Gatecoin Ltd., a Hong Kong-based digital currency startup, has launched a digital currency exchange with a bitcoin trading platform that keeps clients’ cash deposits in segregated accounts to minimize exposure to risk. Gatecoin, incubated by the Hong Kong Science and Technology Parks and Tsinghua University, cites segregated client accounts as a groundbreaking feature for bitcoin, with more innovative bitcoin services in the pipeline.
In announcing its new trading platform, Gatecoin noted that it keeps clients’ deposits in segregated accounts to “minimize counterparty risk.” (According to Investopedia,com, “counterparty risk” refers to the risk that both parties assume in a financial contract, also known as “default risk.”)
“Segregating client bank accounts is standard practice within the forex (foreign exchange) industry, but non-existent in the bitcoin space,”
said Gatecoin co-founder and CEO Aurélien Menant in an email to CCN.
“Keeping clients’ deposits in segregated bank accounts ensures that the clients’ funds are protected and, therefore, drastically minimizing counterparty risk. Client segregated accounts mean that we have both an operating account, where we collect the fees from the transactions and that we use to pay our expenses, and a client account, to store client deposits and send withdrawals. The benefit of it is that the money sitting on the latter is registered as not belonging to us and thus cannot be seized.”
The Federal Reserve seized Mt. Gox client deposits, Menant noted.
“Clients’ deposits were mixed with Mt. Gox operating cash, e.g. the company’s money, on the corporate account, so it could not be distinguished from corporate’s money account. When they got fined for a total amount of $5 million by the Fed during summer 2013, this money was seized from both their accounts on Dwolla and Western Union, on which most of the money was clients’ deposits.”
Segregating client accounts requires establishing a transparent partnership with banks, Menant further noted. Gatecoin has developed such partnerships with financial institutions across the globe.
With bank accounts in more than 40 countries on five continents, clients in those countries will be able to transfer their money for less cost. Gatecoin’s global exchange platform allows users to trade bitcoin in USD, Euro, and HKD, using its low latency matching engine. Gatecoin will also integrate Ripple into its trading platform in the next few weeks.
Gatecoin stores bitcoins on a multisig cold wallet and the system is continuously monitored and audited by an external IT security firm. For the launch, Gatecoin offers 15 days of free trading for new users on their platform.
In addition, Gatecoin will be rolling out a white-labelled debit card that can be used to shop globally without incurring foreign transaction fees. Debit card users will reload online instantly using bitcoins, according to Gatecoin. The debit card offering is a result of a partnership with Aerapay Ltd., a bitcoin-approved Mastercard issuer. Gatecoin operates the bitcoin-loaded prepaid cards that are white-labelled and resold to merchants.
In the next few months, Gatecoin plans to implement other seamless transfer solutions and additional features. Founded in 2013, Gatecoin is a money service operator licensed in Hong Kong and will soon obtain its money service business licenses in the U.S. and Europe. Gatecoin has raised $150,000 from angel investors and are looking to raise more funds in the coming months, according to a company spokesperson.
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