Crypto services firm BitGo is shifting its focus to address a long-standing grievance of both the banking and the digital assets world: clearing and settlement.
The Palo Alto firm announced it will offer new settlement and clearing service...
Crypto services firm BitGo is shifting its focus to address a long-standing grievance of both the banking and the digital assets world: clearing and settlement.
The Palo Alto firm announced it will offer new settlement and clearing services at an industry conference in New York, in a move that shows BitGo working to become the back-office to the entire crypto trading world.
BitGo has traditionally focused on its flagship custody business, reportedly storing $2 billion in clients’ assets across 100 different coins and tokens. But competition is heating up in the custody world, forcing BitGo expand into new frontiers. Previously, the firm announced it would allow its clients to trade against Genesis Global Trading without having to move coins out of cold storage. It has also been eyeing the launch of prime-broker services. As for today's news, it reflects BitGo's ambitions to serve as the crypto world's version of the DTCC — which sits behind every trade as the pipes and plumbing of Wall Street.
The new offering aims to reduce the counter-party risk associated with trading crypto. Currently, settling a crypto trade takes place by moving users’ assets into hot storage. But by doing so, the crypto is exposed to risks of a hack or a counter-party defaulting. Because the settlement is done on-chain, ownership of the crypto is renounced before users’ secure their payment (or vice versa) — leaving the potential of a counter-party never paying. Many believe this has been keeping institutions at an arm’s distance.
As such, the likes of Bakkt and Liquidity Offset Network are working to address this gap, but it seems BitGo may beat them to the punch. By adding an Off-Chain Clearing and Settlement (C&S) service to its custody product, BitGo says users’ digital assets will remain safe during any transactions, as it will never leave custody before ownership is settled. In other words, the C&S service acts as a trusted third party, locking up both parties’ funds during settlement. The crypto is only moved on-chain during the withdrawal, by which point it is the new owner’s responsibility.
“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,” said BitGo CEO Mike Belshe. “We are bringing to market a riskless, efficient, and compliant digital asset clearing and settlement.”
Notably, the C&S service will only be available to clients of its existing custodian business, adding a competitive edge. They are hoping to offer their services to a client base made up of OTC desks, single dealer platforms, exchanges, asset managers, and broker-dealers.
Frank Chaparro contributed to this report.
source https://www.tokentalk.co/The Block/bitgo-ventures-beyond-custody-with-service-that-makes-it-look-like-the-dtcc-of-bitcoin-5cdad250878cd420216ad26c
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