Custody Solutions
How do you access centralized liquidity?
How does Off-Exchange Custody “OES” work?
“OES” stands for “Off-Exchange Settlement”. In short, it enables CAMP to always and only hold funds with a third-party custodian solution so protocol backing assets never reside on centralized exchange servers. This backing being held by custodians can then be mirrored onto CEXs for trading margin. OES providers enable CAMP to delegate/undelegate funds to support trading between multiple exchanges without backing assets ever leaving onchain wallets.
Have any of your custody providers ever lost user funds?
We are not aware of any instance of client fund loss related to any custody solution utilized by CAMP.
Has an OES solution ever been used in practice to save funds?
When FTX collapsed, certain arrangements with prime brokers and clearing agents (largely proprietary “insurance” products) resulted in customers being made immediately whole, despite assets being lost on the exchange due to the bankruptcy.
In addition, Copper’s Clearloop offering insulated customers utilizing Clearloop to access Coinflex from any losses resulting from Coinflex’s bankruptcy in 2022.
How are Copper Clearloop and Fireblocks OES different in their offerings?
Copper offers a custodian approach where funds are either segregated or held in a co-mingled omnibus wallet. In a segregated wallet, CAMP retains a key share and the funds are not exposed to any operational issues from Copper’s side. In the co-mingled omnibus wallet, the funds are held on behalf of CAMP by Copper in a bankruptcy-remote trust whereby the funds are accessible in the event of Copper entering administration or bankruptcy. Funds would only be released after all trades are cleared, which involves direct API calls with exchanges to close out trades.
Fireblocks’ OES solution mirrors in many ways the traditional Fireblocks' MPC wallet solution. Fireblocks’ OES solution enables CAMP to store funds in an onchain wallet wherein only CAMP and our custody partners have the key shares. In the event of Fireblocks entering administration or bankruptcy, our users assets are held separately to the Fireblocks entity.
What are the risks of OES?
There are three principal risks with using an OES:
Accessibility and Availability. CAMP ’s ability to deposit, withdraw, and delegate to & from exchanges. Any of these abilities being unavailable or degraded would impede the trading workflows & availability of the mint/redeem USDca functionality.
Performance of Operational Duties. In the event of an exchange failure, the protocol is reliant upon cooperation and reasonable legal behavior to facilitate the expedient transfer of any PnL at risk with an exchange. CAMP mitigates this risk by settling PnL with exchanges frequently to avoid large balances being owed to the protocol.
Operational Failure of Custodian. While we are not aware of any material operational failures or insolvencies for large scale crypto custodians, this does remain a possibility. While assets are held in segregated accounts an insolvency of a custodian would pose operational issues for the creation and redemption of USDca.
These three risks are mitigated by CAMP never exposing too much of protocol backing to a single OES provider and ensuring the assets are held in separate accounts.
It’s important to keep in mind that CAMP uses multiple OES providers with the same exchanges to mitigate both of the aforementioned risks.
Who can currently provide OES?
Copper’s Clearloop, Ceffu, Cobo and Fireblock’s OES solution are the OES solutions CAMP is currently utilizing.
Are protocol assets held by a custodian, or by the protocol?
It depends upon the specifics of the OES provider.
Using Copper’s segregated Clearloop vaults, the assets are held in an off-exchange vault secured by three separate shards held by CAMP, Copper, and a trusted third party (for asset recovery / disaster recovery purposes), requiring two signers to execute transactions.
Using Copper’s omnibus solution, the funds are held on behalf of CAMP by Copper in a bankruptcy-remote trust.
Has there been an example of OES custody working successfully?
Yes. Copper’s Clearloop solution has been a foundational piece of the digital asset trading industry for the past few years and is utilized by institutional trading firms in the exact same manner as CAMP, including by clients of Copper’s in the Coinflex bankruptcy during 2022
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