Investment fund manager M31 Capital chose Anchorage Digital Bank to hold custody of the $100 million Web3 Opportunity Fund it launched in October.

Founded in 2020 by CEO Nathan Montone, M31 now has five different funds driving the move towards decentralization and has already amassed many big names in its portfolio: Ethereum Name Service, Arweave, Cosmos, and Helium.

Anchorage seemed like a natural choice because the bank allows its crypto custody clients to participate in the governance process that drives so many DeFi projects, though M31 COO Michael Swensson said decipher It is a very demanding role to play.

“We try to be actively involved in whatever we invest in. It is a strategy that requires a lot of resources, but we believe it is the right strategy,” he said. “Specifically because of where the gap is and how early it is.”

Access to the DeFi governance process and opportunities to earn returns on deposits help, but in a post-FTX world, institutional crypto investors have a new barrage of questions for custodians, according to Diogo Monica, co-founder and president of Anchorage Digital. .

“I ended by saying that we ended up getting a bigger piece of a smaller pie,” Monica said. decipher on Monday. “It’s a bigger slice because now everyone comes to Anchorage because they want a bank.

“They want reliable security. They want auditability. They want SOC1, SOC2,” she added, referring to Security Operations Center reports that are standard in traditional finance. “They want remote bankruptcy. A year ago, no one was talking about the remote control of bankruptcy; Now it’s the first question people ask.”

For a company to be remotely bankrupt means that it is organized within a corporate group such that any of its lines of business are minimally affected if another files for bankruptcy.

This is a very timely concern, given the more than 130 entities that filed for Chapter 11 bankruptcy protection along with FTX in November and lingering questions about whether parent company Digital Currency Group could survive if its trading desk, Genesis, is unable to file the $900 million must customers.

Anchorage, founded in 2017, earned its Statute of the Office of the Comptroller of the Currency (OCC) for Anchorage Digital Bank in early 2021. That makes it the first and, as of this writing, the only federally chartered crypto bank in the US. That distinction has made it the Department’s Bank of Choice of Justice, which chose Anchorage to guard the seized crypto assets.

From what Monica has seen, the FTX crash last month triggered a flight of institutional investors to safety, but not back to US dollars. Rather, there has been an influx of customers into independent crypto custodians protecting a customer’s assets and private keys.

He said that he has long been critical of exchanges acting as custodians, but added that it has been difficult to get people to pay attention as it can be seen as a selfish comment.

“We’ve been telling everyone, ‘Look, the reason we’re a custodian that only serves institutions is because we don’t want conflicts of interest,’” Monica said. “Specifically, we have always told everyone who cares to listen that custodial trades are wrong. It is wrong in the traditional world. The Nasdaq does not do custody. NYSE did not do custody. Other custodians do it. It’s wrong because there is no multi-party integrity.”

Multiparty integrity means that two different firms could check their ledgers to confirm that a client’s funds are where they’re supposed to be and that the client has as much money as they say they do.

“This is just a basic primitive that was built in the traditional world to make sure there aren’t issues like on FTX where the ledgers are mislabeled or whatever,” Monica said. “That’s just a solid foundation for a good market structure that we’ve never had in crypto because exchanges came out of nowhere and they do everything: yield generation, participation.

“They do it for institutions, they do it for retail. They trade, they guard, they liquidate,” she added. “They do everything, which are all different entities in the traditional world.”