As the FTX contagion continues to reverberate across the crypto ecosystem, investors have been worried about the transparency, reserve levels, security and internal controls followed by crypto companies.
Leading crypto investment platform Mudrex said it always keeps investors informed on all activities regarding their funds; it does not take any leverage or operate any credit on investor funds; its assets are stored securely and backed with assets 1:1; and it uses separate hot/warm/cold wallets for storage and transactions.
“We have been around in the cryptocurrency space for five years now and have survived many ups and downs. We have always maintained that user funds are of prime importance, and one should never risk them,” said Edul Patel, founder and CEO, Mudrex.
FTX was trading with customer funds, and the exchange’s demise affected more than 1 million users. Since then, control over customer assets has become a major issue in crypto, as exchanges have control over user’s private keys.
Upon making a purchase, the coins and tokens are stored in the customer’s wallet, which is hosted on the exchange.
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Khaleelulla Baig of Koinbasket, a thematic crypto investment platform, said his firm didn’t take on the risk and headache of taking custody of user assets, and the users got to keep their assets in their choice of wallets/exchanges.
Mohammed Roshan, cofounder and CEO of GoSats, a Bitcoin stacking company, said it believed in the ethos of the bitcoin industry — not your keys, not your coins.
“We use multi-signature storage for user funds with BitGo, the industry leader, to process withdrawals. We advise users to keep control of their bitcoin using a hardware wallet or a multi-signature wallet and not trust any entity to store their digital assets,” he said.
Manan Vora, senior VP-strategy & operations at Liminal, a self-custody wallet management solution, said: “We have joined hands with leading blockchains like Polygon, Tezos, Avalanche, etc., where we are supporting them and the projects built on these blockchains with crypto custody solutions to ensure the utmost safety and security. We are also seeing an influx of queries for our self-custody solutions.”
Startups are also opting for crypto self-custody services, re-evaluating liquidity provisions, purchasing asset insurance, etc., he said.
Even startups that are about to launch their products are doubling down on consumer protection.
Take Muffinpay, a crypto-fintech platform that will launch its product soon and work under EU norms in compliance with Markets in Crypto-Assets Regulation (MICA). “As a utility token, $MFIN (MuffinCoin), it will not be accessed by the management itself until a certain period. It means, initial investors will have the right to exit first with a better valuation of the token after launch. In addition, we will increase transparency in the coming days to serve the best interests of our customers,” said Dileep Seinberg, founder & CEO of MuffinPay.
Startups are also purchasing insurance to protect their clients’ funds. Liminal has bought a $50 million insurance from Lloyds of London to ensure 360-degree protection of client funds while Mudrex has partnered with Binance Institutional custody for $100 million dedicated insurance.
Following the collapse of FTX, there has been a barrage of bad news for investors as more crypto firms have become collateral damage to the FTX bankruptcy. Crypto lender BlockFi is preparing to file for bankruptcy protection, while another lender, Voyager, has reopened the bidding process for a new buyer. Crypto platform Genesis has suspended customer redemptions on its high-yield Gemini Earn crypto lending product. And people are getting more worried about Grayscale, a company that manages crypto assets, after the Bitcoin fund refused to publish its proof of reserves.
Experts say while crypto startups and exchanges have taken various measures to protect consumers and provide a more secure environment, investors also need to be proactive in managing their assets.
“Regardless of any asset class, be it stocks, commodities, forex, or cryptos, investors should avoid complex trading activities like arbitrage trading, future and options, margin trading and short selling. Retail investors must cultivate the habit of pulling back uninvested cash from exchanges. “Investors should avoid blindly following non-crypto native influencers and anyone who promotes products without proper disclosure,” said Baig of Koinbasket. “It’s very important to keep an eye on the latest developments in the crypto industry.”