Citadel-Backed EDX Taps Anchorage to Custody Crypto

EDX Markets, the crypto exchange backed by Charles Schwab and Citadel Securities, is moving ahead with Anchorage Digital as its custodial partner.

(Bloomberg) — EDX Markets, the crypto exchange backed by Charles Schwab and Citadel Securities, is moving ahead with Anchorage Digital as its custodial partner.

The crypto exchange, which went live to clients this year, said the partnership would allow EDX to settle trades matched on their exchange through its own clearinghouse business. That clearing business is slated to go live next month, according to Chief Executive Officer Jamil Nazarali.

The partnership comes at a challenging time for the asset class, which in August has seen a fresh wave of selling and hits to token prices. 

“As the crypto asset class is maturing, we are separating the role of the custodian and exchange,” Nazarali said in an interview. “Customers don’t need to tie up assets, parked at an entity where they aren’t sure what’s going on,” he said.

The custody partnership with Anchorage is critical for EDX, because the new exchange touts a “non-custodial” model so that it doesn’t hold clients’ digital assets during trading. That contrasts with existing crypto platforms such as Coinbase Global Inc. and Binance Holdings Ltd.

Crypto has been struggling to match the growing demand for third-party custody providers since the collapse of FTX and other high-profile crypto platforms last year, which left investors that stored their tokens at those venues nursing millions in losses. 

In that post-FTX evironment, crypto exchanges drawn criticism for a failure to separate business including custody, market-making, and trading, which can result in conflicts of interest and result in the manipulation of funds. 

Read: Wall Street Grapples With Trillion-Dollar Crypto Custody Dilemma

EDX aims to offer a model which mirrors the way assets are held and settled for trading stocks and bonds. The idea is that institutional investors can choose to custody their assets with a custodian “they know and trust, and feel it’s only tied up for a short period of time, which looks a lot more like it does in traditional finance,” Nazarali said.

Nazarali said that the firm would consider adding other custodial partners beyond Anchorage if their customers ask for it, but chose to launch with the one custodian to start. 

“We’re getting closer to the tested solutions you see in the traditional financial world,” Diogo Mónica, founder and president of Anchorage Digital said. “It’s a market structure change for crypto investors, combining the best of both worlds,” he said.

San Francisco-based Anchorage Digital Bank has a bank charter from the Office of the Comptroller of the Currency, and is the subsidiary through which Anchorage Digital provides its custody services. 

Last year, the OCC said the bank did not have key money-laundering controls in place and that its compliance program lacked the staff and internal processes to verify customers. Anchorage, which didn’t admit or deny the OCC’s findings, agreed to correct the issues.

Anchorage is backed by Goldman Sachs and by private equity firm KKR & Co, with a valuation of $3 billion as of its latest founding round in 2021. In March, Anchorage laid off about 20% of its staff, but said the cuts would not affect its custody division.

EDX’s backers include market makers Citadel Securities and Virtu Financial, and investment firms Fidelity Digital Assets and Charles Schwab. Bloomberg reported in June that EDX had partnered with and subsequently dropped Paxos, which was known for issuing a Binance-branded stablecoin that had come under significant regulatory scrutiny,

Read: Crypto Crackdown Puts Binance-Linked Token in Crosshairs 

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