Switzerland’s Sygnum has started to provide custody for the clients of Deribit, the largest cryptocurrency derivatives exchange, with its Sygnum Protect product. Providing third party custody reduces the counterparty risks involved in derivatives.
Sygnum is a regulated digital asset bank that provides crypto brokerage and/or custody services to more than 20 other banks. These include PostFinance, the banking arm of Switzerland’s post office.
The collapse of FTX in 2022 highlighted concerns in handing over custody of assets to exchanges. While that was the result of wrongdoing, other risks include hacking. Bybit’s recent massive $1.4 billion hack emphasizes this risk, although the exchange fortunately was able to cover the loss.
“Counterparty risk awareness in crypto comes in cycles, and the recent major cyber-attack has triggered one of the largest waves of exchange derisking since FTX. It is yet another reminder that separating crypto custody from exchange trading is essential for security,” said Dominic Lohberger, Sygnum Chief Product Officer.
Deribit has integrated with Fireblocks’ Off Exchange solution which allows the balance held in custody at Sygnum to be mirrored on the Deribit exchange.
The Deribit exchange has adopted various policies that traditional financial institutions might be keen on. For example, it was one of the first to accept Hashnote’s tokenized Treasuries as collateral. Meanwhile, Deribit has reportedly attracted interest from potential acquirers at a valuation of up to $5 billion, according to Bloomberg.
For its part, Sygnum received $58 million in a January funding round at a valuation above $1 billion.
