Bitcoin-Only Exchange Swan Pledges to Launch New Custodian with BitGo

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Swan Bit­coin is offer­ing new insight into how Bit­coin stored on its exchange will be held in cus­tody in the future, fol­low­ing a tumul­tuous month in which many of the com­pa­ny’s users were left look­ing for clarity.

Announced Thurs­day, Swan Bit­coin says it intends to part­ner with Bit­Go to launch a “Bit­coin-only trust com­pa­ny,” one that would require reg­u­la­to­ry approval before ulti­mate­ly being made live for customers.

“This strate­gic part­ner­ship aims to cater to the grow­ing demand for Bit­coin-spe­cif­ic solu­tions while address­ing the crit­i­cal secu­ri­ty and cus­tody require­ments with­in the Bit­coin ecosys­tem,” a press release sent exclu­sive­ly to Bit­coin Mag­a­zine read.

Swan Bit­coin CEO Cory Klipp­sten said in a state­ment that the plan is to either acquire an exist­ing trust com­pa­ny, or build one. If they choose to acquire, he said they aim to be live with cus­tomers by Q1 2024.  If, instead, they build a new trust, the goal is to go live by Q3. 

Klipp­sten fur­ther detailed how the move builds on an exist­ing col­lab­o­ra­tion between the com­pa­nies, explain­ing that Bit­Go has held all of Swan users’ cus­todied coins in cold stor­age since June, which will con­tin­ue. He claims Fortress does not cus­tody Swan clients’ coins except for small amounts tem­porar­i­ly when sat­is­fy­ing with­draw­al requests.

Bit­Go CEO Mike Belshe echoed Klipp­sten’s claims, say­ing the com­pa­nies have been col­lab­o­rat­ing on a solu­tion for some time. Pri­or to Fortress and Bit­Go, Swan Bit­coin used Prime Trust as its pre­ferred cus­tody partner. 

Prime Trust filed for bank­rupt­cy in August, claim­ing a short­fall of cus­tomer funds.

“Our teams have worked close­ly togeth­er for near­ly a year on stronger qual­i­fied cus­tody mod­els,” Belshe said. “Ear­ly in 2023, we rec­og­nized the oppor­tu­ni­ty to estab­lish a Bit­coin-only cus­to­di­an, com­bin­ing the capa­bil­i­ties of each company.”

The trust’s announce­ment fol­lows the acqui­si­tion of Fortress by Rip­ple, a cryp­tocur­ren­cy com­pa­ny formed in 2012 that is devot­ed to evan­ge­liz­ing the XRP dig­i­tal asset. The acqui­si­tion of Fortress by Rip­ple caused a stir on social media, espe­cial­ly giv­en that Klipp­sten has pre­vi­ous­ly accused Rip­ple of fraud.

Of note is that Swan Bit­coin active­ly dis­cour­ages cus­tomers from hold­ing Bit­coin on its exchange, an indus­try best prac­tice that has lim­it­ed client expo­sure to Fortress.

Else­where, the press release was for­ward-look­ing and aspi­ra­tional, with Klipp­sten seek­ing to high­light his desire to cre­ate a Bit­coin-only cus­to­di­an that would sat­is­fy his cus­tomer’s con­cerns, lim­it­ing their expo­sure to the cryp­tocur­ren­cy ecosys­tem of which he has been so pub­licly critical.

Found­ed in 2013, Bit­Go is a lead­ing cryp­tocur­ren­cy cus­tody com­pa­ny regard­ed for its secu­ri­ty, though it’s notable that, after launch­ing as a Bit­coin-only com­pa­ny, it would go on to add sup­port for hun­dreds of cryp­to assets.

Still, the prospect of the cre­ation of a Bit­coin-only cus­to­di­an will like­ly find an appeal with Swan Bit­coin’s users, while Klipp­sten said they expect to serve com­pa­ny trea­suries, asset man­agers, gov­ern­ments and on-ramps like Swan itself. Though in prac­tice it remains to be seen whether there would be demand for the offering. 

“With the Bit­coin-spe­cif­ic trust com­pa­ny, we’ll final­ly be able to deliv­er the prod­uct that mar­ries the best of self-cus­tody ser­vice with the com­po­nents that require qual­i­fied cus­tody. This has nev­er been achiev­able before, because exist­ing offer­ings focus on breadth of token sup­port rather than the absolute best cus­tody for Bit­coin,” said Swan Bit­coin cofounder and CTO Yan Pritzk­er. “The new trust com­pa­ny will offer Bit­coin-spe­cif­ic fea­tures such as insti­tu­tion-grade advanced wal­let man­age­ment capa­bil­i­ties and more ways for clients to hold their own keys, inher­i­tance plan­ning, and adop­tion of new Bit­coin stan­dards as they emerge.”

For instance, some of Swan’s com­peti­tors in the Bit­coin-only bro­ker­age space, such as Riv­er, already employ their own in-house cus­tody solu­tions with­out third parties.

“For years we’ve heard from major clients, part­ners, and oth­er Bit­coin com­pa­nies that they would pre­fer a Bit­coin-only soft­ware and ser­vices stack, focused on strict­ly the best cus­tody lever­ag­ing Bitcoin’s unique fea­tures,” said Klipp­sten. “Time has proven that alt­coins come with risks on many lev­els. Demand will con­tin­ue to grow for Bit­coin-only ser­vices that avoid many of those risks.”

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