Cryptoasset custodian reduces 3 major risks

With widespread implementation of blockchain technologies, which beyond a doubt decrease the cost and increase the speed of business-processes associated with conduction and settlement of deals, a new class of instruments has emerged — cryptoassets. Traditional investment funds, used to dealing with shares and bonds using fiat money, associate a certain risk with purchase of cryptoassets, but, at the same time, acknowledge new opportunities for investment into high-yield alternative assets, such as real estate or works of art, lacking a standardized end product for use as comparison.

When realizing deals with cryptoassets, it’s important to stress the #risk of legal significance of digital representations of assets, the risk of double spending and the risk of loss of or unauthorized access to encryption keys. These risks are not only dependent on the platform the deal is being carried out on, but also the competence in carrying out transactions. Aside from risks, one currently existent and not yet solved issue with asset tokenization is the lack of legally significant documentation confirming purchase of a cryptoasset, in order to assign it to the balance of its owner.

Cryptoasset custodian is a cross industry solution using blockchain technology and carrying out the functions of identity management, trusting industry and capital asset management: identifying owners of wallets with cryptoassets, storing secret encryption keys, evaluation digital assets based on market data, received from the largest crypto-exchanges in the world. All involved parties without the opening of a client base have direct access to this cryptoasset, and are able to initiate deals and receive information on assets without the need for intermediaries.

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The mechanism of interaction with a #cryptoasset custodian is the same as one for a regular depository: a bank or fund makes a legal agreement for the right of storage of cryptoassets by the cryptoasset custodian (depository). From the moment of registration up to the closing of the client’s account, all keys to cryptoasset wallets are stored in the Depository. The client receives a regular depository receipt for his cryptoasset — a legally significant document that can be placed on the balance as a regular asset. Blockchain technology is compliant with the international ISO 20022 standard of exchange of electronic messages between financial organizations [3], which allows the implementation of the information trade between the depository and the client into the existing informational infrastructure.

In the BANKEX ecosystem, solving these issues is up to the BANKEX Crypto-FIAT Custodian — a classical depository with the only difference being the ability of clients to store cryptoassets and see them on their balance the same way they would be able to see classical assets. Conducting deals with cryptoassets via the Crypto-FIAT Custodian allows to secure banks or funds from risks and to conduct deals with cryptoassets using regular tools with the same ease as classical securities. Other depositories plan to test platform prototypes in 2018.