26.10.2020

DeFi Is Exposing Inadequacies of Cold Storage, Says Crypto Custodian

Monica stated that the increasing complexity of DeFi “is beginning to expose the inadequacies of cold storage custody and manual human operations.” 

Cointelegraph spoke to Anchorage co-founder and president, Diogo Monica, to get his take on how the rise of decentralized finance (DeFi) is impacting the crypto custodian sector.

Anchorage’s president emphasized the additional risks incurred through the array of on-chain actions necessitated by many DeFi protocols, stating, “We see in our support for MKR governance, executive voting, and polling that clients want and often need to participate in on-chain activities.”

“As new and emerging protocols increasingly require this kind of active use of private keys, some custodians are having to put more trust in untested smart contracts, which can put client assets at risk.”

Institutions demand DeFi exposure

Monica said that Anchorage had noted institutional demand for DeFi exposure, stating, “Our institutional clients want to invest in a range of digital assets, including new DeFi projects and stablecoins.”

“Anchorage’s mission is to increase institutional participation in the crypto space, and DeFi is where a lot of the most exciting innovations are happening right now,” he said.

Efficacy of distributed custody system bolstered by COVID-19

The Anchorage co-founder stated that the firm’s distributed processes have proved particularly useful in the context of the coronavirus pandemic.

“Anchorage does not rely on manual human operations or require access to physical vaults or safety deposit boxes, unlike custodians that use cold storage,” he stated, adding:

“This point of differentiation is especially critical during the current pandemic: our solution works as it should even though our workforce is completely distributed, whereas other solutions depend on people physically getting themselves to whatever secure location is storing private key materials.”

Anchorage supports forthcoming tokens

Anchorage recently announced support for Compound’s governance token (COMP), which comprises the fifth yet-to-be-released crypto asset supported by Anchorage, including TrustToken and Celo.

“Anchorage is always looking to support new cryptocurrencies in demand by our clients,” Monica stated.

Crypto Exchange Tokenomica Now Offers OTC Crypto-to-Euro Trading

Tokenomica, a crypto asset exchange based in Malta, has announced over-the-counter, or OTC, cryptocurrency trading for large participants.

The Meditarranean-based exchange now offers participants the ability to trade large amounts of BTC for Euros, separate from the exchange’s order books, Tokenomica announced on its blog on Feb. 18.

The exchange’s announcement made clear that other cryptocurrencies would also be available for OTC trading but remained ambiguous as to other trading pairs with the Euro.

Cointelegraph reached out to Tokenomica for clarification but received no response as of press time. This article will be updated accordingly should a response come in.

OTC trading can prevent large price hiccups

Crypto exchanges have order books hosting various price levels at which buyers and sellers look to transact each different digital asset.

If a large buyer (or seller) comes along and buys all the available offers in the order book close to any given asset’s market price, then that asset would likely move dramatically in price. To prevent such drastic price fluctuations, some entities offer OTC trading, which essentially allows large buyers and sellers to agree on a price and transact away from order books.

Several U.S.-based outfits offer OTC crypto trading, including Coinbase and Gemini. Similar to Tokenomica, Binance is another Malta-based crypto exchange that offers OTC trading.

Tokenomica offers large traders Euros for BTC

Large traders can swap BTC for real fiat Euros on Tokenomica in contrast to the stablecoins used in various capacities on a number of exchanges, Tokenomica pointed out in its announcement, adding that participants can also transfer fiat funds to and from their bank accounts.

Bitcoin OTC trades on Tokenomica must be between 5 and 50 BTC in size and incur a 0.75% trading fee.

Large crypto participants can also use Tokenomica’s OTC trading for any digital assets available on the exchange, the announcement noted.

Additionally, just a few days ago, one of the largest digital asset OTC dealers, B2C2, joined forces with U.S.-based crypto business SFOX, showing that OTC markets are big business in the crypto space.

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