New York-based cryptocurrency exchange, EDX Markets, has reportedly made a significant shift in custody arrangements, dropping its previous partnership with Paxos and entering final negotiations with Anchorage Digital for a new collaboration. The earlier pact with Paxos, announced in October, would have directed EDX’s clients to Paxos for the custody of their digital assets while allowing Paxos customers direct access to EDX. However, EDX has now explored a new custodial partnership to support its unique “non-custodial” model.
EDX Markets, backed by renowned firms including Citadel Securities, Fidelity Digital Assets, and Charles Schwab Corp., aims to differentiate itself from existing crypto platforms like Coinbase Global Inc. and Binance Holdings Ltd. by adopting a non-custodial approach. In this model, the exchange does not hold clients’ digital assets during trading, reducing potential conflicts of interest. The move aligns with the vision of Securities and Exchange Commission (SEC) Chair Gary Gensler, who has criticized existing crypto platforms for failing to separate different parts of their businesses, such as custody, market-making, and trading, which could lead to conflicts.
Although a spokesperson for Paxos commented on the partnership change, they did not disclose the specific reasons for the shift. Also, the spokesperson did mention that EDX has changed its focus to a non-custodial offering, and Paxos is excited about what EDX is building. Furthermore, Paxos hopes to support EDX customers with their regulated custody once banks and brokers are onboard to the platform.
Finding a reliable custody partner is crucial for EDX’s success, and Anchorage Digital seems to fit the bill. The San Francisco-based crypto custodian holds a bank charter from the Office of the Comptroller, lending credibility to its operations. Despite facing scrutiny from regulators, including an inquiry regarding money-laundering controls and a subsequent consent order to rectify deficiencies, Anchorage Digital has positioned itself as a reputable player in the industry. Anchorage Digital’s partnership with EDX is already indicated on the exchange’s website, while Paxos is notably absent from the list of vendors and partners.
The decision to switch to Anchorage Digital as a custodial partner may be attributed, in part, to the recent developments concerning Paxos. In February, the blockchain company received a Wells notice from the US Securities and Exchange Commission, which indicated potential legal action relating to Paxos’ stablecoin, BUSD, and its alleged classification as a security. Paxos, however, expressed disagreement with the notice and is prepared to litigate if necessary. These regulatory challenges and the expiration of Paxos’ preliminary conditional approval for a US bank charter may have prompted EDX’s search for a new custodial partner.
EDX future plans
EDX, which commenced operations just a week ago, has already gained significant traction in the market. It is essential to know that the exchange supports trading in four prominent cryptocurrencies: Bitcoin, Ether, Litecoin, and Bitcoin Cash (BCH). Notably, BCH has experienced a remarkable surge of 70.43% since EDX’s launch and an impressive 101.36% increase over the last month, highlighting the exchange’s potential to attract investors.
The shift in custody providers comes as the United States Securities and Exchange Commission proposes stricter custody rules for crypto firms. EDX’s decision to focus on a non-custodial offering aligns with the evolving regulatory landscape and reflects a commitment to ensuring transparency and avoiding conflicts of interest.
Cryptopolitan reported that EDX is also planning to introduce EDX Clearing, a clearinghouse to settle trades executed on the EDX Markets platform, later this year.
