Bitfinex cryptocurrency exchange has partnered with London-based digital asset custodian Koine to roll out institution-grade custody and post-trade services.
On May 13, Bitifinex announced that Koine would be providing the exchange with a series of services that can help professional traders to mitigate the counterparty and settlement risks associated with cryptocurrency trades.
Bitfinex, which caters some of its offerings to professional clients by supporting algorithmic and over-the-counter trading, claims the new suite of services will help to encourage institutional participation in crypto markets.
Koine’s storage model is neither “hot” nor “cold”
Speaking to Cryptox, Phil Mochan, founder and head of strategy and corporate development at Koine, explained how its security model for crypto-asset custody works.
Instead of following the established procedures for either “hot” or “cold” crypto-asset storage, its solution uses three separated pieces of technology, dubbed “Digital Airlocks” as they function similarly to physical airlocks:
“Digital assets enter an outer airlock which might conventionally be called a hot wallet but we refer to as a transit account, as the funds are only held there momentarily before moving to the second airlock, when they are dematerialized onto a separate digital ledger and then transferred into a third airlock which is the vault for assets at rest.”
Noting that the external airlock is still vulnerable to attack, just as a conventional hot wallet would, Mochan stressed that the difference lies in the fact that “the median balance held there is nil, and we are insured for when it isn’t.”
Moreover, the whole process apparently occurs within a “sub-millisecond time frame” and relies primarily on hardware, rather than software.
Blockchain’s “single source of truth” removes the need for post-trade reconciliation
Aside from this approach to secure custody, Koine’s technology is designed to be almost wholly automated, without relying on human intervention, and can purportedly handle over 200,000 transactions per second.
Koine’s post-trade services are designed to remove the need for manual processes by removing blockchain assets from the trade cycle through a process of dematerialization.
Traditional markets — like those for equities and bonds — often dematerialize assets as well, he noted, yet they continue to use a multi-tiered trade model that demands intensive work on reconciliations.
By contrast, Koine’s delivery-versus-payment (DvP) solution uses a distributed ledger as a single “source of truth,” which Mochin likened to the model used by conventional central securities depository entities but without their multi-level custody structures.
Segregated ownership
Lastly, Koine’s service ensures continuous legal ownership of all crypto assets and (digitalized) fiat currency by custodying all assets involved in trades within a segregated ownership model:
“When a client wants to trade, then Koine locks the collateral of each side of the trade […] before trade execution occurs. This collateral locking is in a sub-millisecond time frame. Post-trade, upon receipt of the settlement instruction from the exchange, Koine conducts a DvP in sub-millisecond time frame.”
Speaking to Cryptox, a Bitfinex representative revealed that Koine and Bitfinex are also building an integration that would “enable Koine customers who are also Bitfinex customers to obtain a line of credit on Bitfinex using the tokens held with Koine.”
New offerings and old controversies
As reported, the derivatives platform for Bitfinex has recently launched a new perpetual swaps product that enables traders to speculate on Bitcoin (BTC) dominance.
The exchange also launched its own social network last month, “Bitfinex Pulse,” to encourage communication between traders.
While these new offerings and services proliferate, Bitfinex’s parent firm, iFinex, was served a class action lawsuit for alleged market manipulation at the start of 2020.
