed to the recent loss of customer funds by other digital asset custodians,” shared the bank.
With this model in place, the custodian can exclusively focus on safeguarding the private keys that correspond to the customer’s deposit addresses.
Following the collapse of crypto businesses like FTX last year, companies in the digital asset custody industry have been trying to improve custody to make the industry more appealing to would-be institutional clients. Data from a January survey by Bitwise and VettaFi shows that about 38% of 400 respondents pointed to custody concerns as a deterrent to their investing in cryptocurrency.
Earlier this year, the US Securities and Exchange Commission (SEC) proposed a rule that would mandate that investment advisers “entrust the safekeeping of client assets to qualified custodians.” This was in a bid to ensure that clients’ assets were properly segregated and held in accounts to protect them in case of bankruptcy or insolvency.
Meanwhile, Custodia Bank is welcoming user feedback on the platform, which was developed in-house.