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The Enterprise Self-Custody Problem w/ Nicolas and Conor from Cordial Systems

By Validated

Published on 2024-02-27

Discover how Cordial Systems is addressing the enterprise self-custody problem with innovative blockchain technology, offering a secure and flexible solution for businesses.

The notes below are AI generated and may not be 100% accurate. Watch the video to be sure!

Revolutionizing Enterprise Blockchain Custody with Cordial Systems

In the rapidly evolving world of blockchain and cryptocurrency, one of the most pressing challenges for enterprises has been the issue of secure custody for digital assets. While consumer-grade hardware wallets like Ledger have dominated the personal custody space, businesses have struggled to find solutions that offer both the flexibility and security controls they require. Enter Cordial Systems, a company born out of the needs of Jump Trading, which is now poised to revolutionize the enterprise custody landscape.

The Enterprise Custody Dilemma

The problem of enterprise custody is multifaceted. Unlike individual users who can rely on hardware wallets stored in secure locations, businesses need solutions that can be accessed by multiple team members, often spread across different geographical locations. Traditional custody solutions often fall short in providing the necessary balance between security and accessibility.

Nicolas, one of the founders of Cordial Systems, explains the core issue:

"If you want to be ultimately fast, you can have too many security layers in between. But the big question that we came in to Jump, to tackle is how to secure substantial amounts of crypto, something between a cold wallet and a warm wallet."

This highlights the need for a solution that can securely store large amounts of cryptocurrency while still allowing for relatively quick access when needed.

The Limitations of Current Solutions

Many existing enterprise custody solutions suffer from significant drawbacks. Some rely on vendor-controlled policies, essentially putting the decision-making power in the hands of a third party. Others require hardware that can be lost or damaged, leading to potential issues with access and recovery.

Conor, another founder of Cordial Systems, points out:

"Ledger is a really great product. They handle credential management and interoperability with chains really well. But when you're working on a team of people at an enterprise, like Jump Crypto and you have people spread all over the world, you start to have limitations when the wallet you need to access is in like another office or it's locked or maybe someone like dropped it in a crack in the floor or something."

These limitations underscore the need for a more robust, online solution that doesn't sacrifice security.

The Birth of Cordial Systems

Cordial Systems emerged from the internal needs of Jump Trading, a prominent player in the crypto trading space. The founders, Nicolas and Conor, brought their expertise from working on open-source security keys to tackle the complex problem of enterprise crypto custody.

Their approach was to create a system that could be self-hosted, eliminating reliance on external vendors while maintaining the highest security standards. This led to the development of a unique architecture that combines multi-party computation (MPC) with a distributed policy layer.

Multi-Party Computation: The Foundation of Security

At the core of Cordial Systems' solution is the use of MPC, specifically threshold signatures. This technology allows for the splitting of a key into multiple shares, distributed among different participants. Nicolas explains:

"This allows you to distribute trust if you split a key into two parts, given to two independent participants, then a single person can't rub the key or take all the funds. So we need to work together, collude to make a transaction."

However, the founders recognized that MPC alone is not sufficient. The challenge lies in ensuring that all participants follow the correct rules and policies when signing transactions.

The Distributed Policy Layer: A Blockchain for Blockchains

To address the limitations of MPC and create a truly secure and flexible system, Cordial Systems developed a distributed policy layer. This layer acts as a blockchain for managing blockchain assets, ensuring that no single point of failure can compromise the system.

Nicolas describes the approach:

"The way to do that is with replicated state machines, or in other words, a blockchain, where the policy is not one server, which you can attack, but the policy is on multiple servers and passing policy is a joint decision by multiple nodes."

This innovative approach allows for the creation of complex, customizable policies that govern the movement of assets while maintaining a high level of security.

The Architecture of Cordial Systems

The Cordial Systems solution is built on a layered architecture that combines several key components:

  1. User Authentication: Utilizing WebAuthn, the system securely identifies users through hardware-backed authentication factors.

  2. Distributed Policy Engine: A blockchain-based system that enforces policies across multiple nodes.

  3. Multi-Party Computation (MPC): For secure key management and transaction signing.

  4. Cross-Chain Library: An abstraction layer that handles the specifics of different blockchain protocols.

  5. RPC Node Integration: For interacting with various blockchain networks.

This architecture allows for a flexible, scalable, and highly secure custody solution that can adapt to the needs of different enterprises.

From Internal Tool to Product

Initially developed as an internal solution for Jump Trading, Cordial Systems has now evolved into a separate business offering its custody solution to a broader market. This transition required several key changes:

  1. Generalization of the Policy Layer: Making the system more configurable to suit different organizational needs.

  2. Simplified API: Moving from Cosmos-specific GRPC to a more standard REST API for easier integration.

  3. Deployment Flexibility: Offering options from fully self-hosted to partially or fully managed solutions.

The Market for Self-Hosted Custody Solutions

While many software solutions are moving towards cloud-based, managed services, Cordial Systems is targeting organizations that prioritize control and security over convenience. This includes crypto-native businesses, financial institutions, and enterprises building on blockchain technology.

The self-hosted model offers several advantages:

  1. Complete Control: Organizations maintain full control over their assets and policies.

  2. Customization: The ability to tailor the solution to specific organizational needs.

  3. Reduced Vendor Risk: Eliminating dependence on third-party custodians.

  4. Compliance: Better alignment with regulatory requirements for certain industries.

The Spectrum of Deployment Options

Recognizing that different organizations have varying needs and capabilities, Cordial Systems offers a spectrum of deployment options:

  1. Fully Self-Hosted: The organization runs all nodes of the system internally.

  2. Hybrid Model: The organization runs some nodes, while trusted third parties operate others.

  3. Fully Managed SaaS: Multiple entities run the distributed system, providing a custodial service with enhanced security and transparency.

This flexibility allows organizations to balance their security needs with their operational capabilities.

Beyond Basic Custody: Future Possibilities

While the primary focus of Cordial Systems is on secure asset custody and policy enforcement, the platform's architecture opens up possibilities for more advanced applications. Some potential future developments include:

  1. Integration with Audit Firms: Allowing real-time monitoring and approval processes.

  2. Custom Smart Contract Deployment: Enabling organizations to implement complex business logic on top of the custody layer.

  3. Cross-Chain Operations: Native support for wrapping, unwrapping, and bridging assets across different blockchains.

  4. Advanced Risk Management: Integration with external systems for enhanced risk checks and policy enforcement.

The Importance of Simplicity and Understanding

While the potential for advanced features is exciting, the Cordial Systems team emphasizes the importance of maintaining simplicity and understandability in the core system. Conor notes:

"The more complexity you add to your policy engine, the harder it is to actually understand what it's doing. Is there like a bug in it? Can I accidentally like trade all of my USDC with the wrong shit coin or something?"

This focus on simplicity and clarity is crucial for maintaining the security and reliability of the custody solution.

The Role of Cordial Systems in the Broader Blockchain Ecosystem

As enterprises increasingly adopt blockchain technology and cryptocurrencies, the need for secure, flexible custody solutions will only grow. Cordial Systems is positioning itself as a key player in this ecosystem, bridging the gap between traditional financial controls and the unique requirements of digital assets.

By providing a solution that can be tailored to various organizational structures and risk profiles, Cordial Systems is enabling a wider range of businesses to participate in the blockchain economy securely. This has the potential to accelerate adoption and innovation in the space.

The Impact on Solana and Other Blockchain Networks

While Cordial Systems' solution is blockchain-agnostic, its ability to securely manage assets across multiple chains could have a significant positive impact on networks like Solana. By providing enterprises with a secure way to hold and manage Solana-based assets, Cordial Systems could help drive institutional adoption of the network.

Furthermore, the flexibility of the Cordial Systems architecture allows for easy integration of new blockchain networks as they emerge. This adaptability ensures that enterprises using the solution can quickly take advantage of innovations in the blockchain space, including potential future developments on the Solana network.

The Future of Enterprise Blockchain Custody

As the blockchain and cryptocurrency industries continue to mature, the solutions for enterprise custody will need to evolve as well. Cordial Systems represents a significant step forward in this evolution, offering a unique combination of security, flexibility, and control.

The move towards self-hosted, policy-driven custody solutions could reshape how enterprises interact with blockchain technology. By providing greater control and customization options, these solutions may encourage more businesses to actively participate in blockchain ecosystems, rather than relying on third-party custodians.

Challenges and Considerations

While the Cordial Systems approach offers many advantages, it also comes with its own set of challenges:

  1. Operational Complexity: Organizations need to have the technical expertise to manage and secure their own infrastructure.

  2. Policy Design: Creating effective and secure policies requires careful consideration and expertise.

  3. Key Management: While MPC mitigates some risks, proper key share management remains crucial.

  4. Regulatory Compliance: Organizations must ensure that their self-custody solution meets relevant regulatory requirements.

Addressing these challenges will be crucial for the widespread adoption of self-hosted custody solutions like Cordial Systems.

The Importance of Education and Support

As Cordial Systems brings its product to market, education and support will play a crucial role in its success. Enterprises considering self-hosted custody solutions will need to understand the benefits, risks, and operational requirements involved.

To this end, Cordial Systems is likely to focus on:

  1. Documentation and Training: Providing comprehensive guides and training materials for implementing and managing their solution.

  2. Consulting Services: Offering expert advice on policy design and system configuration.

  3. Ongoing Support: Ensuring that organizations have access to technical support and updates as needed.

  4. Community Building: Fostering a community of users to share best practices and experiences.

Conclusion: A New Era in Enterprise Blockchain Custody

Cordial Systems represents a significant innovation in the field of enterprise blockchain custody. By combining advanced cryptographic techniques with a flexible, policy-driven architecture, they have created a solution that addresses many of the key challenges faced by businesses in the crypto space.

As the product moves from its origins as an internal tool for Jump Trading to a widely available solution, it has the potential to reshape how enterprises approach digital asset management. The focus on self-hosting and customizable policies provides a level of control and security that has been largely absent in existing custody solutions.

While challenges remain, particularly in terms of operational complexity and regulatory compliance, the Cordial Systems approach offers a promising path forward for enterprises looking to securely participate in the blockchain economy. As the solution matures and more organizations adopt self-hosted custody models, we may see a shift in how businesses interact with blockchain networks, potentially driving greater institutional adoption and innovation in the space.

For networks like Solana, the emergence of enterprise-grade custody solutions like Cordial Systems could be a significant catalyst for growth. By providing a secure and flexible way for businesses to manage Solana-based assets, these solutions may encourage more institutional participation in the Solana ecosystem, further cementing its position as a leading blockchain platform.

As the blockchain industry continues to evolve, solutions like Cordial Systems will play a crucial role in bridging the gap between traditional finance and the decentralized future. By addressing the critical need for secure, flexible enterprise custody, they are helping to lay the foundation for the next phase of blockchain adoption and innovation.

Facts + Figures

  • Cordial Systems was originally developed as an internal custody solution for Jump Trading
  • The solution uses Multi-Party Computation (MPC) for key management and transaction signing
  • Cordial Systems implements a distributed policy layer using blockchain technology
  • The system can be deployed in various configurations, from fully self-hosted to partially or fully managed
  • Cordial Systems uses WebAuthn for secure user authentication
  • The solution is blockchain-agnostic and can support multiple chains
  • Cordial Systems' architecture is built on the Cosmos SDK
  • The company has transitioned from an internal tool to offering a product for the broader market
  • Cordial Systems offers a REST API for easier integration with existing systems
  • The solution allows for customizable policies to govern asset movements
  • Cordial Systems does not require running full nodes for supported blockchains, instead relying on RPC node access
  • The company is exploring options for integrating with audit firms and implementing advanced risk management features
  • Cordial Systems' approach aims to eliminate single points of failure in the custody process
  • The solution can potentially support custom smart contract deployment on top of the custody layer
  • Cordial Systems emphasizes the importance of simplicity and understandability in their core system design

Questions Answered

What is Cordial Systems?

Cordial Systems is an enterprise-grade custody solution for blockchain assets. It was originally developed as an internal tool for Jump Trading and has now been productized for the broader market. The system combines Multi-Party Computation (MPC) for key management with a distributed policy layer built on blockchain technology to provide a secure and flexible custody solution for businesses.

How does Cordial Systems' custody solution differ from traditional options?

Cordial Systems' solution differs from traditional custody options by offering a self-hosted, policy-driven approach. Unlike many existing solutions that rely on vendor-controlled policies or hardware wallets, Cordial Systems allows organizations to maintain full control over their assets and policies. The system uses a distributed architecture to eliminate single points of failure and provides customizable policies that can be tailored to specific organizational needs.

What technologies does Cordial Systems use?

Cordial Systems utilizes several key technologies in its custody solution. At its core, it uses Multi-Party Computation (MPC) for secure key management and transaction signing. The distributed policy layer is built using blockchain technology, specifically leveraging the Cosmos SDK. For user authentication, the system implements WebAuthn, providing secure, hardware-backed authentication. Additionally, Cordial Systems uses a cross-chain library to abstract the complexities of different blockchain protocols.

How does Cordial Systems ensure the security of assets?

Cordial Systems ensures asset security through multiple layers of protection. The use of MPC distributes key shares among multiple participants, preventing any single entity from having full control. The distributed policy layer ensures that transactions must be approved by multiple nodes, following predefined rules. User authentication is secured through WebAuthn, and the system's architecture eliminates single points of failure. Additionally, the self-hosted nature of the solution allows organizations to maintain full control over their infrastructure and policies.

Can Cordial Systems support multiple blockchain networks?

Yes, Cordial Systems is designed to support multiple blockchain networks. The solution uses a cross-chain library that abstracts the specifics of different blockchain protocols, allowing it to work with various networks. This blockchain-agnostic approach means that organizations can use Cordial Systems to manage assets across multiple chains, including networks like Solana, Ethereum, and others. The system's flexibility also allows for easy integration of new blockchain networks as they emerge.

What types of organizations would benefit from using Cordial Systems?

Cordial Systems is particularly beneficial for crypto-native businesses, financial institutions, and enterprises building on blockchain technology. Organizations that prioritize control and security over convenience, and those that have specific regulatory requirements or complex policy needs, would find Cordial Systems' solution especially valuable. The system's flexibility and customization options make it suitable for a wide range of businesses looking to securely manage digital assets while maintaining control over their custody infrastructure.

How does Cordial Systems handle policy enforcement?

Cordial Systems handles policy enforcement through its distributed policy layer. This layer acts as a blockchain for managing blockchain assets, ensuring that all transactions and actions comply with predefined rules. Policies are customizable and can be tailored to specific organizational needs. The distributed nature of the policy engine means that policy decisions are made collectively by multiple nodes, preventing any single point of compromise. This approach allows for complex, granular policies that can govern various aspects of asset management and movement.

What are the deployment options for Cordial Systems?

Cordial Systems offers a spectrum of deployment options to suit different organizational needs and capabilities. These options include:

  1. Fully self-hosted, where the organization runs all nodes of the system internally.
  2. A hybrid model, where the organization runs some nodes while trusted third parties operate others.
  3. A fully managed SaaS model, where multiple entities run the distributed system, providing a custodial service with enhanced security and transparency. This flexibility allows organizations to balance their security requirements with their operational capabilities and resources.

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