Crypto companies that were partnered with Prime Trust are clearing the air about the safety of customers’ assets following the custodian’s failure. 

Some firms—many of which declare proudly that they are ‘Bitcoin only’—are in worse shape than others. 

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“There are still many unknowns, but we intend to fight for our members that have funds locked up with Prime Trust,” tweeted Coinbits, a platform for buying, selling, and automatically saving in Bitcoin on Wednesday.

Prime Trust was placed into receivership on Tuesday by the Nevada Financial Institutions Division due to years-long financial issues that were recently brought to light. Between losing old private keys and misappropriating user assets, the State’s filing indicated that Prime Trust is over $82 million in the hole from fiat liabilities. 

While the company claimed to have a nearly solvent $68 million in digital assets to cover client’s crypto deposits, analysis by Arkham Intelligence indicates that the vast majority of these funds are held in an illiquid token called ‘AUDIO’. Only $7.5 million are held in Bitcoin. 

Nevertheless, Coinbits said Prime Trust “still has enough bitcoin to honor our members’ balances,” and plans to move towards a “no-custody solution” in the future. As of writing, most of the app’s service remains offline.

Meanwhile, Swan Bitcoin, another Bitcoin financial services company, is under fire from Bitcoiners after rapidly withdrawing all assets from Prime Trust weeks in advance of the custodian’s fallout.

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All Swan clients’ assets now rest with Fortress, a crypto custodian that happens to be led by Scott Purcell, the same CEO that led Prime Trust until January 2021.

Before moving to Fortress, Purcell was CEO of Prime Trust partner Banq, which recently filed for bankruptcy due to mismanagement under his service, alleged the company earlier this month. 

Many suspect that companies like Swan may be subject to clawbacks during Prime Trust’s bankruptcy process, despite withdrawing before its collapse. However, Swan CEO Cory Klippsten claims that wouldn’t be possible due to “a century of trust legal structure precedent.”

“If there were somehow going to be clawbacks (illegal, and contra a century of precedent), Swan would just make our users whole,” added Klippsten.

Klippsten denied that Swan knew Prime Trust was insolvent before withdrawing, saying that the firm had been preparing to migrate away from the custodian for 9 months.

Much like Swan, Bitcoin lightning wallet Strike narrowly escaped Prime Trust with users’ assets intact. However, rather than choosing a new custodian, the firm decided to take asset custody in house, unlocking some new features for users.

When asked why Swan didn’t pursue a similar approach to Strike, Klippsten told Decrypt that he suspects this approach will invite regulatory problems.

“I don't think having the ledger/custody on the broker side is the answer because I expect regulations soon forcing the separation of brokerage and custody, which is required for the rest of the financial industry and is the best legal setup for users,” wrote Klippsten via DM.

In terms of choices for custodians, the CEO said there are few options for “legally segregated, bankruptcy remote” trust accounts for individual users. “Prime Trust plus Fireblocks dominated for 3-4 years, and now all the fintechs have moved to Fortress plus BitGo,” he said.

BitGo originally planned to acquire Prime Trust earlier this month, but later backed out of the deal. 

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