Newton has, since its inception, been a custodial platform. We’ve done this primarily as a convenience - while some customers prefer to keep their funds in a hardware wallet, many want funds to stay on-platform so they’re always ready to trade.
In the traditional commodities world, there is a strict separation between the dealer buying and selling the commodity (like gold), and the custodian tasked with keeping those commodities safe and secure (e.g. vault operators). This promotes accountability and makes it difficult for the dealer to misuse assets that belong to their customers.
This is the structure we mirrored when we announced in 2019 that Balance would be the default custodian for Newton. While Newton focuses on providing the most convenient, lowest-cost trading experience in Canada, Balance focuses on securing assets against loss or theft.
But that’s not enough. Without direct access to your funds on Balance, Newton is still a gatekeeper - and instead of trusting one company (Newton), you now have to trust two (Balance & Newton). Enhanced custody is a new concept that will fundamentally change this dynamic and put you in the driver’s seat.
Introducing Enhanced Custody
Enhanced Custody has a simple premise: the solvency (or insolvency) of Newton as a business should never affect your assets. After all, Newton doesn’t own the Bitcoin in your account - you do.
Enhanced Custody will have a number of important features:
- You will receive a separate account on Balance, which will mirror your Newton account exactly. This will allow you to inspect or withdraw assets in your Balance wallet independently of Newton. At any time, you will able be revoke Newton’s access to your Balance wallet.
- Your funds will be kept 100% in offline cold storage. Newton will maintain its own assets in separate warm wallets to facilitate rapid withdrawals, meaning that only assets belonging to Newton will be exposed to the internet.
- Your assets, as they are today, will be covered by Balance's crypto crime insurance policy (subject to their limits and certain restrictions).
- You will be able to independently audit your wallet balances on the blockchain, whenever you wish to do so (you’ll just need to cover the network fees). On at least a quarterly basis, Newton will cover the costs to do this for every customer’s wallet to create an audit snapshot.
- Whenever you make a trade on Newton, Balance will receive trade instructions/details and immediately update your balances to reflect the trade. At the end of each business day, Newton and Balance will perform independent reconciliations to ensure that the numbers match.
It’s important to note that Newton doesn't own any shares in Balance, or vice-versa. This keeps Newton and Balance accountable, since each party is strongly incentivized to reconcile records independently and come to a consensus.
An important milestone
To our knowledge, this will be the first custodial arrangement of its kind in Canada, and likely one of the first in North America. It will put control firmly in the hands of our customers.
We intend to set a new standard for openness and transparency, and we hope that other dealers and exchanges follow suit. The negligent actions that lead to the downfall of QuadrigaCX, Einstein Exchange, and many others should never be permitted to happen again.
We’re actively working on these changes today, and - if everything goes to plan - they should be ready by the end of this year.