1/ CRINGE ALERT: if the regulator of your #crypto exchange/custodian requires this, run! "A DAB (digital asset biz) shld have a minimum amount of assets on-hand, within the organisation, to withstand the withdrawal of all client assets." @BermudaMonetary
2/ I found that gem in Bermuda's "Digital Asset Custody Code of Practice." Consumer protection is listed as the first core objective of the effort (bma.bm/BMANEWS/BMA%20…). Sorry, but I don't see much meaningful consumer protection in here. @TraceMayer would probably agree...
3/ ...and here's another gem, in a section titled Account Segregation🤔:
"While keeping client assets separate from its own, DABs may commingle client assets..." Believe it or not, the quote in the prior tweet was in a section titled Proof of Reserves! There's a lot of great...
4/ ...stuff in Bermuda's handbook (esp details on key mgmt), but apparently segregation=commingling & proof of reserves=no proof at all. Disclosure--I have much experience in Bermuda (past director & officer of multiple Bermuda insurance cos) & I respect @BermudaMonetary, but...
5/ ...I'm sorry to say this falls way short. As a fiduciary I could never agree to store client assets in a firm that only had to meet these low rqmts. Ask yourself if you could ever know whether such exchange/custodian were solvent, or could survive #ProofOfKeys or a bank run...
6/ ...Let's return to the Proof of Reserves section (A DAB should have a minimum amount of assets on-hand, within the organisation, to withstand the withdrawal of all client assets.) Where's the 1:1 rqmt for EACH ASSET? Keep in mind these assets are commingled, & I saw no...
7/ ...restrictions on #rehypothecation, no rqmt that loans be 100% collateralized, no rqmt that a short seller have an actual borrow before shorting. Again, "minimum amount of assets on hand"--no rqmt to keep 1:1 amount of LIKE-KIND assets on hand; "assets" isn't even defined...
8/ ...so "assets" could include all kinds of IOUs, rehypothecated claims etc. There's no rqmt to hold 1:1 REAL CRYPTO--but remember there's no lender of last resort for #crypto, so if your exchange/custodian doesn't hold the real thing it may not be able to meet your withdrawal..
9/ ...requests. Here's another gem: "DABs must clearly disclose intent & obligations pertaining to airdrops, forks"etc. Get that? No obligation to deliver value to the consumer for the airdrops, forks, etc claimed by the exchange/custodian, no restrictions on masternode voting...
10/ ...where the exchange/custodian's interests conflict with customer interests, etc. I know Bermuda can do better (& surely it will). Folks, we as an industry have a lot of work to do if we want institutional investors (pension funds, mutual funds, etc) to invest. They need...
11/ ...legally-enforceable clarity on what they're buying, exactly + what their withdrawal rights & remedies for breach are, exactly + the ability to do credit risk analysis on custodian. Speaking as a former pension fiduciary (ERISA fiduciaries have personal liability!) I'd...
12/ ...never support a pension agreeing to the vague & one-sided contracts used by exchanges today. If big institutional investment in the sector is a goal (I think it should be) we as a community have a lot of work to do to get there. Let's do it right! #NotYourKeysNotYourCoins
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