In an alarming development, cryptocurrency custody giant, BitGo found its acquisition of rival Prime Trust to be abruptly halted. The latter came under heavy scrutiny as Nevada’s Financial Institutions Division (FID) slapped harsh restrictions on Prime Trust, due to a severely degenerating financial state. If verified, the company could possibly owe a staggering $85 million in fiat and an additional $69.5 million in cryptocurrency to its clients.
The circumstances are made perplexing when considering the way Prime Trust reached this significant shortfall. In the period before 2020, the company managed customer crypto wallets by itself. In the subsequent year, a move was made to migrate customer assets to Fireblocks, a prominent custody and security firm. This was intended to allow Fireblocks to oversee and manage crypto assets on behalf of Prime Trust’s clients. However, a misstep occurred in 2021, when Prime Trust fell into the inability to access these “legacy wallets”.
For a custodian, the inability to access wallets seems bewildering. This essentially disrupts the line of trust between a custodian and their customer – people seek out custodial services as they believe they can’t manage their own crypto as efficiently.
Placing this in perspective, Prime Trust has been known to be a competent, young firm with potential. They have raised over $100 million in a financing round with big players such as FIS, Fin Capital, Mercato Partners, and Kraken Ventures. This makes the recent twists in their journey all the more shocking.
Bringing us to the overarching question: Just how challenging is it to offer custodial services for others’ cryptocurrency? Theoretically, the job is basic: hold onto others’ crypto, return it when demanded, and get paid for it. And yet, institutions with hundreds of millions in backing appear to slip up severely.
While the full story behind Prime Trust’s circumstances is still unfolding, it paints a gloomy picture for the crypto sector. It amplifies the often-voiced concern about the reliability and failure risks associated with custodians.
Ultimately, such incidents work to tarnish the reputation of the entire industry. As the uncertainties around the crypto market loom, potential users are left to wonder, “Just who can be trusted with my deposits?” This uncertainty can cast a lengthy shadow, causing undue skepticism even among the most promising firms and offerings.
Source: Coindesk
