An exchange based in Panama, Deribit, has announced the launch of a new external custody solution meant to facilitate faster collateral transfers and limit auto-deleveraging risks in clamorous markets.
The new solution was developed by Clearloop (a digital asset infrastructure provider based in London) and the announcement on May 14 noted its full integration.
The aim of Deribit is to cater to professional traders using the new solution, with the claim that such improvements in the cryptocurrency derivatives market structure will influence cryptocurrency adoption among institutional investors.
The design of the custody solution is such that it will eliminate the necessity of asset managers to move their cryptocurrency from secure cold storage into hot wallets on exchanges for trading.
Aside from the introduction of perceived security risks, the transfer of collateral between wallets and exchanges can be delayed up to an hour, based on the time required to confirm on a particular blockchain network. This could be further delayed as a result of withdrawal times after settling the trade.
This is why Clearloop offered a solution for off-exchange settlement between parties which works through Clearloop intermediating trades, thereby removing self-custody risks and offering asset managers a segregated and insured custody solution.
When a trader submits a position, the first step by ClearLoop is ensuring that both the client and the exchange have sufficient assets before opening it. Then there is the instant settlement between the parties after the closure of the trade.
Faster client collateral transfers will offer enhanced protection to traders against the risks of auto-deleveraging and other challenges encountered through market inefficiencies, says Clearloop.
Through the enablement of faster reaction times, there will be opportunities for the execution of remarkably higher volumes for each transaction, and prevention of limitations on the value of the cryptocurrency that can be stored in hot wallets, which exchanges enforce towards the mitigation of security and counterparty risks.
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