Fireblocks, a cryptocurrency safekeeping specialist, plans to establish a limited-purpose trust company under the jurisdiction of the New York Department of Financial Services (NYDFS).
This new entity, Fireblocks Trust Company, will offer cold-storage custody solutions for U.S. clients, subject to final regulatory approval.
Fireblocks is also establishing the Global Custodian Partner Program, a network of licensed custodians that will utilize Fireblocks’ technology. Fireblocks plans to launch the new program this quarter with an initial group of companies based in the U.S., the United Arab Emirates, Britain, Singapore, Thailand and Australia. The firm is reportedly in discussions with multiple custodian providers in each of the mentioned jurisdictions.
Clients will be able to use the Fireblocks infrastructure as a single point of access to licensed custodians as well as liquidity pools, exchanges, on/off ramps, and staking, among other services built on the Fireblocks Network. More custodians are expected to join the Program over the coming months.
This move signifies a broader shift in crypto custody following the downfall of FTX. The collapse of the crypto exchange highlighted the importance of mitigating counterparty risk, leading institutions to embrace advancements in key-sharing technologies like multiparty computation (MPC), a technology championed by Fireblocks.
As a result, there’s been a growing trend towards self-custody, alongside increased reliance on risk-reduction technologies like MPC.
While Fireblocks has traditionally operated as a software vendor, they acknowledge the need for some clients to leverage custodial services due to regulatory or risk considerations.
However, the firm maintains its commitment to self-custody innovation, as emphasized by Adam Levine, Fireblocks SVP of Partnerships.
“We continue to believe everything we’ve said about the importance of holding your own assets and at no point are we walking that back,” Levine said in an interview. “But what’s becoming abundantly clear is that there’s a lack of qualified custodians in the United States that are able to focus on digital assets.”
This development also carries political implications. Proposed changes to the custody rule by the Securities and Exchange Commission (SEC) in February 2023 could significantly restrict the types of institutions that registered investment advisors (RIAs) can entrust with their clients’ crypto assets.
Part of a contentious and undecided set of modifications known as SAB 121, these proposals would potentially limit qualified custodians to registered broker-dealers and federally chartered banks, contradicting the existing state licensing system.
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