On the importance of trusteeship, any exchange may issue 15% of assets, but you can’t find it.

On August 1st, at the "Hosting Alliance Global Bank – Beijing Station" event hosted by BC Group, TokenInsight and Force Agreement, Xu Chao, co-founder of the Force Agreement, shared it. He detailed the hosting needs of the miners, Token Fund, and exchanges. And said that in the traditional securities market, asset management and transaction matching must be separate, while digital currency exchanges are not. Based on this situation, he boldly guessed:

“Any exchange can issue 10%-15% of token assets, and you can’t find it at all.”

The following is a compilation of the content, organized by Babbitt.

Hosting industry status

The importance of asset custody for a regulated financial market is self-evident. But in the cryptocurrency market, most people are not fully aware of the meaning of hosting. In the traditional field, any company or legal person, their assets must be managed in the relevant professional institutions, it is impossible to control the founder himself. But the field of digital currency is very strange. Most project parties or exchanges, digital assets are often in the hands of several co-founders. In this case, it is particularly prone to various asset security related issues, such as carrying money, or the founder’s accident.

There is a lot of chaos in the cryptocurrency market. The most fundamental reason behind the difficulty of entering new funds is the lack of mutual trust in the market. The LP panic fund investors ran, the investors panicked the project side, and the project side panicked the exchange, which eventually led to a vicious circle. Even if some people realize the importance and significance of hosting, they don't have the ability and energy to do it. After all, hosting is a long-term and long-term task, and it is quite challenging. It requires the whole industry, supervision and so on. Cooperate. Some project parties or compliant digital currency investment funds are also looking for hosting providers. However, there are not many companies involved in this field. Most of them were established last year, and people from the traditional financial field came out to do this.

When we were doing decentralized hosting business, we also encountered some problems. For example, the Force Agreement is to put the clearing settlement on the chain and manage it with smart contracts. However, when it comes to marketing, especially those with relatively high assets, they would rather believe in the traditional centralization mechanism. Even if you show that the system is very safe and has various codes to protect, they still do not believe it. Therefore, we believe that in the face of the capital side of the digital currency field, the traditional custody business still has the necessity.

We know that assets like BTC are very good, and people in the circle even think that it is better than the house of Beijing Second Ring, because it is easy to cash, not easy to depreciate, easy to keep and easy to transfer. But in fact, you can use the 10 million Beijing property to lend millions to the bank, but 10 million BTC can't get a loan. So we offer services like digital money mortgages to miners, institutions or other high net worth users. But in the process, you will still encounter problems.

Because BTC is a very volatile asset, a house starts at 10 million at the beginning of the year and rises to 12 million at the end of the year. But BTC is 10 million at the beginning of the year, and it may be 100 million at the end of the year. In this case, it is not pure storage, but also how to safely dispose of assets when market prices fluctuate drastically. As a lending party, if the user's 10 million assets fall to 6 million and the loss occurs, the user can choose not to return the loan. At this time, the relevant custodian is required to separate the hot and cold wallets for dynamic and static accounts. Management, it is actually a very complex system.

Three types of asset custody needs

One is the miner. Most miners are not aware of the importance and significance of hosting. Those involved in digital currency mining are not very good at wallet and private key security, so they often use a very insecure way to store digital currency assets. And a small number of miners who want to host assets can't find a suitable channel, which is hard to generate trust for online platforms. In particular, there are some banners in this field, but they do not have relevant compliance business processes and no relevant licenses. Some institutions may claim to be digital currency custody business, and miners can still earn interest in the past, but maybe one month later, he will run.

The second is the Token Fund. Some institutions that invest in digital currency, their asset management is very chaotic, and it is easy to cause asset loss. Basically, it is a few managers who hold hundreds of millions of RMB in funds and write them on a few sheets of paper in a drawer in their home. This is very unsafe. In the traditional field, as the digital money fund LP, it is necessary to ensure the security of the invested assets, grasp the asset trends in a timely manner, and master accurate asset transaction records. If you have tens of millions of RMB in charge, you will usually open a private account in the bank to manage his assets. Moreover, there is monitoring for the entry and exit of the country, but in the field of digital currency, no one is in charge of it.

In addition, the Token Fund not only has to invest in the primary market, but also in the secondary market. So it's very inappropriate to put all the digital assets in the cold wallet. You need frequent transfer transactions. Therefore, traditional accounting and bank custody cannot adapt to the management of digital currency. Investment institutions need to make frequent transfer transactions for the operation of the primary and secondary markets of assets. Therefore, in the field of digital currency, a sound and complete fund management solution is needed.

The third is the digital currency exchange. One of the most interesting things I saw when I entered the digital currency field in 2017 was the digital currency exchange, which is both the custodian of assets and the provider of transactions. Everyone thinks about it. If you go to Ping An Securities to open an account, the stock you buy is also kept by Ping An Securities. This is very scary. Because no one can know how much assets are behind an exchange, right?

In the traditional securities market, there is a company called China Securities Depository and Clearing Co., Ltd., which is directly managed by the CSRC. The settlement and settlement of any of your stocks is carried out by this company. The brokerage company is only responsible for providing a trading matching system. Not qualified to manage the amount of assets. So no matter which brokerage company you buy, it is the same.

But in the digital currency field, it's different. You buy and sell bitcoin on this exchange, it's bitcoin. You buy and sell bitcoin on another exchange, it might be a number. What does it specifically represent? we do not know. Of course, this has a lot to do with the state's failure to include it in regulation. If the next step in the exchange is to be incorporated into the compliance system, asset management and transaction matching must be separate.

I speculate that in the field of digital currency, any exchange may issue 10%-15% of the token assets, and you can't find it at all.