Prime Trust Bankruptcy Highlights Self-Custody Dangers in Crypto

  • Prime Trust’s bankruptcy reveals systemic flaws in self-custody.
  • CEO of Anchorage Digital, Diogo Monica, underscores the importance of proper custody standards.
  • Current banking regulations, rather than new ones, can safeguard against such failures.

The Root Cause: Not Tech, but its Application

The collapse of crypto custodian Prime Trust wasn’t due to technological glitches, but rather its flawed application. In a revealing chat with Decrypt, Diogo Monica emphasized that Prime Trust’s downfall stemmed from their inability to harness their own technology, a grave error for a firm centered around custody. “An integration failure,” as Monica described, it painted a picture of a company lacking the technical prowess it claimed to possess.

Inside the “Wallet Incident”: A Cascade of Missteps

Last month, a filing in the U.S. Bankruptcy Court of Delaware by Prime Trust’s CEO Richard Lai unveiled a sequence of mistakes. The company inadvertently locked themselves out of their “cold storage” wallets, thereby losing access to vast sums in assets. Dubbed the “Wallet Incident,” Lai revealed that the firm persisted in using the said wallet even after procuring a newer solution from Fireblocks, a digital asset security platform. This oversight led to assets becoming irrevocably lost. Matters escalated when an unidentified client’s sizable Ethereum withdrawal request couldn’t be met. This was further aggravated by Prime Trust’s reckless investment in TerraLUNA, leading to a $8 million loss.

The Larger Picture: Custody Issues are Systemic

According to Monica, it’s impossible to separate Prime Trust’s custody issues from its financial blunders. He believes that the firm’s mismanagement sheds light on a broader custody-related challenge in the crypto sector. The historical lack of skilled custodians prompted many to opt for self-custody. Monica laments that even with the emergence of newer custodians, the industry hasn’t veered far from its initial self-custody course. He reminisces, “Three years ago, the absence of mature crypto standards and players misguided many.”

Regulatory Responses and The Road Ahead

Recognizing these challenges, the Securities and Exchange Commission (SEC) introduced a proposal in February. This new rule mandates investment advisers to separate investor assets and compels qualified custodians to provide the same assurance, encompassing digital assets. Monica, whose firm became the inaugural federally chartered crypto bank in the U.S. in 2021, vouches for traditional finance’s custodian

Don't forget to enable notifications for our Twitter account and Telegram channel to stay informed about the latest cryptocurrency news.

Latest News

Ripple CTO Unveils Tokenization Insights, Shocks XRP ($XRP) Community

Ripple's Chief Technology Officer, David Schwartz, has...

Normie Coin (NMC) Plummets After Major Hack: Investors on High Alert

Memecoin Normie experienced a drastic price drop...

Whale Acquisition of 953,177 $WIF with 17,966 $SOL Triggers Significant Price Surge

Cryptocurrency markets experienced a significant movement today...

PRO Analysis

Analysis Firm Reveals Key Drivers Behind Bitcoin (BTC) Recent Surge

<ul> <li>Bitcoin's recent price recovery has been analyzed...

Daily Crypto Market Analysis: BTC, ETH, CHZ, CORE, WIF Price Movements and Trends

Cryptocurrency markets have experienced significant volatility in...

Bitcoin (BTC) Price Analysis: Comprehensive Guide on Fintechzoom Trends and Insights

The cryptocurrency market has been abuzz with recent developments,...

Dogecoin (DOGE) Address Profitability Soars to 83%: Key Insights and Analysis

Dogecoin (DOGE) might be experiencing an immediate price plunge,...
Sheila Belson
Sheila Belson
Sheila Belson is a 20-year-old financial content editor who ventured into the realm of cryptocurrencies in 2023. Enthralled by the innovative world of non-fungible tokens (NFTs), she harbours a profound affection for Ethereum. With a sharp eye for detail, Sheila skillfully navigates the dynamic crypto landscape, continuously seeking to enrich her understanding and share her passion through engaging and insightful content.

Ripple CTO Unveils Tokenization Insights, Shocks XRP ($XRP) Community

Ripple's Chief Technology Officer, David Schwartz, has delivered an impressive one-minute explanation on tokenization that has stunned and enlightened the XRP community. ...

Bitcoin (BTC) Price Prediction: Crypto Exchanges Announce 1,200 Job Openings – Is a Major BTC Surge on the Horizon?

<ul> <li>Bitcoin (BTC/USD) is currently trading at $69,088, reflecting a slight decline of 0.33%, signaling a bearish Bitcoin price prediction.</li> <li>The cryptocurrency...

Normie Coin (NMC) Plummets After Major Hack: Investors on High Alert

Memecoin Normie experienced a drastic price drop after a hacker attack, resulting in a loss exceeding 99% within a minute. Such...