Feb 27, 2022

How Coinchange Mitigates Custody Risk

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Risk in the cryptocurrency and DeFi (decentralized finance) markets don’t just come with trading - an increasing issue and concern is the safety of your funds while being stored in custody, whether online or offline.

That’s why making sure you’re educated and aware of potential mishaps and issues is extremely important in this regard. Here are some common occurrences of custody risk in DeFi and what can potentially go wrong.

Compromised Private Key

Owning your own private key is absolutely fundamental in terms of protecting your funds. As the famous saying goes, “Not your keys, not your coins.”

Whether you own a physical offline wallet for cold storage or a Web3 wallet, your private key could still be at risk of being compromised. It’s important to never store it on an electronic device and only enter it when connected to the internet as a last resort.

Software Flaws & Malicious Employees

When it comes to using any application or wallet, all of them are always subject to some type of software or hardware error. Bugs are common in the technology space, and while these companies work around the clock to spot and correct any issues, these are inevitable from time to time.

Malicious employees can also pose a risk to your assets, as they’re within a project’s custody and employees have access to the underlying tech. If there are employees who choose to conduct bad behavior, they have the ability to compromise user funds, negatively alter the project, and more.

Centralized Exchanges

Holding your tokens on a CEX (centralized exchange), while attractive in many ways given the ease of use and access, has its downsides in terms of asset protection and security. Remember, the exchanges own your private keys and therefore your assets.

Over the years, large cryptocurrency exchanges have been known to halt trading during volatile times, freeze asset transfer capabilities, get hacked and lose user funds, and much more.

Cross-chain Bridge Risks

In order to reap the benefits of other chains in the DeFi realm, users often elect to “bridge” their assets, or transfer them from one chain to another via an application. Although the process is appealing, particularly when moving from an expensive network to a more inexpensive and efficient one, it often comes with various risks.

In particular, when you move a digital asset to another chain, you’re exposing it to an increasing number of security verifications per network - this leaves your assets exposed to risks such as 51% attacks or getting bridged assets that do not have liquidity in the target chain to trade it to the native version, leaving you with unusable assets which need  to be bridge back incurring high fees. 

Coinchange Keeps Your Assets Safe

Our platform has the answers to address these growing problems and concerns when it comes to asset custody. We’ve established several partnerships with third parties that provide high-grade security standards across the board.

Our partnership with Fireblocks means that users are covered under a $30 million insurance umbrella in the event of cybersecurity threats, malicious internal company activities, and more. Next is our collaboration with Coincover, helping make the asset recovery process smooth whenever private keys are lost. Last but not least, we’re continuously fully audited by Grant Thornton to ensure we practice what we preach. 

The team at Coinchange has dedicated our efforts to putting the best standards in place to reduce custody risk as much as possible. 

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