This week, the risks of exposure to the financial health of unregulated exchanges have never been more clear.
Our Group CEO Mathias Imbach and Chief Clients Officer Martin Burgherr, give views on the Binance letter of intent to buy FTX, and how at Sygnum, your assets are segregated and safe, backed up by Sygnum’s bank-grade risk management and governance.
Volatility rocks the crypto market yet again. The fourth largest crypto exchange, FTX, recently revealed it is in the midst a liquidity crunch, causing its token (FTT) to plummet more than 80 percent and several other token prices to tumble. In only a matter of days, Binance, the largest crypto exchange, has agreed (via a letter of intent) to acquire its rival. Unfortunately for FTX customers, all non-fiat withdrawals have been halted.
Martin Burgherr, Chief Clients Officer at Sygnum: “CZ’s announcement to liquidate Binance’s entire FTT holdings underlines the risks tied to exchanges who use crypto as collateral.”
This led to sharp selloffs and a dramatic drop in token prices. For FTX, the exchange was no longer able to meet its obligations to customers, withdrawals were frozen and Binance was asked for a bailout.
FTX’s liquidity crunch further stresses “how important proper governance and regulation is when investing in digital assets. If you have an account at Sygnum, a regulated Swiss crypto bank, your assets are not impacted at all. We keep our funds off balance sheet, which means our clients’ funds are not touched by us and we do not lend or borrow these funds to any counterparty.”
Mathias Imbach, Sygnum Co-Founder & Group CEO: “We are currently witnessing another defining moment in the evolution of the global crypto ecosystem.”
“In many ways these developments are another proof point that the only way to create a sustainable crypto ecosystem, which can truly scale and lead to mainstream adoption requires the industry to accept that “Future has Heritage”.
“We look forward to continuing to provide trusted, regulated infrastructure for the crypto industry as well as traditional finance, and we are very thankful to our clients and partners who are joining us on this journey.”
In comparison: a digital asset account with a regulated Swiss bank
Having a digital asset account with a regulated Swiss bank gives several advantages to our Sygnum Bank clients. First on the list: our clients own their crypto, no matter what.
The Swiss regulatory framework considers crypto as an asset class, therefore banks can keep cryptocurrencies off balance sheets. This is contrary to many exchanges and crypto platforms, who need to consider client crypto holdings as liabilities. Crypto from clients held on the exchange, therefore, need to be reported on their balance sheets.
For a regulated crypto bank like Sygnum Bank:
- Client assets are fully segregated and held off balance sheet
- This ensures zero counterparty risk
- Clients maintain ownership over their assets, no matter what
At exchanges (and other centralised platforms):
- Custody is in web-hosted wallets, omnibus and collective wallets
- The platform or exchange technically owns the assets
- This introduces significant counterparty risks
- It also exposes investors’ assets to risk in case of a bank run or platform insolvency
Sygnum Bank clients’ assets are fully segregated, held off-balance and present zero counterparty risk. In addition, this extends to the overall security of our client’s wallets, which are segregated from each other.
Sygnum is the world’s first digital asset bank, and a digital asset specialist with global reach. With Sygnum Bank AG’s Swiss banking licence, as well as Sygnum Pte Ltd’s capital markets services (CMS) licence in Singapore, Sygnum empowers institutional and private qualified investors, corporates, banks, and other financial institutions to invest in the digital asset economy with complete trust. Sygnum operates an independently controlled, scalable, and future-proof regulated banking platform. Our interdisciplinary team of banking, investment, and Distributed Ledger Technology (DLT) experts is shaping the development of a trusted digital asset ecosystem. The company is founded on Swiss and Singapore heritage and operates globally. To learn more about Sygnum, please visit www.sygnum.com.
This document is purely for educational purposes and has been issued by Sygnum Group. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication. It does not constitute an offer or a recommendation to subscribe, purchase, sell or hold any security or financial instrument. It contains the opinions of Sygnum Group, as at the date of issue. These opinions and the information contained herein do not take into account an individual‘s specific circumstances, objectives, or needs. No representation is made that any investment or strategy is suitable or appropriate to individual circumstances or that any investment or strategy constitutes personalized investment advice to any investor. Therefore, you must verify the above and all other information provided in the document or otherwise review it with your external advisors. Some investment products and services, including custody, may be subject to legal restrictions or may not be available worldwide on an unrestricted basis. The information and analysis contained herein are based on sources considered as reliable. Sygnum Group uses its best efforts to ensure the timeliness, accuracy, and comprehensiveness of the information contained in this document. Nevertheless, all information indicated herein may change without notice.
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