With the collapse of FTX, customers that lost digital assets will likely have to wait a long time for a chance to recover their assets. It can take years for all or some funds to be recovered when companies become insolvent. We’ve introduced a new trust and collateral structure to support and strengthen our ClearLoop off-exchange settlement service. This will provide our clients with legal assurances on how their accounts will be managed and their assets returned in the event of one of our partner exchanges, or Copper, becoming insolvent.
In 2020, we launched ClearLoop, Copper's off-exchange settlement service, which has revolutionised the way institutional clients trade and manage their digital assets. With its integration with Copper's award-winning multi-party computation (MPC) custody, ClearLoop enables clients to trade securely across top-tier execution venues, while mitigating exchange counterparty risk and increasing capital efficiency. We launched ClearLoop as we recognised counterparty risk was one of the top risk factors for clients. Security was, and remains, at the core of everything we build as we set the institutional standard for digital assets.
ClearLoop onboarding has accelerated following the industry-wide hacks in 2022 and the collapse of FTX. Bybit, Bitmart, PowerTrade and Gate.io have all partnered with ClearLoop post-FTX, joining a growing list of exchanges — including Deribit, Bit.com, and Bitfinex* — that are seeking more effective ways to service their institutional clients. Concerns around mitigating counterparty risk and the lack of robust, regulatory-compliant market structures have highlighted the importance of these kinds of protections for institutional clients.
One of the recent additions to ClearLoop is the OKX exchange. This integration is supported by our trust structure, helping to set the standard for digital assets via Copper's off-exchange settlement.
Our Legal, Product and Risk teams spent several months last summer, in close collaboration with a leading English ‘Magic Circle’ law firm and prestigious Swiss counsel, to restructure our ClearLoop documentation with the brief to create an innovative and market leading product and to address and mitigate the risk of the insolvency of a ClearLoop client, a ClearLoop exchange or Copper.
To address the insolvency risk of a client or an exchange and to allow for assets to be properly returned, we have created a trust over client-delegated assets and exchange margin, each of which is subject to a collateral agreement. This allows Copper, as security trustee, to enforce that security interest on behalf of an affected counterparty.
In respect of Copper’s insolvency, because client assets and exchange margin are contained in a trust, where Copper is the trustee, those assets should not be available to an insolvency practitioner of Copper to distribute to Copper’s general body of unsecured creditors. In legal terms, clients and exchanges will have a proprietary interest in their assets which should not form part of Copper’s insolvent estate.
Our documentation is available upon signing an NDA and our legal team is happy to address any questions from existing clients or prospects. We can also share the legal opinions we have received.
Our trust and collateral structure also works in conjunction with our dedicated internal risk team, which conducts 24/7 collateral level monitoring, as well as daily stress tests across all exchanges to ensure our systems and trade practices are safe and secure.
One of the questions we are asked frequently by our clients is how we guarantee the safety of their delegated funds to exchanges we have little control over. Copper’s market-first trust and collateral structure sets us apart from the competition and solidifies ClearLoop as the best digital asset custody solution with the most comprehensive risk mitigation practices in the market.
“Copper's ClearLoop brings institutional grade clearing and settlement to PowerTrade in line with TradFi standards. Under this model PowerTrade does not custody our client's assets, which will result in vastly improved controls when it comes to segregation of assets, settlements, and funds management.” — Mario Gomez Lozada, founder and CEO of PowerTrade.
“Joining Copper’s ClearLoop network is part of our broader effort to enhance customer asset safety and provide institutional clients the support they need to succeed in their trading endeavours.” — Dr. Lin Han, Founder, and CEO at Gate.io.
*Please note that the ‘trust structure’ and its related collateral arrangements do not currently apply to Bitfinex.
Our settlements and clearing service is backed by our award winning custody technology
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