Custody Risk
Multipli relies on "Off-Exchange Settlement" (OES) providers to manage and safeguard its protocol backing assets. This introduces a level of custodial risk, which is associated with the operational capability of these providers. In the broader crypto landscape, counterparty risk is a significant concern, making the secure management of assets by custodians crucial, especially as an alternative to leaving collateral on centralised exchanges.
Overview
There are three principal risks associated with using an OES provider for custody:
Accessibility and Availability:
Multipli's ability to deposit, withdraw, and delegate assets to and from exchanges is critical. Any disruption or degradation in these capabilities could impede trading workflows and the functionality of minting and redeeming deployed assets.
Performance of Operational Duties:
In the event of an exchange failure, the protocol depends on the custodian's cooperation and legal compliance to quickly transfer any unrealised profit and loss (PnL) at risk with an exchange. Multipli mitigates this risk by frequently settling PnL with exchanges to avoid accumulating large balances.
For instance, Ceffu settles PnL daily between exchange partners and Multipli.
Operational Failure of Custodian:
Although there have been no significant operational failures or insolvencies among large-scale crypto custodians, the risk remains. Assets are held in segregated accounts, but a custodian's insolvency would pose operational challenges for creating and redeeming deployed assets, necessitating asset transfers to alternative providers.
Backing assets within these solutions are not owned by the custodian, nor can the custodian or its creditors legally claim these assets due to the use of bankruptcy-remote trusts or MPC wallet solutions by OES providers.
To mitigate these risks, Multipli limits the exposure of collateral to any single OES provider and manages concentration risk by using multiple OES providers with the same exchanges.
(Example) About Ceffu: Ceffu is a highly reputable custodian known for its institutional-grade security practices. It provides custodial services for major crypto institutions, ensuring the safe storage and management of digital assets. Our collaboration with Ceffu ensures that your assets are protected with the highest standards of security in the industry.
Institutional-Grade Custody
On-chain Storage: The assets are held on-chain, significantly reducing the risk of unauthorised access.
Multi-Signature Wallets: Access to funds requires multiple signatures, adding an extra layer of security to prevent single points of failure.
Regular Audits: Ceffu conducts regular security audits and compliance checks to ensure that their custody practices adhere to the highest standards.
Transparency and Monitoring
On-Chain Verification: Users can verify the balance and status of their deposited assets at any time using blockchain explorers. This transparency builds trust and provides assurance that funds are securely held.
Real-Time Monitoring: Our platform offers real-time monitoring of asset status and performance, ensuring users are always informed about the state of their capital.
Compliance
Regulatory Compliance: Both Multipli and Ceffu adhere to stringent regulatory standards and compliance requirements, ensuring legal and financial safeguards for our users.
Last updated