While crypto exchanges halt trading and others close their doors, here is what Altify does to manage counterparty risk.

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Recently, crypto derivatives exchange CoinFLEX announced that it is discontinuing account withdrawals on its platform, citing trouble with a counterparty close to their platform. 

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“Due to extreme market conditions last week and continued uncertainty involving a counterparty, today we are announcing that we are pausing all withdrawals,” CEO Mark Lamb wrote in a company blog post on the 23rd of June 2022.

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CoinFLEX is not the only exchange halting withdrawals - multiple exchanges and lending partners are coming under pressure. On the 13th of June 2022, Celsius, a cryptocurrency lending platform, said in a memo to clients that it was pausing all withdrawals “due to extreme market conditions.” 

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What happens when trading is halted?

During extremely volatile market conditions, exchanges may halt the trading of your assets.

In simple terms, this means that your assets are frozen, for the time being, rendering you unable to trade, withdraw or transfer your assets. Extreme asset volatility can occur for many reasons, such as a sudden rise/drop in price due to recent news events, unusual trading activity, or changes in the underlying assets system.

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So what exactly is counterparty risk?

In a transaction, the counterparty refers to the entity or person on the other side of said transaction. This can include deals between individuals, businesses, governments, or any other organisation. Counterparty risk is the probability that the other side of your transaction (your counterparty) may not fulfil its part of the deal and may default on their contractual obligations.

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History has shown that counterparty risk can be detrimental to individuals, businesses, countries and the global economy. The 2008 Global Financial Crisis is a good recent example of this. In short, we saw reckless lending by banks to individuals who used the money to purchase property, which caused property prices to increase dramatically. When the economy turned, and unemployment increased, individuals were unable to pay back their loans, forcing the major institutional lenders into bankruptcy as their counterparties (the individuals and businesses they loaned to) defaulted.

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Fast forward to today, and counterparty risk is still highly prevalent in the crypto market. Many funds and exchanges are currently facing bankruptcy as they struggle to recoup their assets from struggling borrowers.

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What is Altify doing to mitigate counterparty risk?

In order to mitigate counterparty risk, Altify only places assets with providers who meet the following criteria:

• The entity must have been in existence for at least 3 years;
• The entity must have insurance;
• The entity must be of good standing within the crypto industry; and
• The risk associated with the lending protocol must be fully understood and documented.

Before any assets are placed with a new counterparty, the Investment Committee must approve the counterparty. In addition, Altify will continue to monitor the counterparty's reputation to ensure that the counterparty maintains the appropriate counterparty standards. Should the counterparty no longer meet the criteria of an approved counterparty, then Altify needs to remove any assets placed with the provider.

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What does this mean for me?

We take nothing more seriously than the security, accessibility, recoverability and stability of your assets.

We’d like to assure you that your funds are secure, and we continue to operate as normal.

As you may know, we’re the only platform in Africa to perform quarterly independent audits of our reserve assets. 

We’re proud to have Mazars, a leading international audit, tax and advisory firm, verify and attest that your assets custodied with us are held securely and are fully collateralised. You can download our latest proof-of-reserves report here to learn more.

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