Public attention is affixed on digital asset custody according to The Edge (Feb 25, 2023).
by Kuek Ser Kwang Zhe
Why do digital asset custodians (DAC) have to be registered with the Securities Commission of Malaysia (SC) since crypto wallets are borderless?
In our interview with The Edge, we cited the need for assets and management to be based locally to facilitate the claims and recoveries by Malaysian investors come what may, and for local laws to take precedence. The contrarian view is to forget location; the tech merits of the custody solution matter most.
Recent events will give a clearer picture:
As the bankrupt FTX exchange faces the music in US courts and liquidators scramble to pay back its 1.2 million users worldwide, there is a jurisdictional fight between regulatory agencies, for several billions of assets held in the Bahamas where FTX is headquartered. These assets are “custodied on Fireblocks under control of [the] Bahamian government” to “protect the interest of creditors”.
In the case of Celsius, which once bragged that its custody product was the “safest place for your crypto”, it was able to return 94% of the previously locked out assets belonging to investors after a US bankruptcy court ruling. But there’s a catch: Only the custody accounts availed to US residents are eligible for recovery, much to the disappointment of the rest of its 600,000 customers.
In more current news, the shutdown Silicon Valley Bank (SVB) had the benefit of FDIC insurance. However based on FDIC regulations, deposits that are maintained at, and carried on the books and records of, a non-U.S. branch of SVB in 8 other countries outside US (with 40K company clients), are not eligible for FDIC deposit insurance coverage, even if the deposit agreement states otherwise.
On a practical note, let’s say your crypto is lost while in custody: You go and lodge a police report. The police will ask you for the place of crime or incident. You could try to explain that blockchain is borderless, wallets are anonymous, and bitcoins are invisible. Or that the block confirmations came from various nodes in Kazakhstan, Georgia and Timbuktu – which are beyond the police’s jurisdiction.
Or you can just simply tell them that the DAC is registered with the SC and operates in (state Malaysian address).
PS: Special shoutout to Kuek Ser Kwang Zhe for leading the coverage of crypto in this country. Click here or on image to view the article directly.