New Settlement Layer to Offer Asian Crypto Institutions Local Alternative to Silvergate Bank

Legacy Trust's digital asset division plans to create the first settlement layer in Asia for institutional investors trading both fiat and cryptocurrencies.

First Digital Trust (FDT) announced Friday its new rapid settlement and clearing network (RSCN) will provide custodian clients, including some of Asia's most prominent over-the-counter desks and financial institutions, with the means to transfer digital assets seamlessly across the region.

Based in Hong Kong, FDT also holds its clients' funds there because the territory's regulatory framework allows it to offer a custodial solution for both cryptocurrencies and fiat, making it possible for institutions to perform secure trades between the two asset classes.

"There isn't a similar service anywhere in Asia," said FTD COO Gunnar Jaerv, who added it was high time the region had a settlement solution of its own.

Asian trading constitutes a large percentage of total cryptocurrency trading volumes. But most of the region's institutional investors use the Silvergate Exchange Network (SEN), the settlement layer from California-based Silvergate Bank – one of the few regulated financial institutions to take clients that trade cryptocurrencies.

SEN is popular with traders. The settlement layer, which allows users to move USD between cryptocurrency exchanges, processed a record of more than 14,000 transactions in Q4 2019, an increase in 17 percent from the previous quarter.

But Jaerv said it compelled its clients in Asia to follow strict U.S. financial regulation, even if the trades would not otherwise involve American entities. He added that it seemed pointless for a region, home to some of the largest OTC desks in the world, like OSL, should take the "scenic route" by processing payments with a U.S.-domiciled institution.

"If they're trading with a U.S. counterparty then it might make more sense for them to use Silvergate exchange network, but if they're trading with somebody in Japan, Korea or Hong Kong ... it definitely makes more sense to use a local provider," Jaerv said.

Whereas Silvergate can only support U.S. dollars, any freely tradable currency, including the Singapore and Hong Kong dollars as well as euros, sterling and the greenback, can be used on FDT's RSCN. That gives clients a broader range of fiat exchange rates as well as more diverse options for purchasing cryptocurrencies, Jaerv said.

FDT, which was spun out of Legacy Trust in September, said the RSCN was currently in the testing phase, but a full launch is slated for sometime in May. The layer will initially be restricted to fiat and crypto assets but could be expanded to include other assets, like tokenized securities, sometime in the future, Jaerv indicated.