In a right-in-your-face stunt, InVault begins offering its cryptocurrency custody services last week in China despite the mainland ban. The Shanghai startup proposes to attract cryptocurrency exchanges as its primary clients, believing they should avoid the moral hazard of holding clients’ assets.
A custodian, in a traditional sense, holds clients’ securities or cash for safekeeping – in both electronics and physical form. China’s implicit ban on keeping and trading cryptocurrencies could arguably disallow an organization to hold assets that 1) are virtual currencies, and 2) belongs to companies with no legal status in the mainland.
But InVault seems to have found a way to circumvent the ongoing crackdown. The startup offers a decentralized corporate cryptocurrency wallet service, meaning that there would not be a central control over the safeguarded funds. InVault will instead be the custodian of users’ private keys. Local media reports hint that the startup will keep the users’ private keys secured in several Physical Vaults. Only authorized personnel will have access to these safes.
Kenneth Xu, chief executive and founder of InVault, said the only way by which cryptocurrencies can be secured is with the absence of human oversight.
“Today, the vast majority of cryptocurrency exchanges globally still involve their senior management in managing the transfer of digital tokens ordered by clients. Putting the private keys to your cryptocurrency assets in the hands of senior management is akin to putting all your money in their control,” said Xu, speaking to the South China Morning Post.
China’s Crackdown Insufficient to Enforce Crypto-ban
The launch of InVault occurs during tensed times. China’s financial and market regulators had recently stepped up its crackdown against the local crypto operations. During the chase, they blocked access to 124 offshore crypto-exchanges that were providing trading services to Chinese investors, banned events that were to discuss cryptocurrencies and enforced local companies, including WeChat and Alibaba, to monitor and report their users involved in crypto activities.
Chinese crypto companies continue to offer services to Chinese investors from offshore despite the ban. KYC-enabled money exchanges have been replaced by peer-to-peer commerce, which could dampen the regulators’ efforts towards enforcing the crypto-ban overall. Furthermore, fugitive exchanges have started to work under the different domain names, making it difficult for regulators to improve their mouse-chase.
Terence Tsang, the chief operating officer of TideBit, which offers centralized crypto-exchange services in Hong Kong and Taiwan, said in a statement to the local press:
“The latest warning and potentially increased monitoring of foreign platforms is targeted at a batch of smaller exchanges that had claimed to be foreign entities, but are in fact operating in China claiming they have outsourced their operations to a Chinese company.”
Meanwhile, InVault has already scored its first major deal from an undisclosed cryptocurrency exchange for the custodianship of one million Ethereum tokens.