A More Private Way To Do Collaborative Custody

Marty's Bent

Yesterday Bitkey submitted a Bitcoin Improvement Proposal (BIP) for "Chain Code Delegation", which would significantly improve the privacy of bitcoin users who utilize collaborative multisig set ups. For those who are unaware of collaborative multisig setups, the concept is that, as a user, you can increase the robustness and resiliency of your multisig wallet by adding a collaborative custody partner to the multisig quorum. This is the model that companies like Bitkey, Unchained offer their clients.

It's a great tradeoff because it provides individuals who find the responsibility of holding their bitcoin in a single signature address and securing the wallet and back up properly too daunting. With collaborative multisig you are able to maintain unilateral control over your bitcoin with a fall back option to have your custody partner help you if you're in a pinch because you only have access to one wallet or you lost a wallet and its back up. But, to date, it's been a tradeoff that comes with a privacy leak. Your collaborative custody partner knows exactly how much bitcoin you have in the public address associated with the multisig quorum at all times. This is because of the way multisig wallets are typically created on the application layer. All parties participating in a multisig quorum currently need to share a lot of information about the wallet, particularly the xpub.

With Chain Code Delegation, this will no longer be the case. Users can reap the benefits of collaborative custody without having to disclose their public addresses and balances. The only time they would reveal a balance to their collaborative custody partner is if that cosigner is needed to sign a transaction. And even then, they would only know about the individual UTXOs included in the transaction.

This is a massive boon to privacy and it is incredible to see the Bitkey team leading the charge. Shout out to everyone on the Bitkey team who worked on this and Jesse Posner (formerly with Bitkey). It will be cool to see this in the wild.

This is particularly exciting because, as I mentioned earlier, this type of "upgrade" is isolated to the application layer. There is no need to make a consensus or policy change to bitcoin. It's simply a new standard for creating multisig wallets.

The Basis Trade Represents a Significant Systemic Risk

Robert from Infranomics broke down a ticking time bomb in the Treasury market that regulators have been watching for years. The basis trade, where hedge funds short Treasury futures while going long on cash Treasuries, might seem innocuous at first glance. After all, it's just capturing a tiny 0.1% arbitrage spread. But here's where it gets dangerous: funds are leveraging this trade anywhere from 50:1 to as high as 100:1, turning a small edge into meaningful profits while creating massive systemic risk.

"This is well documented. If you Google, this has been an issue for years. This has been a risk that the Fed has known about."- Robert (Infraa)

Robert pointed to the 2020 blowup and the April "Liberation Day" incident as proof this trade can unravel violently. The Brookings Institute even published warnings in June. When SOFR spiked to 0.19% last week, the highest since 2020, it signaled fresh stress in the repo market financing all this leverage. The Fed, SEC, and CFTC know the risks. The question is what happens when it blows up again.

Check out the full podcast here for more on the Cayman Islands Treasury revelation, populism's impact on assets, and why Bitcoin matters now.

Headlines of the Day

Crypto Firms Donate to Trump Ballroom

Bitcoin Poised to Surge per Gold Lag Trend

Strive Exec Details Bitcoin Treasury Firms

Binance Takes $2B Trump-Linked Stablecoin

Trump Says CZ Pardon Not for a Crime

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