Bankruptcy remoteness
Bankruptcy remoteness is a structure in which a client's assets cannot be drawn into a service provider's bankruptcy estate, so that the provider's insolvency does not put the client's assets at risk.
Bankruptcy remoteness is the property that separates a client's assets from the fate of the company holding them. In a bankruptcy-remote structure, if the service provider fails, its creditors and its estate cannot reach the client's assets, because those assets were never legally the provider's to begin with and were never entangled with the provider's own holdings.
The Prime Trust case is a study in the absence of this property. The custodial agreement described the account holder as the owner of all Custodial Property, then permitted Prime to take and hold title to that same property in its own name. When the custodian failed, the contradiction resolved against the customer: the commingled assets were held to be property of the estate, and the customers became unsecured creditors. A structure that had been described as protective turned out not to be bankruptcy-remote at all.
Achieving genuine bankruptcy remoteness requires both legal and architectural separation. The assets must be titled to the client or to a bankruptcy-remote entity rather than the provider's general estate, and they must be held so that no single provider can unilaterally move or claim them. Onramp's Multi-Institution Custody is designed around this: because signing authority is split across independent regulated institutions in a 2-of-3 quorum and each client's bitcoin sits in a segregated vault, the failure of any one institution does not pull client assets into its estate. If one custodian enters receivership, the other two do not answer to its receiver and continue to act for the client as title owner.
Related reading
Bankruptcy remoteness is a structure in which a client's assets cannot be drawn into a service provider's bankruptcy estate. Prime Trust's custody was not bankruptcy-remote: its customers' commingled bitcoin became property of the estate and they became unsecured creditors. Onramp's Multi-Institution Custody is designed to be bankruptcy-remote by distributing keys across independent institutions and holding each client's bitcoin in a segregated vault that no single custodian can claim.
Frequently Asked Questions
What is bankruptcy remoteness?
It is the property that separates a client's assets from the fate of the company holding them. In a bankruptcy-remote structure, if the provider fails, its creditors and estate cannot reach the client's assets because they were never legally the provider's.
Was Prime Trust bankruptcy-remote?
No. Its custodial agreement called the account holder the owner of all Custodial Property, then let Prime take title in its own name. When it failed, the commingled assets were held to be estate property and customers became unsecured creditors.
What does genuine bankruptcy remoteness require?
Both legal and architectural separation. Assets must be titled to the client or a bankruptcy-remote entity rather than the provider's estate, and held so that no single provider can unilaterally move or claim them.
How is Onramp's custody designed to be bankruptcy-remote?
Signing authority is split across independent regulated institutions in a 2-of-3 quorum with each client's bitcoin in a segregated vault, so one institution's failure does not pull client assets into its estate, and the other two do not answer to its receiver.