sFOX’s approach to risk management and client protection

sFOX risk management

The crypto industry is known for unexpected twists, roller-coaster prices, and fortunes that appear and disappear overnight. The New York Times titled the FTX crisis the “Crypto’s Lehman Moment,” someone can refer to it as the Dot-com bubble or as another victim of the Federal Reserve.

Regardless of how crypto and non-crypto watchers classify it, the market is experiencing another tension, with the major exchanges struggling with liquidity and posing several questions about the exchange’s reserves.

At sFOX, we are taking the FTX collapse as an opportunity to reflect and analyze the company’s model as a key to the security of our clients.

The FTX saga

On November 2nd, Coindesk reported that Alameda Research, a trading firm founded by Sam Bankman-Fried and tied to FTX, held a remarkable number of FTT tokens on its balance sheet. FTT is the token issued by FTX.

A few days later,  Changpeng Zhao, the Head of Binance, said his company would sell all of its holdings — about $580 million — in FTT, “due to recent revelations.”  His announcement rattled investors and caused FTT to plummet.
The collapse of FTT, the native FTX token, had created contagion fears that have sent crypto markets spiraling downwards, directly connected to a withdrawal/bank run on the FTX exchange and the rumored illiquidity of algorithmic trading firm Alameda Research.

On November 8, 2022, Zhao revealed that his company was set to acquire FTX. He detailed that FTX asked for help and noted there was a “significant liquidity crunch”.

However, on November 9, 2022, Binance backed out of the FTX rescue, as a result of corporate due diligence, leaving the crypto exchange on the brink of collapse.

How at sFOX institutional clients can engage with digital assets, securely

We provide global connectivity to multiple venues to mitigate counterparty risk

In a rapidly evolving market like crypto, where liquidity is still globally fragmented among literally hundreds of trading venues and exchanges experience unplanned outages or collapse in times of market volatility, the best place to exchange cryptocurrency may not be on an exchange at all.

sFOX was built by traders from MIT to help buy-side and institutional investors navigate the increasingly fragmented digital asset marketplace. We have aggregated the top exchanges and liquidity providers in the market, allowing our customers to execute into various liquidity pools. sFOX provides a fully integrated, master order book of 30+ top exchanges, OTCs, across 80+ markets, providing 10x deeper liquidity than any other single exchange.

As a result, with sFOX institutional clients:

  • Can execute larger trades at a higher frequency without impacting the market;
  • Can rely on a platform that is reliable, secure, and available when they need it most, especially in times of high volatility;
  • Take advantage of the aggregated liquidity and can access the best price execution through our smart order routing;
  • Find tighter spreads at all trade sizes;
  • Don’t need to deal with each counterparty but only with one single, US-based and regulated partner, mitigating risks and reducing inefficiencies;
  • Will never miss an opportunity: in the scenario of an exchange down for maintenance (or for insolvency or bankruptcy), our engine allows us to route orders to other venues and provide clients with additional protection.

We combine trading capabilities with a secure, bankruptcy-safe custody solution

At sFOX, we are bringing trading alongside custody, building our institutional product suite to provide institutions with the most seamless, scalable, and trusted solution to manage crypto assets.

Security has been a pillar of sFOX since its inception, with an unparalleled track record of protecting client assets at scale for over eight years. We are reinforcing our commitment to serving the Institutional market through SAFE, our secure custody solution that provides an efficient and cost-effective way to preserve digital assets.

SAFE offers $200 million in insurance coverage provided by various syndicates at Lloyd’s of London, led by Arch Syndicate 2012. It’s regularly audited, and SOC 2 compliant, meaning that it is subject to the compliance standards of a traditional financial institution.

Our record of security is founded on our commitment to regulatory compliance, including our registrations, charters, and licenses that hold us to a fiduciary standard for our clients.

SAFE Trust Co. is a public trust company regulated under Wyoming law, operating as a standalone, independently capitalized affiliate of sFOX. SAFE Trust Co. provides custody account solutions with bankruptcy protection in the unlikely event of insolvency of SAFE Trust Co., and we will never repurpose clients’ funds. Unlike other exchanges, SAFE Trust Co. is subject to heightened regulatory requirements under the Wyoming Division of Banking and the Wyoming Trust Code.

As a result, with SAFE institutional clients:

  • Can store and protect their digital assets with a US–regulated, custodial solution, with bankruptcy protection;
  • Trade from the comfort of their custodial trust accounts without tedious and costly transfers while maintaining the highest security standards;
  • Can scale their operations efficiently in full compliance through our treasury management capabilities.

We are an experienced team that leads to customer success

Founded in 2014, sFOX’s team of industry experts has decades of experience in financial services, managing trading, and credit operations.

We’ve invested in security and risk management capabilities from the very beginning.

As a US FinCEN-regulated firm we are held to a high standard and we are committed to the safety and security of our client’s funds.

We follow strict onboarding processes to ensure the highest standards within the financial services industry are met. We perform Enhanced Due Diligence (EDD) on higher trading volume clients, and we conduct annual high-risk reviews on our client base.

We also perform rigorous due diligence on each counterparty, liquidity provider, and digital asset to be listed.

As a result, SAFE has a record of:

  • No exposure to clients or counterparty insolvency

And sFOX has a record of:

  • No trading and settlement operations disruption for our clients
  • No impact on clients’ funds

As a leading liquidity aggregator and crypto prime broker, sFOX understands and effectively manages counterparty and liquidity risks for the security of our clients.

At this time, we are seeing an increased demand for our trading and custody services as clients look for a partner they can truly trust. If you want to learn more, please schedule a call with one of our experts.