Cobo was thrilled to co-host the inaugural Asia Institutional Investor Summit (AIIS) 2023 alongside leading industry partners like Antalpha, Bitmain, Metalpha and Antpool. This groundbreaking invitation-only event in Singapore convened over 300 esteemed leaders across cryptocurrency, traditional finance, and beyond - uniting top global institutions including miners, traders, stablecoin providers, custodians, family offices, asset managers and hedge funds. The energy was electric as we made history at this unprecedented summit tailored exclusively for professional institutional investors in the digital asset space.
Panel 1: Security challenges and solutions in digital assets management and investment
- Changhao Jiang, Co-Founder & CTO, Cobo
- Alex, CTO, Antalpha
- Wang Xinxi, Founder & CEO, Coinut; Co-Founder & Director, Litecoin Foundation
- Hao Chen, Legend Trading
- Feida Zhu, Associate Professor & Associate Dean, SMU
How does Cobo tackle different security challenges by using different wallet solutions?
Changhao: Having been in the crypto wallet industry for years, we at Cobo have witnessed various bear and bull markets as well as technological changes. Wallets serve as the gateway between users and blockchains. Primarily used for storing and trading digital assets like cryptocurrencies and NFTs, wallets unfortunately become prime targets for attacks. Their fundamental role as this critical bridge underlines why wallet security is so imperative.
A crypto wallet serves purposes beyond basic storage. There needs to be careful balance between implementing robust security and maintaining usability. Wallets should aim to provide strong protections without compromising an intuitive user experience. As a digital asset custody service provider, it is crucial that we at Cobo understand users' pain points, how they want to interact with blockchains and dApps, and their changing security requirements. Grasping user needs is critical for us to deliver an optimal wallet experience.
The technologies powering wallets have progressed exponentially over time. We've moved from basic single-signature wallets to more secure models like multi-signature, MPC, and smart contract-based (Account Abstracted) wallets. We have been continuously innovating to develop solutions tailored to diverse user needs. Throughout this process, we keep a rigorous focus on balancing robust security with an intuitive and seamless user experience.
Can you elaborate the difference between settlement with exchanges & third parties?
Changhao: Settlement with 3rd parties (Off-exchange settlement) would mean that users can deposit funds with a third-party custody provider and then conduct trades on exchanges using those off-exchange funds. This avoids having to deposit/withdraw from the exchange for each trade. This form of settlement is a common practice in the traditional finance space but yet to gain traction in the crypto space. Currently, many crypto users need to deposit their assets to exchanges, giving away control of their assets. Raising security issues as exemplified by the FTX incident.
Off-exchange settlement offers compelling benefits like reducing counterparty risk, yet remains niche as exchanges still control the industry with minimal incentive to outsource user funds management. However, from a practical perspective, transitioning to off-exchange settlement represents the more prudent path forward. Though it currently lacks mainstream adoption in the digital asset space, the inherent advantages of this practice position it as the logical solution with regards to ensuring the safety of user funds.
At Cobo, we have Cobo SuperLoop, which is the world’s first off-exchange settlement network that allows institutions to trade on exchanges while maintaining full control of their funds using our proprietary MPC-based co-managed custody.
For off-exchange settlement to gain adoption, external forces like regulation or institutional market demand will likely be necessary. Regulatory mandates separating user and exchange funds, or collective institutional pressure requesting off-exchange settlement for security reasons, could drive acceptance of this model. With the right regulatory and market conditions, this proven traditional finance approach is primed for accelerated crypto adoption.
What do you think of Account Abstraction?
Changhao: Account abstraction (AA) is the technology that makes smart contract wallets better. At Cobo, we welcome the concept of AA for its programming flexibility, allowing users to customize the wallet features to their preference. It unlocked features like meta-transactions, account recovery, withdrawal limits, and easy DeFi integration that were not possible before. However, AA has limitations - it does not support non-EVM blockchains. Whereas MPC wallets are compatible across all chains. Both MPC and AA wallet models have unique merits for different use cases, and should co-exist rather than being mutually exclusive. While AA enables certain capabilities, MPC provides cross-chain versatility. Understanding their respective strengths allows us to take a nuanced approach and employ the optimal wallet type per application.
At Cobo, we offer a range of solutions spanning various use cases and scenarios. Different applications call for tailored approaches, so we provide a spectrum ranging from full custody, co-managed custody, to self-custody wallet solutions. However, there are instances where users need solutions that overlap across models. We take a flexible approach to bundle these varied requirements, crafting customized solutions that strike the right equilibrium between usability, efficiency and security.
We focus on optimizing our wallet architectures for interoperability, enabling users to smoothly transition across solutions via standardized interfaces. We’re building in cross-functional capabilities like adaptable approvals, access controls, etc. By abstracting wallets into modular building blocks, we can deliver a streamlined user experience while retaining the flexibility to tailor for varied use cases. This modular approach lets us strike the right balance between consistency and customizability.
What is Cobo’s approach to risk management?
Changhao: Security has been paramount for us since Cobo's inception. We recognize risk management must align to specific use cases. Rather than prescribing frameworks, we provide foundational wallet technologies and a versatile toolkit enabling customized control. This includes our risk engine, role-based access controls and granular parameter controls - compatible building blocks for diverse needs. Clients can easily integrate these modular components to construct tailored solutions per application. Our flexible architecture accommodates emerging use cases. Due to the fact that requirements rapidly evolve, we focus on versatile infrastructure versus rigid systems. Our adaptable risk architecture empowers clients to engineer fluid solutions as needs arise.
What are your advice on security best practices?
Changhao: For tech-savvy individuals, self-managing blockchain assets with hardware wallets and personal key backups may work. However, others need centralized wallets. Looking ahead, we might see a trend for non-technical users to start using co-managed wallets, partnering with trusted providers. Rather than having to take on the responsibility of self-custody, users will be allowed to split custody in areas for asset storage and transaction approvals, etc. This co-managed custody approach can provide users greater comfort through collaborative oversight, making wallets more safe and user-friendly.
For small to mid-sized Web3 companies, we have a solution called Cobo MPC Lite. It uses a “2 out of 3” key-share scheme where Cobo will hold one key-share and the user will hold two key-shares, one for daily transaction signing and one for back-up and recovery purposes. The backup key-share will be securely stored offline at all times. With this form of co-managed custody solution, Cobo acts as a guardian to help users recover assets if needed, reducing the risks of managing assets individually (self-custody). Hence, the recommended best security practice is where users maintain control of their assets while benefiting from a 3rd-party security expertise, like Cobo. This blended approach solves the problems of sole custody without giving up full ownership of your wallets to third parties.
Panel 3: A New Asset Class: Digital Assets Investment & Portfolio Allocation
- Discus Fish, Co-Founder & CEO, Cobo
- Leon Lyu, CEO, Antpool
- MetaverseDrug, CIO, Metalpha
- Xmei Lin, Head of Marketing, Bitmain
- Peicai Li, Founder, Easy 2 Mine
- Min, Founder & CEO, TechFlow
Given the current crypto market conditions, what is your perspective on where things are headed in the coming months? What major trends or developments do you anticipate emerging that could impact the market?
Fish: Despite my prediction in March 2023 that the crypto downturn was ending, the bear market persists due to ongoing Fed rate hikes deteriorating sentiment and drying up liquidity. That said, we are seeing more integration between Web2 and Web3, with TradFi investors entering crypto through vehicles like ETFs. Although we are gradually seeing new money coming in, the Web3 industry overall remains exploratory. A new bull market could come soon but this bear market will likely persist longer. There needs to be emergence of new use cases and technologies to attract more users.
Current Challenges in Web3:
The crypto industry must overcome two key challenges to reach mainstream adoption:
- Provide easy fiat on-ramping/off-ramping.
- Make blockchain accessible for non-technical users.
Despite security breaches, solutions like Account Abstraction and smart contract wallets can enable intuitive yet secure fiat transactions and applications. This will be key for mass adoption. While blockchain technology matures, the application layer holds great promise to deliver on crypto's full potential. Intuitive user experiences are critical to unlock this.
Emergence of AI:
Emerging AI trends point to bots rather than humans directly managing crypto keys. Users would only need to understand a simple interface and set risk limits, with manual overrides when necessary. Combining intent-based programming, smart contracts, and AI could enable mainstream Web3 adoption by abstracting away technical complexity. This would allow traditional industry participants to embrace crypto tools and possibilities. AI-powered interfaces that minimize technical hurdles have strong potential to smoothly onboard traditional users.
What core investment principles or philosophies guide your decision-making when allocating capital to digital assets?
Fish: I avoid leverage trading and making emotional investment decisions. My strategy is to dollar cost average buy and hold for the long term. When facing black swan events or extreme volatility, I remain calm and stick to my plan.
For managing digital assets, security should always be the top priority. Teams can proactively strengthen on-chain security through internal controls, attack simulation preparations, and real-time blockchain monitoring. To prevent or address on-chain security issues, teams should implement internal risk controls, prepare defense plans against potential attacks, and use tools to monitor on-chain data in real-time.
In summary, when investing in crypto assets, it's crucial to 1) make level-headed decisions and not react emotionally to market swings, and 2) take measures to secure keys and monitor on-chain activity to optimize decisions based on market conditions.
What are your price predictions for BTC in 2024?
Fish: If crypto regulations become more favorable and the macroeconomic environment strengthens over the next year, I expect the price of BTC in Q3 2024 to likely be in the range of $40,000 to $60,000 USD, barring any other major influences on the market.
What do we do at Cobo?
Looking to enhance your security for your digital assets? At Cobo, we provide custody technology solutions to safeguard your digital assets. Our products are tailored to securely store assets for institutions, developers, and growing teams. Cobo aims to be a trusted partner for anyone seeking to protect their investments in the digital space.
Cobo is a pioneering omni-custody platform that offers the complete spectrum of custody solutions from custodial wallets to non-custodial wallets including MPC custody and smart contract-based custody, as well as Wallet-as-a-Service, a DeFi management platform (Argus), and an off-exchange settlement network (SuperLoop). Cobo is SOC2 Type I and Type II-compliance-certified, licensed in 5 jurisdictions, and backed by top-tier global investors.