A Sequoia-backed company aims to build an unhackable custodian of blockchain tokens

Advocates of cryptocurrency tout it as a more secure investment than fiat currencies. After all, they say, it’s built on the blockchain – a technology that’s very difficult to hack because it uses decentralized architecture and cryptographic algorithm. Events in recent years, however, have shown how vulnerable cryptocurrencies can be.

Just this month, Japanese cryptocurrency exchange Bitpoint lost US$32 million worth of its holdings to theft. The funds were stolen from hot wallets, or cryptocurrency wallets that are connected to the Internet.

Early this year, customers of Quadriga exchange lost a total of US$137 million in cryptocurrencies held in cold – or offline – storage when its CEO Gerald Cotten died. Cotten was the only person with access to the cryptographic keys, and investigators later found that he had stolen “substantial funds” from those wallets.

In fact, the total cryptocurrency value that has been lost, stolen or misplaced in the last three to four years is estimated to be US$1.5 billion, according to Onchain Custodian (ONC), a Singapore-based startup that provides custodial services to safeguard digital assets.

The concept behind ONC is based on the traditional investment industry, where a third party acts as a custodian for clients’ securities and assets to reduce the risk of their loss or theft. For instance, by hiring a custodian, a hedge fund can separate securities and investor records from fund managers, thus minimizing the risk of asset loss due to fraud.

Owing to the large amounts and high values of assets they protect, traditional custodians – also called custodian banks – are typically large financial institutions. These include Bank of China, Barclays, Citigroup, JPMorgan Chase, and UBS.

But digital assets like cryptocurrency require a different set of expertise. That’s where ONC’s leadership comes in.

Backed by industry rockstars

ONC was founded in July 2018 by Da Hongfei. Among blockchain circles, Da is often described as “the legendary creator of Neo”, an open, scalable blockchain network that’s been hailed as the “Ethereum of China”.

When ONC launched Safe, its digital asset custody platform, Da said, “Third-party custody is one of the fundamental pillars needed to drive mainstream adoption of tokenized assets.”

In November 2018, the company named its CEO: Alexandre Kech, a veteran of the banking and capital markets industry. He first started learning about the asset custody business during his time at The Bank of New York Mellon. He later became the head of securities and foreign exchange for Asia Pacific at SWIFT, the widely used network for international money and security transfers.

Alexandre Kech, CEO of Onchain Custodian

“As part of that job, we were talking to traditional custodians. In that process, we did explore blockchain and digital assets, and how they would be dealt with on the Swift network in the future. That’s really when I saw the light and fell in love with blockchain technology,” recalls Kech.

Why digital asset investors need a custodian

How to be unhackable

Gaining a foothold in Asia Pacific

Regulatory grey area