Technology infrastructure provider Copper says its new trading tool would solve a problem that prevents institutional investors from trading more freely in the cryptocurrency space by letting two parties retain their assets until just before trading.
The problem of exposure to credit risk
The London-based company said this week that the new ClearLoop tool - which facilitates fast and over-the-counter settlements - would practically address one of the main concerns facing Investors institutional in the cryptographic space: the element of trust towards the exchanges in which they deposit their capital.
Most exchanges require customers to deposit digital assets in a hot wallet before starting trading. Although this is usually not a problem, there is always a risk that an exchange may be hacked or, in the case of QuadrigaCX, disappear into thin air.
Known as "exposure to credit risk", it is the same risk factor that caused the fall of many financial institutions during the financial collapse of 2008. For institutional investors with interests more than limited in the cryptographic space, the problem of having to trusting an exchange to take care of their capital prevents many of them from depositing and negotiating what they might otherwise do.
"This is a big deal in the industry," said Copper CEO Dmitry Tokarev. Many funds try to trade on multiple exchanges - up to 15 in some cases - and generally put the necessary effort and all the complete risk assessments before using a new one. "Not only do they not have the ability to make that assessment, it is most often not the investor's field [so] it is difficult for them to perform it," he said.
ClearLoop functionality
What ClearLoop does is remove this trust element from exchanges. Clients hold their trading capital on their own, in a cold wallet or in a custody solution, while using an exchange with an interested party.
It is only at the last minute, once the operation has actually been completed, that ClearLoop transfers the digital assets from the customer to the exchange and therefore in the buyer's possession. This not only brings the time in which the exchange holds a digital asset to an absolute minimum, but it radically accelerates the negotiation process.
Copper says ClearLoop reduces transaction times to around 100 milliseconds, almost the same as a blink. ClearLoop was officially launched on Thursday after a few weeks in beta.
So far six stock exchanges have integrated it into their trading platforms including Bitfinex, DeversiFI and Deribit. In a statement, Deribit co-founder and CEO John Jansen said the trading tool "will significantly reduce risk and improve the way asset managers trade and manage capital."
