Yesterday Coindesk revealed that State Street Digital has ended its licensing agreement with digital asset custody technology provider Copper ‘by mutual agreement’. Copper is making redundancies and closing its enterprise infrastructure division.
State Street confirmed that the break up was by mutual agreement. Copper‘s reputation has mainly been established in the crypto sector. Since the collaboration with State Street was announced last year, institutions have shifted focus toward tokenizing assets and securities versus cryptocurrencies. The crypto side of digital assets also faces regulatory headwinds, particularly in the U.S., where State Street is headquartered.
Two questions remain about which alternative technology partner State Street will contract with and the impact on the launch date of State Street’s offering.
However, State Street has significant internal technical expertise and built most of its digital asset custody solution in-house. Hence this is a matter of replacing a component, albeit an important one. State Street confirmed it has relationships with multiple providers.
To date, most incumbent financial institutions developing digital asset custody services have collaborated with Fireblocks, Metaco, or both. Some outliers are Visa which has a relationship with Anchorage, and Nomura-backed Komainu uses technology from Ledger. PayPal acquired digital asset custody firm Curv. While several other institutional digital asset custody providers exist, many work primarily with crypto hedge funds, crypto traders and high-net-worth individuals rather than banks.
Possible contributing factors
From Copper’s side, after raising $196 million in its Series C funding, it has made redundancies and is doubling down on its core competency. That includes ClearLoop, the off-exchange trading and settlement network for cryptocurrencies. Hence the pivot away from enterprise infrastructure.
Our analysis is there could be other contributory factors. In February, Copper suffered a security ‘incident’ which was not a breach. Copper’s private GitHub repository that stores source code was accessed along with a few other large firms, such as Slack and Okta. In Slack’s case, hackers used stolen employee credentials. If that also happened with Copper, it would be a serious issue in the eyes of a client like State Street that looks after $36 trillion in assets globally and hence has especially stringent protocols.
The GitHub issue came after Copper failed to get a digital assets license from the UK regulator, the FCA, which primarily covers AML and KYC procedures. Although it did get a license with a self regulatory organization in Switzerland. State Street’s relationship is a technology one, and it would not rely on Copper for AML or KYC, so this may be seen as irrelevant.
However, the FCA issue combined with the GitHub problem is unlikely to go in the positive column when assessing vendors.
