v. Custody

Custody Risk

What happens in the event of a custodian bankruptcy?

For segregated vaults (such as the Copper vault), legal title to the collateral never passes to the custodian or exchange; as a result, the collateral assets should be considered outside any custodian bankruptcy estate. It’s expected that the funds would be transferable to another wallet subject to the OES provider’s policies and procedures, which may result in slight delays. As above, the protocol will balance overall hedging activity to maintain delta neutrality in all events.

With respect to omnibus solutions, such as Copper’s omnibus solution, the assets are held within an English law trust. As such, the assets are outside of Copper’s potential bankruptcy estate and not available for distribution to creditors. There may be a time delay on return of assets in accordance with Copper’s internal policies and procedures, and the protocol would seek to remain delta neutral through rebalancing.

Why doesn’t CAMP just custody assets with the exchanges?

Custodying protocol assets with exchanges exposes the protocol to risks if an exchange were to limit/delay withdrawals or were to close suddenly (like FTX). CAMP’s ability to use off-exchange custody providers enables CAMP to enjoy the benefits of a disintermediation of incentives as well as the availability of collateral to trade on the most liquid markets.

Who has the ability to move assets in and out of the custody account?

Generally, it’s either solely CAMP or CAMP and the OES provider who both must sign for assets to be withdrawn from the custody account. CAMP is in sole control of depositing funds with OES providers which are algorithmically driven by minters providing or removing assets. In certain cases, such as Copper’s segregated vault, a trusted third party would be available to execute transactions in the case where either CAMP or Copper is unable to sign, and in cases of security issues or disaster recovery.

Who controls the MPC keys in a custody account?

For the OES providers where it applies, the MPC keys are held by CAMP and custody solution partners. As discussed above, in certain cases a third shard is held by a trusted third party for specific purposes.

How are the rules for margining and liquidation determined by the custodian?

Custodians/OES providers do not determine margining requirements or enforce any sort of liquidation. Margining and Liquidation functions are solely between CAMP and the underlying exchange as per not only the exchange’s terms of service but also a direct PnL settlement agreement.