EDX Markets, a recently launched crypto exchange backed by firms including Citadel Securities, Fidelity Digital Assets and Charles Schwab Corp., has dropped its plan to use Paxos as a custodian and is now in final talks with Anchorage Digital about a new partnership, according to people familiar with the matter.
EDX Markets’ earlier pact with Paxos, a blockchain company known for issuing a Binance-branded stablecoin, is no longer active, the people said. That partnership, announced last October, would have directed the exchange’s clients to Paxos for custody of crypto assets and allowed Paxos customers direct access to EDX.
On EDX’s website, Anchorage is already listed as one of the vendors and partners, whereas Paxos is not on the list.
Asked about the partnership change, a spokesperson for New York-based Paxos said, “EDX shifted to focus on a non-custodial offering at launch. We are very excited about what EDX is building, and we hope to support EDX customers with our regulated custody when banks and brokers onboard to the platform.”
EDX Markets declined to comment. Anchorage Digital declined to comment.
Finding a custody partner for EDX is critical to its success, because the new exchange touts a “non-custodial” model, meaning that it doesn’t hold clients’ digital assets during trading. That differentiates it from existing crypto platforms such as Coinbase Global Inc. and Binance Holdings Ltd.
SEC Chair Gary Gensler has long criticized existing crypto platforms for failing to separate different parts of their businesses, such as custody, market-making and trading, which could result in conflicts of interests.
In February, Paxos was ordered by a New York state regulator to stop issuing a Binance-branded stablecoin called BUSD. It also received a Wells notice from the US Securities and Exchange Commission in February, which said it was considering an action alleging BUSD was a security and that Paxos should have registered with the regulator. Paxos has said it disagrees and is prepared to litigate if necessary.
Paxos also issues its own stablecoin called Pax Dollar. It provides blockchain solutions to tokenize, custody, trade and settle assets for enterprise clients.
San Francisco-based Anchorage is a US crypto custodian with a bank charter from the Office of the Comptroller. Last year, the OCC said that Anchorage did not have key money-laundering controls in place and that its compliance program lacked staff and internal processes to verify customers in 2021. Anchorage Digital, which didn’t admit or deny the OCC’s findings, agreed to correct the issues.
This March, Anchorage laid off about 20% of its staff. Anchorage is backed by private equity firm KKR & Co and reached a more than $3 billion valuation in a funding round in 2021.
EDX is working with a third-party custodian, Chief Executive Officer Jamil Nazarali said in an interview last week, without disclosing the name of the new partner.