Archax, the first digital asset exchange and broker to be regulated by the UK Financial Conduct Authority, has officially launched a custody service, an area that has come under increasing scrutiny following FTX’s bankruptcy.
The service is a partnership with METACO, a provider of digital asset custody and orchestration technology, for global financial institutions and leverages IBM Cloud Hyper Protect Services. Archax announced that it selected METACO last July and will fully integrate its bank-ready platform for custody, issuance and orchestration of digital assets, Harmonize, built in partnership with the largest Tier 1 custodians worldwide.
Today we launch our custody service in partnership with @metaco_sa.
Our solution can hold assets such as digital securities and cash, as well as unregulated cryptos and NFTs, and is fully segregated and bankruptcy-free to ensure client assets are safe.https://t.co/0kvpeaaIoe pic.twitter.com/8sgOuwFdWm
— Archax (@ArchaxEx) January 31, 2023
Simon Barnby, Chief Marketing Officer at Archax, told Markets Media that since the collapse of FTX, there has been a huge focus on custody and custody of assets, particularly by institutional investors, which are regulated entities.
“The way we have set up and structured our custodian is designed to meet these institutional needs,” added Barnby.
Other companies have also adopted or plan to adopt digital asset custody, including Nasdaq Digital Assets, State Street Digital, BNY Mellon and Zodia Custody, a joint venture between Northern Trust and SC Ventures, Standard Chartered’s innovation and ventures arm.
Barnby said: “Our custody is a bankruptcy-proof vehicle, which means it’s different from many others.”
Assets held on behalf of clients are segregated and hedged 1-to-1. Barnby reiterated that Archax will not spend, invest or use the assets in any way.
Simon Barnby, Archax
“This is important because customers fear that if an exchange struggles, their assets could be at risk,” he added. “We are taking a traditional institutional approach to the digital assets space in a new and different way for the benefit of the customers.”
Additionally, Barnby argued that Archax’s regulation by the FCA is a differentiator, as other custodians are only registered with the FCA for crypto activities. Additionally, he said another differentiator is that Archax treats all assets in custody in the same regulated manner, including crypto, cash, digital and traditional asset classes.
“We treat all assets equally and I think that resonates particularly well with institutions,” Barnby added. “They are all being held in custody by a regulated body in a regulated manner.”
Keeping these different types of assets in one place will open up cross-collateralization opportunities in the future, Barnby said.
Advisory coalition Greenwich said in a report last year that fully regulated custody of digital assets is important or extremely important to the majority on both the sell- and buy-side. The Providing Digital Asset Services: An Institutional Infrastructure Roadmap survey found that 71% of sell-side and 62% of buy-side believe fully regulated custody is important/extremely important.
*New* FTX Collapse Points to Need for More Adoption of Institutional Grade Custody, Regulation https://t.co/Tck2FPF3C6 via @CoalitionGrnwch by @deasthope
— Coalition Greenwich (a division of CRISIL) (@CoalitionGrnwch) November 21, 2022
In the wake of FTX’s collapse, David Easthope, a senior analyst who leads fintech research for the market structure and technology team at Coalition Greenwich, said in a blog that he expects institutional custodians, particularly those with established brands, secure technology and healthy balance sheets, to become stronger see their solutions increasingly being sought.
Barnby said that despite FTX’s collapse, institutions involved in digital assets are still excited, although they may be taking a slower and more cautious approach.
“FTX has prompted people to take a closer look at who they are working with and look for credible regulated partners with institutional solutions,” he added.
growth strategy
In November last year, Archax announced the closing of its $28.5 million Series A raise, in which asset manager abrdn was a lead strategic investor.
“The funding round gives us runway, which is very positive in the current market climate,” said Barnby. “Custody is our first product to be officially launched and we are running our exchange in stealth mode before it is launched.”
The exchange will have an unregulated market for products like spot crypto and a regulated market for security tokens.
We’re proud to announce the completion of our Series A round after raising $28.5 million led by @abrdn_plc.
Investors in this round include @Bitrockcapital, @BCoinvestors, @CEInnovationCap, @keiretsucapital, @LingfengCapital, Mathrix AG, @SGHCAPITAL and @TezosFoundation.https://t.co/JM2UGq8Czq
— Archax (@ArchaxEx) November 8, 2022
Archax has one Pipeline of issuers for asset tokenization, including equity and real estate, according to Barnby, and Archax are also working to launch exchange-traded products with abrdn. When the funding round closed, Russell Barlow, Global Head of Alternatives at abrdn, said Archax and abrdn are well positioned to take advantage and meet growing customer interest in digital assets that can be accessed through digital exchanges.
Alfred Shang, founding partner of Bitrock Capital, said in a statement at the time: “Tokenization opens up diverse opportunities for investment, and as blockchain technology continues to revolutionize financial markets, the space of digital securities is indeed the space to watch should keep.”
SUBSCRIBE TO NEWSLETTER
And get exclusive articles on securities markets
Comments are closed.