Digital Surge looks to simplify managed custody for customers
Brisbane-based crypto exchange Digital Surge is investigating managed custody and regulatory hurdles facing the sector to create a more secure trading environment for customers in the wake of the FTX collapse.
Caught up in the FTX failure, Digital Surge went into Voluntary Administration in December 2022 but worked tirelessly with Administrator KordaMentha to put together a rescue package to avoid liquidation.
Customers ultimately voted in favour of Digital Surge’s rescue package which included a $1.25 million personal investment from the co-founders. The plan saw customers owed up to $250 repaid in full and others paid 57 per cent of their balance immediately, with the remaining 43 per cent to be repaid over five years from profits of the company.
With co-founders Dan Rutter and Josh Lehman now back in charge and the Digital Surge platform open again for trading, the company is looking to apply lessons learned.
“During this entire process, our priority has been to get the best outcome for customers, and we are continuing to find ways to make trading and storing digital assets safer and more secure,” said Digital Surge Co-Founder and CEO Dan Rutter.
“One potential way to do this is to build true managed custody within the platform, which would ensure that through whatever situation arises and whoever is involved, the legal ownership of the asset remains with the customer.
“There are some legal and regulatory hurdles to doing this in Australia, as well as some technical issues, which we are currently looking at.
“We’d like to work towards a way to manage customer assets on the platform while making asset storage safe and simple so that from a legal perspective, custody remains with the customer under any circumstance,” Rutter said.
Co-Founder Josh Lehman said Digital Surge is now working to build more robust corporate governance, counterparty risk, and risk mitigation processes into the business.
“We are working with experts that we met through KordaMentha to review and strengthen our overall business practices,” he said.
“The FTX collapse has pushed the issue of validating proof of reserves across the entire crypto sector internationally.
“There isn’t a clear definition of what a one-to-one reserve is, or clarity on where those assets are held, and the sort of counterparty risks associated with it.
“This has been a discussion in the industry for some time, and the FTX collapse was perhaps a catalyst to move forward on several regulatory measures.”
Lehman said Digital Surge’s purpose from the very beginning was to simplify the full digital asset experience for customers.
“Back in 2017 when Dan and I started the company, it was very complicated to buy crypto and we thought ‘let’s try to fix that’. That’s why Digital Surge was born.
“Right now, what’s difficult in crypto is to find a place where customers can feel safe that the legal ownership of the assets remains with them so that whatever happens, those assets are their own,” Lehman said.