Self-Custody vs. Hosted-Custody
In traditional financial markets, only the concept of so-called “hosted-custody” exits. It means that a third-party administrates the ownership of asset belonging to a customer. E.g., a custody bank holds securities in the name of its client and every time the client wishes to do anything with the security, the client sends an instruction to the depositary bank to do so. With DLT, this third-party (usually a custody bank) can be eliminated. The custody of the shares can be carried out by the client itself, so that the client does not have to send instructions to another third-party any more - instead, the client directly sends instructions to the DLT-layer without a “man-in-the-middle”. This is called “self-custody”. It comes with the benefit of reduced costs (due to the removal of a costly party in the value chain) as well as enhanced security. Yet, DLT-settlements can be still caried out through hosted-custody while a custody bank manages the private key of the client.Private Key Management
The private key is the key to everything and you have to make sure that it actually stays private. Therefore, you can typically use providers which help you with that by offering SDKs and technology around private keys. The most popular providers are Dfns.co and Fireblocks (we prefer Dfns). They offer features like shardening (splitting the private key up in multiple parts, so in case of a leak, the attacker does not get access), recovery (what happens if a key is lost) and other security features (e.g., prevention of brute force attacks). The key management providers are implemented in a white-label way, so that the entire private key handling is not visible to your end-user/client. For instance, the private key shards are stored in enclaves on your clients devices and protected with biometric auth - so if your client wants to, e.g., sell a share of a fund, the transaction is authorised through biometric auth (e.g., face-scan or fingerprint-scan on the iPhone/Android phone), something your clients are already used to.Please reach out to us as early as you can regarding the implementation of private key management provider (or wallets-as-a-service solution). We are happy to help you with the choice and implementation. We are compatible with any solution/provider as we operate on the Polygon blockchain.
Security and Compliance
The Rime Finance fund vehicle is a financial institution and therefore obliged to meet the security standards of a bank/financial institution. In particular, any tokens (=shares) can only be sent and received by white-listed wallets. White-listed wallets are wallets of your clients which have been added by you calling our/accounts/ endpoint. Wallets can be black-listed as well, e.g., in the case that a client commits crimes or activities related to money-laundering. With the white-listing, we ensure that no malicious parties can exploit clients.