Manage Risk

Aktualisiert: Sept 1

Manage your vulnerability to cyber attacks. Divide your funds between various custodians to decrease insurance expenses and default risks. Constantly optimize your risk-return ratio by quickly splitting funds.

  • Reduce existential risk, every single system can fail

  • Reduce insurance expenses

  • Manage your cyber vulnerabilities consciously

  • Provide redundancy for extra security

Our register of custodians published in our recent digital asset custody report lists more than 100 different companies providing custody solutions for their clients. The technologies range from proven cold storage in HSM secured wallets to innovative new MPC systems that promise further resilience. Although some solutions might certainly be more secure than others, every custody provider still bears their very own risk of being hacked or their solutions being compromised. Ultimately ending up with the possibility to lose their client’s funds.

This default risk affects all custodians regardless of their Assets under Custody (AuC). To reduce this risk many trusted custodians offer insurance for their client’s funds to certain amounts. The amounts might vary from one custodian to another depending on their type of storage but will always come at a cost. Custody solutions that promise complete insurance will most likely be costly on-premise cold storage systems that will lock up your funds behind large security walls, dramatically decreasing accessibility. If that is not the case and your funds are accessible in cloud-based wallets, clients will probably pay a high insurance premium for their digital assets. Custody solutions with small operating fees, on the other hand, will have either a low insurance cap leaving funds exposed or not accessible due to high-security measures that are needed to lower the default risk.

With DECUS Network you are connected to a large number of custody providers that have different insurance policies. Imagine splitting your funds between multiple custodians to always have the lowest insurance expenses due to decreased singular amounts held in one custodial wallet. No matter how large your funds grow, you will not be found paying for higher insurance fees. Unless you choose to actively stay with one provider for other reasons. While the term smart order routing for executing trades is widely known, maybe there should be a term for the most efficient custody of your assets (for example smart custody routing). One prominent example for this efficient splitting of funds between different custodians might be the insurance policy of Coinbase, one of the largest and most popular exchanges to buy and store Bitcoin for both institutional and retail clients. They state that all of their client’s funds deposited on Coinbase are insured against loss within their platform. But this insurance does not cover any amounts of cash that exceed a total of 250,000 USD. Coinbase Custody only offers custodial wallets that are insured to institutional clients that have more than 10 million in assets and are willing to spend 100,000 USD as an upfront investment together with 20 basis points for the management. This leaves customers between these two limits exposed to a risk that they could decrease by splitting their funds between different custodians or wallet providers.

It is also relevant to note that Coinbase explains on their website that “digital currency, such as Bitcoin, Litecoin, and Ethereum, is not subject to Federal Deposit Insurance Corporation (“FDIC”) or Securities Investor Protection Corporation protections.” Leaving funds in cryptocurrencies such as Bitcoin completely vulnerable to the user’s own management of passwords and the exchange’s security systems.

Additionally, with the setup of a whole network of custodians, it is possible for companies to actively manage their cyber vulnerabilities consciously. You do not have to take one custody solution as given but choose the selection of custodians that satisfies your individual trade-off between security and usability. You might decide on a certain strategic trade-off that you want to maintain over time which requires a constant adjustment to your allocation between different custody solutions. Custody evolves from a given way of securing assets to a conscious effort to have a strategic setup.

Finally, the fact that DECUS Network provides you with every possible custody solution that can be used to secure digital assets provides redundancy for additional security measures.