Infrastructure provider Copper claims its new trading tool solves an obstacle preventing institutional investors from trading more freely in the cryptocurrency space by letting two parties hold on to their assets until just before executing a trade.
The London-based firm said Thursday that ClearLoop – which facilitates fast, off-exchange settlements – would pretty much negate one of the chief concerns institutional investors have with the crypto space: namely, the risk involved with trusting an exchange to look after their trading capital.
Most exchanges require clients to deposit digital assets with them, in a hot wallet, before they’ll allow them to trade. While this is usually not a problem, there’s always the risk that an exchange might get hacked or, in the case of QuadrigaCX, disappear into thin air.
Known as credit risk exposure, this is the same risk factor that caused many financial institutions to bite their nails off in the 2008 financial crash. For institutional investors with more than a passing interest in the crypto space, the problem of having to trust an exchange to look after their capital precludes many of them depositing and trading as much as they may otherwise have liked to.
“This is a massive problem in the sector,” Copper CEO Dmitry Tokarev told CoinDesk. Many funds try to trade on multiple exchanges – 15 in some cases – and generally perform due diligence and full risk assessments before they use a new one.
“Not only do they not have the capacity to do that assessment, more often than not it’s not the investors’ field [so] it’s hard for them to do it in the first place,” he said. He quoted one of Copper’s clients who claimed credit risk exposure was almost always the main concern investors had with the cryptocurrency space.
What ClearLoop does is remove this trust element from exchanges. Clients hold their trading capital themselves, either in a cold wallet or custodial solution, while they initialize a trade with an interested…