Built for Regulatory Frameworks pt 2

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Onli.Crypto – A Crypto Custody Solution

In October 2018,  BNY Mellown published an article on the subject of Crypto Custody [https://www.bnymellon.com/us/en/our-thinking/crypto-custody.jsp], in which the author outlines the operational, regulatory and reputation risks custodians face when approached to provide custody services for crypto assets.

Operating Model

Different cryptocurrencies differ from traditional assets in that there are many different variations of properties. A custodian needs to address the features and characteristics of each coin need to be understood in order for the custodian and their clients to interact with these assets. – ONLI.crypto is a single asset class, with consistent features and characteristics independent of the underlying cryptocurrencie stored in the Crypt container. As we will see, these features and characteristics are similar enough to existing classes of assets for the custodian to quickly understood.

A specific custody issue is that from a custodians perspective, cryptocurrences transact in a non-DvP (Delivery versus Payment) environment. In a DvP environment, title to an asset and payment are exchanged simultaneously. Since cryptocurrencies have no title or verifiable owner, settlement of cryptocurrencies is considered to be non-DvP.

– ONLI.crypto manufacture results in a separation of the asset (the private key) from it’s title (a bundle of rights) represented by the ONLI token cryptographically bound to the Crypt containing the encrypted private key, making the underlying asset a full featured DvP asset, where existing settlement and clearing mechanisms can be used by the custodian. 

Technology

Two issues arise for custodians in the ara of technology, the first related to being able to securely custodize the asset, which in effect, means to protecth the private keys.

– ONLI.crypto is an independently verifiable package, that contains all necessary security for the container. Both the ONLI and the Crypt can be exported as a file that is easily stored in exisiting, secured datastores that are typically used by custodians for existing digitized assets like stocks and bonds. No extra infrastructure is required.

Second, financial institutions need to adapt their technolgy arichtecture to manage cybersecurity (hacking) risks when interfacing with a public blockchain for the transfer of these assets.

– ONLI.crypto requires no changes to existing architecture, as the containers are inherently secured (resistent to hacking) and transfer is accomplished on the ONLI.crypto exchange by a simple file transfer, as simple (but significantly faster than) as uploading a photo to Instagram or Snapchat.

Risk and Compliance Framework

Public cryptocurrency markets are unregulated, independent of jursidatiction, have no contractual relationships or membership standards (many are completely anonymous).

– ONLI.crypto markets are designed from the outset to operate effectively in regulated markets, providing contractural relationships (for purposes of compliance and liability) as well as fully defined and enforced membership standards. ONLI based exchanges are private, but not anonymous.

A regulated financial institution will be expected to apply controls such as jurisdiction specific AML/KYC procedures are enforced.

– ONLI.crypto exchanges are strongly authenticated (enforcing AML requiremnts on members) and offer fully auditable transaction streams (for the purposes of KYC). Only fully verified and authenticated members can trade on the exchange, and every trade is fully verifiable.

Legal and Regulatory Framework

Traditional financial custodians are highly regulated, and few global regulators have provided frameworks for servicing of crypto assets. Significant scrutiy can be expected, and the overall risk profile of handling these assets must be considered.

– ONLI.crypto was designed to combine a fully compliant regulator system based on ONLI.one technology, with the new features of cryptocurrencies (designed to live outside of regulatory systems), creating a new asset class and a flexible model (including full AML/KYC and audit compliance) for any regulatory regime

References:

1. 

https://www.bnymellon.com/us/en/our-thinking/crypto-custody.jsp

2.

https://en.wikipedia.org/wiki/Delivery_versus_payment

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