Bitcoin-Only Exchange Swan Pledges to Launch New Custodian with BitGo

Swan Bitcoin is offering new insight into how Bitcoin stored on its exchange will be held in custody in the future, following a tumultuous month in which many of the company’s users were left looking for clarity.

Announced Thursday, Swan Bitcoin says it intends to partner with BitGo to launch a “Bitcoin-only trust company,” one that would require regulatory approval before ultimately being made live for customers.

“This strategic partnership aims to cater to the growing demand for Bitcoin-specific solutions while addressing the critical security and custody requirements within the Bitcoin ecosystem,” a press release sent exclusively to Bitcoin Magazine read.

Swan Bitcoin CEO Cory Klippsten said in a statement that the plan is to either acquire an existing trust company, or build one. If they choose to acquire, he said they aim to be live with customers by Q1 2024.  If, instead, they build a new trust, the goal is to go live by Q3.

Klippsten further detailed how the move builds on an existing collaboration between the companies, explaining that BitGo has held all of Swan users’ custodied coins in cold storage since June, which will continue. He claims Fortress does not custody Swan clients’ coins except for small amounts temporarily when satisfying withdrawal requests.

BitGo CEO Mike Belshe echoed Klippsten’s claims, saying the companies have been collaborating on a solution for some time. Prior to Fortress and BitGo, Swan Bitcoin used Prime Trust as its preferred custody partner. 

Prime Trust filed for bankruptcy in August, claiming a shortfall of customer funds.

“Our teams have worked closely together for nearly a year on stronger qualified custody models,” Belshe said. “Early in 2023, we recognized the opportunity to establish a Bitcoin-only custodian, combining the capabilities of each company.”

The trust’s announcement follows the acquisition of Fortress by Ripple, a cryptocurrency company formed in 2012 that is devoted to evangelizing the XRP digital asset. The acquisition of Fortress by Ripple caused a stir on social media, especially given that Klippsten has previously accused Ripple of fraud.

Of note is that Swan Bitcoin actively discourages customers from holding Bitcoin on its exchange, an industry best practice that has limited client exposure to Fortress.

Elsewhere, the press release was forward-looking and aspirational, with Klippsten seeking to highlight his desire to create a Bitcoin-only custodian that would satisfy his customer’s concerns, limiting their exposure to the cryptocurrency ecosystem of which he has been so publicly critical.

Founded in 2013, BitGo is a leading cryptocurrency custody company regarded for its security, though it’s notable that, after launching as a Bitcoin-only company, it would go on to add support for hundreds of crypto assets.

Still, the prospect of the creation of a Bitcoin-only custodian will likely find an appeal with Swan Bitcoin’s users, while Klippsten said they expect to serve company treasuries, asset managers, governments and on-ramps like Swan itself. Though in practice it remains to be seen whether there would be demand for the offering.

“With the Bitcoin-specific trust company, we’ll finally be able to deliver the product that marries the best of self-custody service with the components that require qualified custody. This has never been achievable before, because existing offerings focus on breadth of token support rather than the absolute best custody for Bitcoin,” said Swan Bitcoin cofounder and CTO Yan Pritzker. “The new trust company will offer Bitcoin-specific features such as institution-grade advanced wallet management capabilities, multi-institutional multisig, more ways for clients to hold their own keys, inheritance planning, and adoption of new Bitcoin standards as they emerge.”

For instance, some of Swan’s competitors in the Bitcoin-only brokerage space, such as River, already employ their own in-house custody solutions without third parties.

“For years we’ve heard from major clients, partners, and other Bitcoin companies that they would prefer a Bitcoin-only software and services stack, focused on strictly the best custody leveraging Bitcoin’s unique features,” said Klippsten. “Time has proven that altcoins come with risks on many levels. Demand will continue to grow for Bitcoin-only services that avoid many of those risks.”

14 September 2023 21:30