Safety of BTC Custody with Prime Trust for Retirement Funds

Jimmy Song: The whole point of Bitcoin is that there’s no one that can rug you.
Every altcoin can rug you, this is why we say “Verify, don’t trust.”

Pomp: This is not true. Every custodial bitcoin-only company has the ability to rug their customers and shareholders.

Cory at Swan Bitcoin: Swan’s approach:
1) Educate on self-custody + make it EASY (free automatic w/drawals)
2) When members won’t self-custody, Swan CANNOT touch the coins. We use a 3rd-party USA trust w legally separate, user-owned trust accounts. Only YOU own your coins, only YOU can move them.

Pomp: So you can’t prove with a proof-of-reserves that your customer’s bitcoin is safe. That seems scary.
This is a genuine question (& not trying to be an asshole) - why not get rid of the custodial feature and just go 100% self-custodial?

Cory at Swan Bitcoin: 1) proof of reserves MAY be useful for exchanges that commingle user funds – much debate on the quality of those efforts, but imo it’s gotta be better than now; not as relevant for user-owned trust accounts, but looking at it
2) not everyone is ready for self-custody on day 1

Pomp: Ok, I’m following so far.
How does Swan ensure that customer funds are safe, rather than simply trusting what the third party custodian says?
(Appreciate you engaging & im trying to learn)

Cory at Swan Bitcoin: Gonna write it up, will come back here with url.
TLDR: Property rights can be enforced individually by self-custody, or by law if in the hands of a 3rd party. If you MUST use a custodian, choose one in a jurisdiction w/ strong property rights and rule of law, eg a USA trust co.

Pomp: Look forward to reading

Cory at Swan Bitcoin: 🤝

Sure thing

Short version, VERY different.

GBTC bitcoin is an IOU, not your coins

Coins on Prime Trust are YOUR coins and you can take possession anytime

1:04:38 Natalie: Well I want to touch on that point for a moment, because I feel there’s a debate going on right now in the community of whether people should self-custody or not. So, for a lot of people, I think, especially maybe if you’re older. My mom and dad, I don’t think they feel comfortable self-custodying, even thought I’ve probably orange-pilled them. What do you say to people who wonder which one is the right choice, because there are a lot risks when you do take self-custody. You have to be very, very careful and personal responsibility is number one in this game. So, what do you have to say about that?

Cory: Yea, I think there’s third-party risk, and there’s risk of losing your keys, and you’ve got to balance those for yourself. So, my parents use third-party custodians, and that’s okay, that’s what they’re comfortable with. And I totally understand that. But, I want to keep whittling away at that and abstracting away the complication and using trusted third-party recovery. So you may have two keys, or you have one key, and then a trust company has a second key, and then a company like a Swan or an Unchained has a third key and can help you sign transactions and things like that.

Natalie: Yea, multi-sig is really good.

Cory: So that’s one of the reasons we bought Specter is to create those solutions and kind of abstract away the complexity, and then allay the fear and to really make sure, that for most people, there’s no chance of loss, or dramatically reduced chance of loss. And I think that’s a lot better than giving CZ your coins.

1:06:02 Natalie: What can you share about Prime Trust? So, if you have your coins on Swan, they’re ultimately held by Prime Trust. What do people need to know?

Cory: Well, they’re ultimately held by Fireblocks, which a massive custodian in the crypto space that stores billions of dollars of bitcoin but also altcoins, but, you know, eight billion dollar valuation and probably a thousand plus employees, things like that. What’s great about a US Trust Company structure is they can’t rehypothecate your coins. You own them outright, legally. If there’s a bankruptcy at Swan or at Prime Trust, they’re still your coins, because you actually own it in an individual trust account. So, everyone who signs up for Swan and creates an account with Swan, you actually own your own trust account with Prime Trust, so you legally own whatever is in that. Which is very different from the terms that you sign when you gamble with a crypto exchange.

Natalie: Okay.

Cory: Because, they own your coins, and they actually have an IOU. So, this is something that actually changed in the accounting rules. So something like a Coinbase was told, last year, that they had to start calling these deposits of users on the exchange a liability. So they had to hold it as an asset and a liability. But, its their coins, right? I think they actually do have a trust company for some of their custody products, so its very similar to Prime Trust, but I think that’s like Coinbase Vault or something like that.

Swan Clients,

-Below is why custodying your Bitcoin @PrimeTrustCo is 99X (made up #) safer than custodying it at risky crypto exchanges

-Read up on why self-custody/multi-sig is >99X better than custodying with PT

Email [email protected] (cc: me) for help w/ self-custody

“Prime Trust has no counterparty exposure to the FTX ecosystem and we possess the financial strength to execute fully on customer commitments.” Read more about how Prime Trust is set to weather the storm at the link below 👇

We are experiencing a seachange in the digital asset industry following the fallout from FTX, Celsius, and Terra. With billions of dollars vaporized overnight, it is understandable that consumers and our customers are asking fundamental questions concerning the stability and credibility of all market participants.

To be clear: Prime Trust has no counterparty exposure to the FTX ecosystem, and we possess the financial strength to execute fully on our customer commitments. Additionally, despite extreme market volatility, our platform stayed available, secure, and stable.

If there is a silver lining here, it’s twofold:

1. Expectations concerning market transparency have only grown stronger, especially as it relates to the ownership and storage of cash and digital assets under custody. This has caused an exponential growth in consumer education around the concept of custody and the questions that need to be asked and answered. On the other side of the coin, this has also forced companies across the industry to embrace financial transparency in ways that before last week seemed hard to imagine, especially for privately-held companies.

Prime Trust is ready for this change. We’ve provided the detailed answers our customers and their consumers have been asking in this series of FAQs that cover “Assets under Custody”, “Assets in Bankruptcy”, and “FTX”.

2. Regulation will follow. In the wake of Terra, Celsius, and FTX, it’s clear the industry can no longer operate in the gray if we hope to build a new digital economy. While DeFi will be a strong solution for those ready to assume all risk on themselves, we are working to make the benefits of digital assets available to all. For this to happen, consumer protections must be formally established to rebuild the trust that has been wiped away. We look forward to working with the Blockchain Association and regulators to ensure this is done in a practical and sensible way.

With the anxiety in the market, we want to reiterate a few things about Prime Trust.

1. We are a regulated Trust company that acts as a Qualified Custodian under the Investment Advisers Act, which means we safeguard your customers’ assets by adhering to strict regulatory requirements. This ensures your customers are able to withdraw and transfer funds at their discretion without interruption.
2. We are a security-first platform with a leadership team that has deep experience in cyber security and the public sector. We’ve earned our SOC 2 Type 2, ISO 27001-2013, and CSA STAR Level 1 certifications, and have ongoing threat intelligence, vulnerability management, product security, and security operations programs.
3. We are not borrowing or lending against customer custodial funds. This ensures that when the markets face instability, we are able to fulfill financial commitments to our customers and operate business as usual.

We know you rely on us to deliver the infrastructure you need to run your best-in-class experiences. We are closely monitoring the ongoing situation, and while we don’t know what will materialize over the coming weeks, we can promise that we will work tirelessly to deliver on our obligations and ensure your success.

We are a Qualified Custodian under the Investment Advisers Act (IAA), which means we safeguard your customers’ assets by adhering to strict requirements. A Qualified Custodian is also a determination that is made in the sole opinion of the Registered Investment Advisers (RIAs); ultimately, RIAs determine if custodians that they choose are Qualified Custodians.

Customer assets are kept in a separate system and never confused with corporate assets. Assets held on behalf of customers are ear-marked for each customer. Prime Trust assets and our customer’s assets are either kept separate from the assets of other customers or are otherwise specifically identified as belonging to a particular customer, pursuant to NRS 669.220.1(a) and our internal processes and controls support this.

No, we are not rehypothecating assets nor are we lending or borrowing against customer funds.

Prime Trust does not engage in any lending or borrowing services nor rehypothecation of customer assets.

Assets held on behalf of customers are ear-marked for each customer and protected. Prime Trust assets and our customer’s assets are either kept separate from the assets of other customers or are otherwise specifically identified as belonging to a particular customer, pursuant to NRS 669.220.1(a) and our internal processes including our ledgering system.

It is not possible for Prime Trust to opine on the specifics of how insolvency proceedings would unfold at this time given current precedent, especially with respect to digital assets. There are many unknowns in bankruptcy law regarding the way a custodian’s insolvency would apply to the assets the custodian holds (regardless of who is custodian). Historically, the goal of any insolvency proceeding has been to ensure that property/assets are returned to the rightful owner (the customers), especially when the assets of such customers are carefully kept in identifiable/traceable/segregated manner. Specifically, bankruptcy courts tend to apply applicable state trust and property laws, including those that honor a customer’s continuing right to their assets held in custody by another.