Creating bespoke prime brokerage services for digital assets hinges on secure custody and easy access to liquidity
Using a Fund’s exchange APIs and the Copper Platform for portfolio management, Copper can create a Walled Garden where it provides custody, and multiple exchanges facilitate trading and liquidity.
The nature of the blockchain is such that transactions are permanent & immutable.
To prevent malicious attacks against a Fund’s infrastructure, and to prevent an Investment Manager being forced to withdraw the Fund’s assets to an unauthorised, potentially criminal, external wallet location:
An Independent Custodian with technological and business process solutions is required to mitigate risk
There is no traditional finance model for prime brokerage with digital assets. Currently, investment managers are required to effectively self-custodise their assets. This presents a number of critical risks:
Traditional financial custodians are not equipped to manage these risks.
However, the Copper Unlimited custody application, combined with the Copper Platform for digital asset portfolio management, can be connected to a Fund and a Fund’s Exchange trading accounts, to provide Bespoke Brokerage services for digital assets, securely and conveniently using the Exchange’s APIs. This architecture allows for the safe moving of digital assets within a Walled Garden environment.
1 Seed generation, breaking & distribution
The Fund’s Investment Manager will create a wallet SEED using the Copper Unlimited custody application. The SEED is broken in two, with half retained by Copper, and half retained by a Trusted 3rd Party
2 Physical seed storage
Copper’s half of the Seed is physically stored in a bank vault, which will operate a ‘no-lone’ policy
Both an authorised representative of Copper and an authorised representative of the the Trusted 3rd Party must be present for access to the physical Seed
3 Unique private key generation
In creating a SEED, the Fund’s Investment Manager (IM) will also be generating a unique Private Key
Copper Unlimited will shard the key into three pieces. The IM will retain one, the Trusted 3rd Party will retain one, and Copper will retain one
4 Key Distribution and Password encryption
The IM will then assign a key to each party and create passwords for each
The IM will then send the key file and password (via separate means) to each party
To learn more about Copper Unlimited, our secure offline custody application, please read this article
1 IM prepares KYC/AML documentation that will be required for each exchange, including for the Fund, its Directors, and the IM
2 IM opens corporate accounts across approved exchanges. This enables direct exchange-to-exchange transfers
3 IM sets locked whitelist addresses on each exchange for the Copper Unlimited vault accounts that have been designated for each digital asset being used by the Fund
4 IM will use the exchange wallet addresses to set corresponding locked whitelist in the Copper Platform, which is used to manage asset movements in/out of the Copper Unlimited Vault
1 IM will then generate API keys for trading and read- only access
2 Read only API is given to the Fund Administrator to prepare the NAV. The Administrator can also be given read-only access to the Copper Platform to view live asset balances
3 The IM will retain the API key for trading on each exchange. This will be connected to their in-house PMS
4 IM gives login credentials for each exchange account (username and password) to Copper, who will set up the Two-factor authentication (2FA)
5 Copper validates the exchange whitelisted addresses are correct for the Fund’s Copper Unlimited vault account, and for the Fund’s exchange trading accounts within the Walled Garden
6 Copper will then change the login credentials, retaining sole access to the administrative areas of the Fund’s exchange accounts
7 Copper will then integrate the exchange API for withdrawal only to the locked whitelisted Copper Unlimited addresses
8 Copper gives 2FA responsibility to the Trusted 3rd Party – Copper will require their 2FA code in order to login to the Fund’s exchange account. This creates a record of access and prevents Copper from making unauthorised changes to the exchange account
The IM is now able to trade on and between the Exchanges, and can send Digital Assets to and from the Copper Unlimited vault, both via API using only the Copper Platform
Withdrawing digital assets from Copper Unlimited to a public key address outside of the Walled Garden requires a multi-signature authorisation from the Fund and its Trusted 3rd Party.
If you would like a demonstration of how this can be set up for your fund, please get in touch.