TeraExchange Brings Multisig Security to Bitcoin Derivatives Platform

TeraExchange has announced a new partnership with bitcoin security firm BitGo, a deal both parties view as a step toward bringing traditional trading standards to the bitcoin industry.

The partnership, the companies said, will position TeraExchange as the only player in the bitcoin exchange industry to provide clients with the ability to collateralize bitcoin derivative trades.

BitGo will provide multi-signature block chain services for the USD/BTC swaps on TeraExchange's platform, and in turn, TeraExchange will provide its clients with multi-signature escrow accounts where neither party has authority to execute funds without the other's authorization.

TeraExchange said the integration with BitGo provides an alternative to the third-party custodianship model that pervades the bitcoin industry. Users will maintain a BitGo Enterprise account and establish multisig custodial wallets, while BitGo’s platform will hold deposited bitcoins as collateral for USD/BTC swaps recorded on the block chain.

BitGo CEO Will O'Brien told CoinDesk that, while common to the traditional financial world, such custodianship models have yet to permeate the bitcoin exchange sector, saying:

"The model is not new to the financial world, to the swaps world, it’s not new to the executives at TeraExchange. [...] It’s new to the bitcoin industry and it’s finally catching up to what the financial world knows, which is separation of custodianship from exchange operation."

Christian Martin, CEO and co-founder of TeraExchange, further positioned the deal as one that would open up new firsts for the bitcoin industry.

“Historically USD or other fiat currencies, US Treasuries and investment grade debt has been used to collateralize trading activity," he said. "Now in addition to XBT being included in that menu of collateral – this is also the first time that the block chain is serving as the collateral repository for a regulated product on a regulated exchange.”

More choices for market participants

The news is the latest sign that TeraExchange is seeking to extend the appeal of its USD/bitcoin swaps to a more mainstream audience. The company became the first regulated US bitcoin derivatives trading platform this September, when it received regulatory approval from the Commodities Futures Trading Commission (CFTC).

Martin said that the relationship with BitGo is driven by the company’s desire to provide its clients with added security for their trading activity.

“This allows market participants to transact knowing the counterparty to their trade is appropriately margined on trade date then throughout the lifecycle of the transaction until maturity and final cash flows,” said Martin.

TeraExchange believes its target audience for the offering will extend beyond traders, to bitcoin businesses that want to better manage their bitcoin finances to guard against volatility.

Gregory Simon, CFO and co-founder of Ribbit.me, said in a statement:

“The TeraExchange marketplace enables us to hedge our bitcoin price volatility risk, and BitGo’s service gives me the peace of mind that my company’s bitcoins are stored on the block chain with the industry’s best security technology and standards.”

New possibilities for bitcoin ecosystem

O'Brien sought to frame the announcement as one that provides evidence of how increased interest from the traditional finance industry will shape standards for bitcoin trading, and for how the industry itself is taking security more seriously in the wake of Mt Gox.

The CEO further suggested that his firm won TeraExchange's business due to its status as an early market player, suggesting that its technology, team and funding provided validation for its enterprise offerings.

"These are veteran guys in the financial services sector and they know who to pick, so we’re finding more and more that our customers are reaching out to us through referrals from our existing customer base, because it’s a matter of: you want to choose a platform that you can scale on and that you can trust the service provider," he said.

However, he was gracious when acknowledging potential competitors who may be seeking to extend multsig technology to new verticals, welcoming the new competition from Coinbase, which introduced its consumer-facing Multisig Vault last week.

He concluded: "I think multisig is absolutely a critical standard that every wallet, every service provider, every exchange needs to adopt."

Additional reporting contributed by Nermin Hajdarbegovic

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