The recent positive news in the crypto market has led to a rebound in BTC. Although market sentiment has eased, the issue of prime trust has also begun to attract the attention of many people.
The incident was caused by the Nevada Department of Commerce last Thursday stating that Prime Trust could not meet all user withdrawal requests due to "shortage of customer funds", which means that it might become insolvent, which caused widespread discussion for a while.
Prime Trust is a cryptocurrency custody provider that mainly provides custody services such as cryptocurrency deposits to its customers. The occurrence of such an incident was unexpected to many people. According to relevant information reports, Prime Trust currently has liabilities of more than 12 million US dollars. Although this data is smaller than the losses caused by the FTX crash, it still brought an impact on market confidence.
However, according to regulations, prime trust has one month to request a hearing. If no hearing is requested within one month, prime trust may be suspended. Prior to this, the stablecoin TUSD announced the suspension of minting new stablecoins through prime trust. TUSD is a stablecoin backed by fiat currency, minted through custodial accounts. After Binance abandoned BUSD, TUSD also became an important stablecoin on the Binance platform. Some people speculated that TUSD may have discovered prime trust issues, so it suspended cooperation with prime trust. As of now, TUSD officials have publicly stated that they have no exposure to prime trust and have not been affected by prime trust for the time being.
In general, this negative news broke out last week. Of course, the rise in the price of cryptocurrencies also indirectly shows that the impact of the prime trust incident is limited, and there is no need to worry too much. However, it has brought another signal to people that the cryptocurrency custody business that people trust is not without problems. Some people speculate that prime trust diverted customer assets for other purposes, and finally suffered irreparable losses. The incident is still under further investigation, but because of the importance of custody in the cryptocurrency industry, it still has a significant impact on the market.
Cryptocurrency custody is a critical business in the centralized operation process. Generally, the main custodians are institutional users, such as various funds, exchanges, stablecoin project parties, enterprises, financial services companies, etc. Because for these institutions, on the one hand, due to regulations and internal compliance inspection requirements, assets cannot be accessed by internal personnel at will. Therefore, some institutions either spend a lot of money to build corresponding asset storage servers and equip them with certain permissions for private key management, or directly hand over the assets to the custodian for management.
On the one hand, the custody method saves time and effort, and on the other hand, it also reduces the risk of currency theft. Therefore, institutional users also prefer to use this method. Moreover, the custodian is basically only responsible for the security of the assets and is also subject to financial supervision. This field is quite sensitive to the misappropriation of user assets, which is also not allowed to happen. In return, the custodian will also require these users to pay a certain custody fee to ensure that the custodian can operate normally.
With the popularity of cryptocurrency, many institutional teams were born in the last bull market, so cryptocurrency custody has also become an important rigid demand for the development of the currency circle, such as the common coinbase, bitGo, Fireblocks, etc. According to statistics, there are already hundreds of cryptocurrency custody institutions in the market. Some institutions not only provide custody services for institutional users, but also for individual users. As the market continues to develop and improve, in the long run, most cryptocurrencies may actually be placed in the vaults of custody institutions.
In theory, the strict custody measures of the custodian institution basically have no security risks, because it does not participate in the speculation of encrypted assets. However, when prime trust has problems, many people are actually very worried. At the same time, this also means that other cryptocurrency custodians in the market will have such problems. Once this trust foundation is broken, it is crucial for the centralized cryptocurrency trading environment. Whether more people will not trust the custodian institution is very critical.
In addition, the hidden risks of centralized custody will also promote the popularity of decentralized custody. Decentralized custody generally achieves joint management of assets by using multiple parties to control private keys for signing. For example, the MPC multi-party computing method eliminates the requirement for third-party custodians and enables assets to be effectively protected in a compliant manner. Multi-party computing is simply a cryptographic technology that allows multiple parties to perform calculations together without revealing secrets to other parties. This ensures that key information is not obtained by hackers, thereby eliminating the risks brought by single point failures.
