How Ceffu's Insured Escrow Service Facilitates Secure Crypto Transactions

2023-02-16  •  5 min read

Crypto escrow services play a vital role in reducing the risks associated with cryptocurrency transactions. These risks include the potential for scams, non-delivery of goods or services, or disputes arising from disagreements on the terms of the transaction. By introducing an escrow service as a neutral third party, the likelihood of such risks is mitigated, enabling all parties involved to transact with greater confidence.

What is escrow in crypto?

Escrow is a mechanism designed to facilitate secure and reliable transactions by acting as a trusted intermediary between (typically) a buyer and a seller, ensuring that the funds or assets involved in the transaction are held securely until predetermined conditions are met.

In a typical crypto escrow arrangement, the buyer transfers the funds or assets into an escrow account instead of directly sending them to the seller. The escrow account holds the funds until specific conditions outlined in the transaction agreement are fulfilled. These conditions can vary depending on the nature of the transaction and may include factors such as successful delivery of goods or services, completion of a project, or verification of certain milestones.

Escrow deals may be executed based on two primary intermediaries: decentralized smart contracts, or a third-party custodian.

Smart contract

Decentralized escrow services leverage blockchain technology and smart contracts to automate the escrow process. Smart contracts are self-executing agreements with predefined conditions and outcomes. Through this process, funds are held in a secure smart contract, and their release is automated based on predefined rules. This eliminates the need for a central authority or intermediary, ensuring transparency, efficiency, and reduced costs.

That being said, smart contracts do not offer additional benefits such as dispute resolution or insurance to protect user assets.

Third-party custodian

Unlike smart contracts, third-party custodian services involve a trusted intermediary, often a financial institution or a specialized escrow service provider like Ceffu, to oversee crypto deals. In this model, the escrow "agent" holds the funds or assets until the transaction is completed according to the agreed-upon terms by the parties involved in the transaction.

How Ceffu’s escrow service works

Backed by our insured institutional-grade cold storage solution, Qualified Wallet, our independent third-party escrow service facilitates and executes bespoke transaction terms agreed to by the two parties to fit their needs. There are several use cases to engage our crypto escrow service:

Over-the-counter (OTC) transactions

As a classic example of peer-to-peer (P2P) transactions, company B (the seller) will first deposit assets in Ceffu’s escrow account. Once company A (the buyer) proceeds with transferring the agreed upon amount to company B, and confirmation of receipt from company B has been made, Ceffu will release the assets in escrow to company A.

Merchant funding or acquisition

Company (A) investing in or acquiring another company (B) may choose to progressively pay parts of the total agreed upon amount via an escrow agreement, wherein the assets are to be transferred to company B only when company B reaches specific milestones. In this instance, company A (the investor or acquirer) will first deposit the full amount in escrow. Once company B (the investee or acquiree) reaches one of those milestones, both parties will contact our designated Ceffu account manager to confirm and co-instruct the segmented amount in escrow to be released. 

Securing treasury

Many growing crypto projects may choose our escrow service to allocate their treasury to a segregated cold wallet on Ceffu wherein the tokens will remain for a defined period of time. Once this period ends, a release schedule will be in place to progressively distribute the assets in escrow to the project’s community. Given the cold wallet’s on-chain nature, backers of the project have full confidence that the tokens are kept secure and released as scheduled. 

Private fundraising

Projects receiving a private round of fundraising from a number of investors may choose to safeguard their tokens in a Ceffu escrow account and release them to those investors according to an agreed upon release schedule. 

Why choose Ceffu as your escrow service provider

Segregated on-chain wallet

Each Qualified Wallet used in escrow provides clients with their own segregated on-chain wallet address, which contains only their own assets. This proof can be verified directly on the blockchain, giving clients and their community full visibility that the only movements in and out of the wallet belong to the client.

Multi-party computation (MPC)

Our Qualified Wallets run on MPC technology, private key shares can communicate secure information without revealing any of the actual information – there is no single point of failure. In case of a security breach of one of the key shares, your account security remains intact. This is reinforced by storing key shares on air-gapped FIPS 140-2 devices, which are distributed across different geographical regions.

Cold storage insurance and disaster recovery

Unlike a smart contract, which offers no protection against loss of assets, our solutions are backed by insurance and have disaster recovery plans in place, providing confidence and reassurance that the assets in escrow are well protected. Our solutions are also periodically audited, having already obtained the ISO 27001 and 27701 certifications, SOC 2 Type 1 and SOC 2 Type 2 attestations, and undergo numerous security examinations.

Trust is the core foundation of any transaction taking place between individuals or businesses. Engaging an independent third party to facilitate such transactions provides an added layer of security and peace of mind, ensuring that all parties involved are held accountable to the terms of the contract.

Contact us to find out how Ceffu can secure your escrow transaction by filling out our institutional form here.

About Ceffu

Ceffu is a compliant, institutional-grade custody platform offering custody and liquidity solutions that are ISO 27001 & 27701 certified and SOC Type 1 & Type 2 attested. Its multi-party computation (MPC) technology, combined with a customizable multi-approval scheme, provides bespoke solutions allowing institutional clients to safely store and manage their digital assets through its insured, segregated cold storage solution, Qualified Wallet. Institutions also benefit from Ceffu’s secure gateway to a wide range of liquidity products within the Binance ecosystem as Binance’s institutional custody partner.

Stay informed
LinkedIn: Ceffu
Twitter: @CeffuGlobal