Custody & Institutional Security: The Cornerstone of Responsible Crypto Fund Management
Crypto is an industry filled with both tremendous opportunity and significant risk. Safeguarding digital assets is a crucial factor that demands careful attention for any institutional cryptocurrency fund. As the landscape rapidly evolves, so too does JellyC and our approach to keeping our money and that of our clients safe.
The Importance of Professional Crypto Custody
At JellyC, we have made the strategic decision to rely on professional custody solutions rather than holding assets on centralised exchanges, hot wallets, or cold storage. Third-party custody solutions are the only ones capable of offering bank-level security and safety as they provide the most robust level of third-party control.
Exchanges offer convenient accessibility, but they also introduce counterparty risk. JellyC is committed to effectively managing and minimizing this risk across our funds. By partnering with leading custody providers, we ensure that our clients' digital assets are kept secure in purpose-built custodial solutions. These custodians employ advanced security measures, including multi-party computation (MPC), multi-signature wallets, off-exchange collateral vaults, governance policies and more. This approach provides an additional layer of protection beyond what an exchange or self-custody could offer.
JellyC’s Custody Partners
Fireblocks
A digital asset security platform that helps financial institutions protect digital assets from theft or hackers by using breakthrough MPC and patent-pending chip isolation technology to secure private keys. Fireblocks enables JellyC to configure governance policies, eliminate counterparty risk when dealing with centralised exchanges, secure assets using cryptographic defences, and ensure compliance with staking and DeFi access.
Zodia Custody
Zodia Custody offers a proprietary custody platform that combines air-gapped, cold wallet storage built to government standards with real-time asset access for unparalleled security and operational efficiency. Their platform supports secure exchange connections, minimising counterparty risks with robust post-trade settlement processes. Enhanced by stringent monitoring, including tailored transaction approvals and fraud detection checks, the Zodia platform ensures full regulatory compliance.
Coincover
Coincover provides institutional asset managers with encrypted military-grade storage for key retrieval if disaster strikes and the assets are lost. Coincover ensures that JellyC’s security goes beyond what regulators deem necessary, providing both prevention and secure management.
Key Security Measures Explained
Multi-Party Computation (MPC): With MPC, private keys no longer need to be stored in one single place. The risk involved with storing private keys in one single location is referred to as a “single point of compromise.” With MPC, the private key is broken up into shares, encrypted, and divided among multiple parties. The private key for Fireblocks custodial software is split into 3 shares; 2 keyshares are held in different locations with Fireblocks & 1 keyshare is held with the Trustee, TAF Capital.
Multi-Signature Wallet: Multisig wallets require two or more private keys to execute a transaction. At JellyC, we typically implement 2-of-3 multi-signature schemes, where two out of three authorised signatories must approve a transaction before it can be executed. For higher-level transactions, we implement 3-of-4 multi-signature schemes, requiring two-factor authentication plus biometric signatures to complete a transaction.
Off Exchange Collateral Vault: This solution enables JellyC to trade on centralised exchanges from an on-chain MPC shared wallet, eliminating exchange counterparty risks. Fireblocks Off-Exchange leverages MPC technology to enable traders to allocate and mirror assets directly to an exchange from a mutually controlled wallet, protecting the principal from hacks, bankruptcy, and fraud while providing centralised exchanges with complete on-chain transparency that client accounts are fully collateralized.
Private Key Retrieval: Involves creating a secure backup of private keys, encrypted & stored in multiple geographically distributed locations. The 2 keyshares of Fireblocks and the 1 keyshare of TAF Capital are stored using the Coincover services. This is a non-custodial disaster recovery solution.
The Consequences of Improper Crypto Custody
The crypto industry has witnessed numerous instances of investors and funds losing their digital assets due to inadequate custody practices. From exchange hacks and insider theft to simple human error, the consequences of poor custody can be catastrophic. For crypto fund managers, the risks extend beyond just the loss of client assets to include regulatory scrutiny, reputational damage, and potential legal liabilities. Investors, both institutional and retail, are increasingly aware of the importance of custody and actively scrutinise fund managers' policies and procedures in this area.
Conclusion
By partnering with JellyC, an ASIC-regulated fund manager with a military grade custody solution, our investors should have the peace of mind that their digital assets are being safeguarded to the highest industry standards.