Crypto Custody: How Circle Stores USDC for Customers
Crypto Custody: How Circle Stores USDC for Customers
Alex BehrensSeptember 10, 2021
Custodying crypto plays an increasingly important role in the crypto capital markets, enabling institutional investors, corporations, and professional traders to more securely store their digital assets.
What is Crypto Custody?
Unlike traditional currencies, most cryptocurrencies are not held at a bank. Instead, digital assets are accounted for by a blockchain, a decentralized digital ledger, and accessed via private keys known to the user. These keys are used to access cryptocurrency holdings from a crypto wallet, whether a hot wallet that is connected to the internet or a cold wallet not connected to the internet.
To help prevent theft or loss of crypto assets, the keys allowing access to these assets must be protected at all times. As a result, many professional investors and large counterparties prefer to store their digital assets with a crypto custodian.
There have been several high-profile security breaches at cryptocurrency exchanges in past years, in which millions of dollars worth of digital assets have been lost. These incidents serve to highlight the crucial importance of securing crypto assets.
While digital currencies enable rapid, low-cost transactions across the crypto asset ecosystem, establishing a secure environment for their use and storage is vital for the adoption of digital investment assets and stablecoins.
The Circle Crypto Custody Solution*
An effective solution for custodying crypto assets needs to facilitate efficient usage of the digital currency and contain rigorous security controls.
Circle has devoted extensive time and resources to designing and implementing security measures of the highest standard.
Security controls for USDC in Circle’s custodying solution encompass multiple layers, including:
Hot wallet security
Digital asset theft insurance coverage
Risk & liquidity management controls
This multi-faceted set of storage protocols was designed to accommodate the stringent storage requirements of regulated financial institutions.
Cold storage operations protect both USDC deposited with Circle and privileged role keys for USDC. This is accomplished by storing them offline – in vaults that are geographically distributed to ward against the risk of multiple facilities in the same region being damaged due to a related event or series of events.
In addition to geographic distribution, Circle’s cold storage processes feature robust segregation of duty controls to ensure that no single person has the ability to individually complete a transaction using these keys.
Hot Wallet Security
A hot wallet facilitates online digital currency transactions. They are a type of online vault that can operate on different blockchains. Security of the private keys is paramount to protecting the digital assets stored within the wallet.
Circle hot wallet and key management is designed to offer a high level of security. The solution features proprietary, hardened security protocols protecting online assets from attacks that are commonly launched on digital wallets.
Digital Asset Theft Insurance Coverage
Digital currency custody and storage of USDC at Circle is protected by a comprehensive insurance package. The insurance coverage constitutes one of the broadest crypto asset theft insurance programs in the market.
Circle carries also insurance covering theft and loss in the case of a Circle wallet breach.
Risk & Liquidity Management Controls
To verify that all assets are accounted for, Circle’s custodied USDC assets are subject to regular attestations. Attestations are performed by Grant Thornton, a global accounting firm. Circle’s platform manages minting limits for USDC, tokenization to USDC, and redemption back to USD.
Circle risk, liquidity and compliance services and controls also feature detailed analytics tools that assist our risk and compliance operations analysts who perform ongoing AML and risk monitoring.
Embedded Custodying & Security Features
At no extra cost, all Circle Accounts and platform APIs feature custodying and security solutions that are embedded into all wallets infrastructure. These layers of defense serve as robust security controls designed to help safeguard all USDC held on the Circle platform.
Circle’s information security program is based on industry-standard security controls, while detailed security policies govern processes across the organization, including procedures for technology management, customer information handling, privacy, and more.
Circle’s security controls are bolstered by the utilization of management control testing. Additionally, the overall design and operating effectiveness of Circle security procedures is verified via multiple assessments.
*We maintain a money transmission license (or the statutory equivalent) in various U.S. states and territories, as well as a virtual currency license in the State of New York, and are therefore subject to the requirements of such statutes. We are not a trust company nor do we maintain a trust company charter in any U.S. state or territory. Accordingly, any regulated services we provide to users located in the United States are characterized as money transmission and/or virtual currency business activity, and not as trust services. Additionally, for the avoidance of doubt, Circle is not a fiduciary, and Circle does not provide any trust or fiduciary services to any user in the course of such user visiting, accessing, or using the Circle website or services. Any reference to custody services in any Circle User Agreement refers only to our custody of digital assets on a user’s behalf pursuant to the authority granted under our money transmission and/or virtual currency licenses. Circle is not (i) a Qualified Custodian pursuant to 17 C.F.R. § 275.206(4)-2 or (ii) a “digital custodian” as such term is defined by the Nevada Financial Institutions Division.