Investment Operations

BitGo Unveils Off-Chain Clearing and Settlement

Collateral Management

Digital asset servicer BitGo has announced an off-chain Clearing and Settlement Service for clients of its qualified custodian, BitGo Trust Company. According to the company, assets never need to leave custody, and, with BitGo Trust as the custodian for both sides of the trade, counterparty risk is minimized.

Analysts say in the current market structure for digital assets, institutional investors are subject to various challenges:

  • Counterparty risk: One party must act first and rely on the counterparty’s good faith.
  • Inefficient capital allocation: In order to trade on multiple exchanges, institutional investors need to park assets at each exchange in advance, thus breaking up their balance sheet.
  • Compliance infringement: Settlement currently requires that funds need to leave the qualified custodian in order to settle trades.
  • Security risk: In order to trade and settle, assets must be moved out of cold storage.

BitGo said its Clearing and Settlement Service was designed to solve these critical issues. The service is offered to OTC desks, single dealer platforms, exchanges, asset managers, and broker-dealers. All participants custody their digital assets with BitGo Trust Company, and as a result of using a common custodian, participants will be able to choose which partners to clear and settle with and check their trading limits pre-trade.

“Until now, in a digital asset trade, one party needed to assume all of the risk and act on the counterparty’s good faith, and this doesn’t really work for institutional investors,” said Mike Belshe, CEO, BitGo. “We are bringing to market a riskless, efficient, and compliant digital asset clearing and settlement, and what makes this service possible is BitGo Trust’s strong client base.”

According to Belshe, with BitGo’s Clearing and Settlement Service, assets remain in cold storage at all times. Trades are settled off-chain. Upon withdrawal, they are reconciled on-chain. Belshe says client benefits include:

  • No counterparty risk: Funds are locked during settlement.
  • Efficient capital allocation: Virtual journal swaps facilitate trading on multiple exchanges without breaking up the balance sheet; instant settlement also becomes possible.
  • Regulatory compliance: Assets are held with qualified custodian BitGo Trust Company.
  • Reduced market risk: Trades are settled off-chain.
  • Institutional-grade security: Multi-signature security, multi-user policy controls, and advanced security configurations to meet the most rigorous industry requirements.