AMA with Etana Custody Discusses Advancements in Digital Asset Custody & Trade Settlement
Athena.Trade Presents 9.4.19
DISCLAIMER: Athena.Trade Presents Weekly Series offers educational presentations to discuss relevant companies, industry experts, and other tangential professionals within the Fintech vertical, including but not limited to Blockchain, digital assets, and other emerging technologies. This does not represent any financial, investment, or legal advice. If you have questions, we recommend that you contact a professional in your jurisdiction and or area of regulation. We are a coworking community our member logos are visible on the graphic below. All information provided herein is footnoted properly below. If you have any questions on the validity of any source, please message Jenny Balliet, Director of Presentations at Athena.Trade.
For more information on Etana, please click here.
Athena.Trade Presents Weekly Series: Etana
On September 4, 2019, we had the pleasure of hosting two events from our friends at Etana Custody. The first event was our informal Athena.Trade Presents Weekly Series, where Brandon Russell, CEO of Etana Custody, and Rob Rydzewski of Seabury Global Markets discussed the nuances of digital asset custody and trade settlement. Key highlights are summarized below. Click here to watch the broadcast. [1]
Our second event was held in the evening, both at 211 W. Wacker, Chicago headquarters of Athena Bitcoin. The evening featured a thought provoking panel including Mr. Russell,CEO Etana, Jason Urban, CEO of DrawBridge Lending, andBrian Liston, COO, SeedCX. The event and surrounding activities were coordinated and hosted by Athena Bitcoin, & Athena Trade. [3]
Athena.Trade Presents: Etana Custody
A Primer on Custody by Etana
We began with a 50,000 foot view of custody and the surrounding need thereof. The lexicon in digital assets can be complicated to newcomers and veteran’s alike. Etana makes digital asset custody and trade settlement seamless, yet ensures full compliance. This ease of integration is evident from the platform design, to the logical integration with several other well known and highly trusted entities, each of which only further amplify safety and efficiency. As our conversation unfolded, we touched on the meticulous knowledge that Etana has honed stemming from its teams’ roots in traditional markets, specifically, Foreign Exchange (FX). Pulling these elements forward offers the following thesis as stated by Mr. Russell,
“For a market to operate efficiently, it needs to follow the track that traditional markets have taken…we have taken a capital markets workflow and deployed it into the digital space…Essentially, making markets more efficient.” [2]
Etana: Seamlessly Efficient
Etana is the central hub ‘bringing everyone together’ to facilitate transactions by and between fiat i.e.,G20 currencies and digital assets. [1] With Etana, trades are centrally cleared while funds remain securely offline. However, these funds are liquid to Etana account holders and remain encumbered, for all intents and purposes, by Etana. This full transparency equates to funds both visible to and in full control of the Etana account holder.
Etana uses a multi-faceted layered approach to digital asset custody, including cybersecurity, which employs best practices in accordance with all industry standards. Moreover, by wrapping around existing security measures and in the process, amplifying risk mitigation, Etana lowers friction on all ends in a proper and compliant manner. [11]
Etana fully integrates with the ‘usual suspects,’ e.g. BitGo, @Gemini, Kraken Exchange, and correspondent banks, all ‘under one roof, ’ thereby, assuring that just as funds are easily used on multiple exchanges, balances are quickly and easily reallocated per the account holders directed need and or discretion. [2] While there are many ‘custodians’ in the digital asset space, Etana is the only one today with Tier 1 Banking relationships, as determined by the Basel III: Basel Committee on Banking Supervision; the standardized ratings scale akin to the Moody’s, Fitch, & S&P. [7] [12][13][14]
AMA- Questions & Answers Summarized
There were several questions surrounding Etana’s ecosystem, yet given the team’s Tier 1 Banking relationships set them apart from all competitors, what does Tier 1 Banking mean and how did it change post 2008?
Basel Accords, FDIC & Tier 1 Banking for Stable Markets
A term that is tossed around in capital markets is ‘Tier 1,’ which is determined by definitions within the Bank for International Settlements (BIS), Basel Accords, specifically, the third iteration, the Basel III, an updated version of the Basel II developed after the Financial Crisis of 2008. These standards show efficacy with respect to capital requirements of banks and the corresponding liquidity thereof. This framework uses three key pillars to ensure global fitness of capital markets. Of note, the Basel Accords are not binding law, but rather, serve as recommended policy that each nation is free to adopt if they so choose. The US is a member of the BIS, and its coordinating regulations are found in the document Risk Management Manual of Examination Policies 2.1–1 Capital Federal Deposit Insurance Corporation. [14][15]
1. Minimum capital requirements, supervisory review of an institution’s capital adequacy and internal assessment process
2. The effective use of disclosure as a lever to strengthen market discipline and
3. Encourage sound banking practices, including supervisory review. [14]
These pillars of best practice were crafted as part of the Basel II and have been since updated to the Basel III as stated above. This framework denotes a proper ratio of Tier 1 Capital, which is explained as follows,
“Tier 1 capital is a bank’s core capital and includes disclosed reserves — that appears on the bank’s financial statements — and equity capital.” Id.
This capital is a core indicator of a financial institution’s fitness and was created to stave off future issues within capital markets that may have played a role in 2008, and which likely stem from poor disclosure and liquidity. In short, they nullify the toxic mantra ‘Too Big to Fail’ by recommending additional requirements for ‘systemically important banks.’ Id.
For example,
“Under Basel III, the minimum tier 1 capital ratio is 10.5%, which is calculated by dividing the bank’s tier 1 capital by its total risk-weighted assets (RWA). RWA measures a bank’s exposure to credit risk from the loans it underwrites…. Id.
‘Tier 1’ refers to an aggregate metric of risk examiners use to provide an overall ‘composite’ score including the factors found throughout the referenced documents and policies. [14][15][17]
“A rating of 1 indicates a strong capital level relative to the institution’s risk profile.”
These stringent guidelines protect deposit holders from malfeasance. Circling back to Etana, the insurance provided is dependent upon the banking partners they have curated, many are Tier 1 and follow the FDIC.
FDIC. “As of 2018, the FDIC insures deposits up to $250,000 per depositor, per institution based on account type. If an insured bank becomes insolvent and fails, depositor funds are insured by the FDIC up to this maximum. While banks may fail, the FDIC protects individual Americans from needlessly suffering the same fate…[17]
Key Takeaways
Cybersecurity. Given that Cybersecurity is paramount and given Etana’s coordinating roots in FX, the team follows suit with capital markets. They simply add an additional layer(s) onto already trusted processes. Etana does not re-create the wheel, per se, they recognize that other entities are specialists in their own right. Ergo, all existing cybersecurity protocols of the integrated parties, including wallet providers and financial institutions, remain intact as Etana merely wraps around the existing infrastructure to enhance these existing protocols. This layering methodology offers insurance that begins as soon as any funds enter the Etana ecosystem, whether fiat or digital assets, and may include additional KYC checks prior to withdrawal. In the event of a loss. The insurance provided is monetary and valued on the digital asset valuation at the exact time of the loss. Given they are working with insurance providers, there is a process to follow, and funds are not replaced immediately. Id. 0:00–5:43
Transacting. Etana offers an ‘a la carte’ style of choices to meet the needs of its various traders and liquidity providers ranging from volume settlement, to a scheduled time and date settlement, or batch. Id at 6:25. The interface features e-wallets, facing multiple counterparties, known and non, depending upon the Etana account holder’s preferences. These can be reallocated within a matter of minutes, with plans to cut this time down to seconds in future iterations.
Retail. While institutions are generally at the heart of custody discussions, Etana has forayed into the retail market and as Mr. Russell noted ‘retail adoption came long before institutional.’ Once users are housed within the Etana ecosystem, these e-wallets can be easily redirected and transacted with across various G20, fiat, currencies and digital assets. Again, it bears mentioning, that facilitating offline transactions is key to security. Id.
“We tend to provide a safe haven for retail clients to come into our ecosystem by associating with an exchange they want to trade with…” Id. at 8:00
Compliance SOX. Derived from the Sarbanes-Oxley Act of 2002, SOX compliance has two components, i.e., Financial and IT. The Act essentially was designed to protect investors from poor disclosure and fraudulent data thereof, particularly with respect to corporate governance. There are three elements to this concerning the malfeasance or use of improper data, e.g. falsification, the time required to store, and precisely what data is to be stored to ensure compliance. Various sections of the Act offer compliance protocols to be followed. [17] [18][19]
MT4-MT5 Pilot. This workflow mirrors the spot FX trading metaquotes, a trading application, which offers prices within an ‘order book.’ Traders then, trade on these executable prices. Now, applying it to digital assets, Etana will follow suit, taking any websocket or rest API, and pushing into the existing ecosystems and digital assets, which will be included in their Etana ecosystem profile.
Insurance. As mentioned above, all assets encumbered within the Etana ecosystem are fully insured including both digital assets and their G20 counterparts. Maximum default amount limits may differ by jurisdiction, and Etana also offers the ability to purchase additional coverage if any account exceeds same. Any loss is a monetary value that is determined at the point of loss. The valuation is in fiat, not the number of digital asset, e.g. bitcoin.
Kraken. The role of Kraken Exchange within the Etana ecosystem is to facilitate onboarding fiat currencies and converting to trading capital.
Risk mitigation. By offering a central safe haven, the audit and continuity for accounting firms and auditors is evident. Fund administration and trusts can also benefit from this ‘assurity.’
The second event was livestreamed on Twitter and periscope, it can be found here.
Etana’s most recent press release best summarizes the team’s newest services. [16] Mr. Russell notes,
“The Etana ecosystem is open in design and built to scale over time as more users understand the benefit of being in the network and holding assets within the Etana ecosystem,” said Etana Founder and Chief Executive Officer Brandon Russell.
“While we have certain preferred partners that provide specific benefits, we are wallet/bank agnostic, and welcome additional banks and digital depositories.” Id.
In conclusion, Etana offers a variety of safeguards, brought forward from traditional capital markets. These benefits lower the barrier to entry to digital assets at large. We look forward to watching the evolution of the Etana Ecosystem.
For more information, click here
ABOUT ETANA CUSTODY
Etana is a custody solution for Fiat and Digital Assets providing real-time electronic trade settlement in the digital space. Etana is both fiat account and digital wallet agnostic, provides segregation of assets, and enables the ability to trade with multiple counterparties without withdrawing assets from the Etana platform. [4] For more information visit, Etana Custody at www.etana.com
About Athena.trade
Athena.Trade is the Midwest’s first and premier coworking community dedicated to the intersection of crypto, Blockchain, & fintech. We facilitate connections by and between our members and actively collaborate with all other coworking communities. A desk at Athena.Trade is your bridge to become a part of a financial revolution.
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Resources Consulted
[1] https://www.investopedia.com/terms/g/g-20.asp
[2]https://www.pscp.tv/w/cEIGWTF3QkVBa01PcnBWS1B8MXlvSk16TldCQXd4UeOkZRj94u8nRxtPzKSXLMDvXTlda_yGcjXd3QRa_G3y
[3] https://twitter.com/athena_trade/status/1169624552378421248?s=12
[4] www.Seabury.com
[5] Etana.com
[6] https://mobile.twitter.com/lulaeducate/status/1134495535874891776; see also, https://mobile.twitter.com/lulaeducate/status/1134495535874891776;
[7] https://www.law.upenn.edu/faculty/david-hoffman/crypto-custody.php
[8] https://www.bnymellon.com/us/en/our-thinking/crypto-custody.jsp
[9] https://www.linkedin.com/in/brandon-russell-4290099/
[10]https://www.seaburycapital.com/robert-rydzewski/
[12]https://www.moodys.com/sites/products/productattachments/ap075378_1_1408_ki.pdf; see also https://www.fitchratings.com/site/definitions
[13]https://www.investopedia.com/terms/b/bank-rating.asp
[15] https://www.investopedia.com/articles/economics/10/understanding-basel-3-regulations.asp; see also, https://www.gartner.com/it-glossary/bank-tier
[17] https://www.fdic.gov/regulations/safety/manual/section2-1.pdf
[18] https://www.congress.gov/bill/107th-congress/house-bill/3763; see also, https://digitalguardian.com/blog/what-sox-compliance;
[20] https://www.bnymellon.com/us/en/our-thinking/crypto-custody.jsp
