← Go back Aug 08, 2023
The last 18 months have been chilling for crypto enthusiasts as multiple security breaches, custody failures and outright fraud – such as at crypto exchange FTX in 2022 – scared off many would-be participants and stirred regulators across the globe into action. Investors who previously took custody of their cryptos for granted suddenly started investigating their options. In the past they had assumed crypto sitting in a wallet on an exchange should be safe. In most cases, this is true, but even exchange owners are encouraging owners to take their cryptos off exchanges and into what is called self-custody. Exchanges usually make no money from custody of your crypto (though they do when you buy and sell), so looking after your crypto costs them. That may change as exchanges are regulated as financial services providers (FSPs), and some may start to look more like banks – in which case, they may want you to hang around and see what other products they offer you. “Custody has become a huge issue all over the world,” says Jon Ovadia, CEO of , which offers an over-the-counter (OTC) service to high-net-worth individuals, institutions, brokers and others looking for higher crypto volumes than typically available on retail exchanges. “Customers are beginning to question the quality of custody services, since we are talking about digital assets and not all custody services are the same. “We store clients’ crypto in cold wallets, which means they are never connected to the Internet and can therefore not be hacked. Most exchanges use a combination of cold and hot wallets. Hot wallets are generally secure but are connected to the Internet. We decided against this model for security reasons, so we only offer cold wallets. This comes with a trade-off regarding the speed with which clients can withdraw funds, but we think – and our customers agree – that this is a trade-off worth making.” Another layer of security is the use of multi-signature wallets by OVEX. No single person can authorise the release of funds, reducing the risk of a single point of compromise. Moving any funds out of a wallet requires multiple signers with fragmented key shards. Another risk – not just to crypto service providers but businesses everywhere – comes as distributed denial-of-service (DDoS) attacks, which can disrupt services. OVEX has strong DDoS protection mechanisms in place to maintain availability, supported by firewalls and intrusion detection to prevent unauthorised access and cyberattacks. Sensitive client information is encrypted both during transmission and while at rest, and secure protocols such as HTTPS (Hypertext Transfer Protocol Secure) are used to encrypt communication between users’ devices and the exchange’s servers. As an additional security protection, clients are encouraged to enable two-factor authentication (2FA), which requires inputting a time-sensitive code from your mobile phone. “We also have periodic independent security audits and penetration testing to identify vulnerabilities and weaknesses in our infrastructure and software,” says Ovadia. “That’s quite apart from our internal access control, which means only authorised personnel have access to critical systems.” The collapse of FTX in 2022 has put crypto exchanges under pressure to undergo independent audits to prove that claimed reserves exist. OVEX has consistently segregated client and company funds and maintains a minimum 1:1 reserve – meaning its reserves are accurate and fully accounted for. The company’s financial books are audited annually by Mazars. All clients must undergo anti-money laundering (AML) and know-your-customer (KYC) procedures. “We have required this for years, even when regulations did not require this,” says Ovadia. “We are in the process of applying for licences in South Africa, the UK and France, and we are already licensed in Dubai and Australia. Customers want to know that you comply with local regulations, which we agree with, as there is no doubt that the industry needs regulatory oversight to weed out the cowboys and scammers.” Over the last year, the company has expanded to several African countries including Nigeria, Cameroon, Senegal, Ghana and Kenya. “We set out to establish the gold standard for crypto custody, because we see this as pivotal for promoting the mainstream acceptance of digital assets. The perceived lack of security has kept numerous institutional investors at bay from acquiring digital assets. Institutions managing large sums of money, such as hedge funds, pension funds, investment banks, and family offices, are generally required by regulations to partner with a legitimate custody provider that meets certain minimum standards to safeguard their clients’ funds. We set out to meet and surpass the minimum standards, and we have achieved that,” adds Ovadia. OVEX is best known in SA as an OTC desk for those looking to buy or sell cryptos in volume. Buying 50 bitcoin (BTC) on a retail exchange (at a current cost of R25 million) will require the order to be broken up into smaller parts, which may take hours or days to fill, with the risk of price slippage. OVEX has sufficient liquidity to execute large trades this size in seconds, without price slippage. Additionally, OVEX allows for a post-trade settlement facility to large-volume clients. Trade now and pay later. This is becoming a necessary feature of the crypto market as more corporations, large-scale investors, and exchange-traded funds (ETFs) jump on board the crypto train.
Read more: moneyweb
