Business

Erik Gibbs

BitGo to introduce new off-chain solution for institutional clients

BitGo, a provider of cryptocurrency custody solutions, has decided to introduce a new facility that could be viewed as counterproductive to the advance of digital assets. It is going to launch a new clearing and settlement service designed for institutional clients, but which will be managed off-chain.

The solution will be offered to qualified clients of the firm’s BitGo Trust Company. Assets won’t be removed from custody, which will, according to the company, allow for fast and secure settlements. The transactions will also be in compliance with regulatory guidelines. In addition, since the funds won’t leave the custodian’s wallet, there is no counterparty risk. BitGo CEO Mike Belshe explains, “Until now, in a digital asset trade, one party needed to assume all of the risk and act on the counterparty’s good faith, and this doesn’t really work for institutional investors. We are bringing to market a riskless, efficient, and compliant digital asset clearing and settlement, and what makes this service possible is BitGo Trust’s strong client base.”

Since the trades are settled off-chain, there are pros and cons. Market risks are reduced, since settlement prices will be locked in at the time of the movement. However, there is also the potential for a loss of continuity in trading data during or as a result of the transition.

The system will allow the assets to remain in cold storage, which is better from a security standpoint. Cold storage wallets are not tied to the Internet, which makes them virtually impervious to outside attacks. However, once the settlements are complete, the assets are made available on-chain.

BitGo has come under fire lately for actions that have been somewhat questionable. The firm’s insurance offering was called out for not being as robust as BitGo claimed and its underwriter accused the company of having “exaggerated [the] extent of insurance coverage.” The underwriter also pointed out that BitGo had intentionally tried to mislead customers by saying that it would offer insurance against hacks. However, it didn’t make it clear that the insurance was only offered against cold-storage wallets.

BitGo, when it introduced the coverage, stated that it would be available at no extra charge and would offer comprehensive cover in the event of hacks, thefts or loss, including cases of internal theft (by employees), as well as external threats. Belshe said at the time, “Transparency and accuracy is essential for building trust in the market.” Apparently, his definition of transparency and accuracy differ from that of everyone else in the world.

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