Implementation Risk: Trust Dependency
While ENSC operates within the framework of a fully trustless cryptocurrency system, there exists a certain level of trust dependency that users must acknowledge. The primary risk lies in the necessity for users to trust ProsperaVest ESG LTD and its corresponding legacy banking institution as the custodians of the reserve assets backing the ENSC. Here are the key points regarding this trust dependency:
Custodian Role and Counterparty risk:
Users rely on ProsperaVest ESG LTD to act as the custodian of the eNaira CBDC reserves. This introduces a centralized element in the ENSC ecosystem, deviating from the complete decentralization principle inherent in many cryptocurrencies.
Users face counterparty risk by depending on ProsperaVest ESG LTD and the legacy banking institution to maintain the necessary reserves. Any failure or breach in their custodial responsibilities could impact the stability of the ENSC peg.
We could go bankrupt: In this case, the business entity ProsperaVest ESG Limited would go bankrupt but client funds would be safe, and subsequently, all ENSC will remain redeemable. Most security breaches on blockchain businesses have targeted cryptocurrencies rather than bank accounts. Since all ENSC exist on the blockchain they can be stored by individuals directly through securing their own private keys.
We could abscond with the reserve assets : To safeguard against the potential risk of misappropriation, all eNaira speed wallets, containing the reserve assets, are held in trust by reputable partner banks. Additionally, the regulatory oversight from the Securities and Exchange Commission (SEC) and the Central Bank of Nigeria (CBN) ensures stringent governance and compliance standards on all Directors of ProsperaVest ESG Ltd, adding an extra layer of accountability and reducing the likelihood of any illicit activities involving reserve assets.
Trust in Legacy Banking Institution:
The reserve assets are held in legacy banking institutions, requiring users to place trust in the security, stability, and compliance of these traditional financial entities. This trust extends beyond the blockchain environment.
Our banks could go insolvent: The risk of partner banks facing insolvency is mitigated by the stringent regulatory policies established by the Central Bank of Nigeria, ensuring financial stability and minimizing the likelihood of bankruptcy. Additionally, all deposits in our partner banks are safeguarded by the Nigeria Deposit Insurance Corporation (NDIC), providing comprehensive insurance coverage and ensuring the protection of customers' funds in the event of any unforeseen financial challenges.
Our banks could freeze or confiscate funds: The risk of funds being frozen or confiscated by banks is mitigated by the awareness of our partner banks regarding the cryptocurrency nature of our business. Additionally, the Virtual Asset Regulatory Framework established by the Central Bank of Nigeria (CBN) and Securities and Exchange Commission (SEC) serves as a comprehensive guide, ensuring a secure and regulated relationship with our partner banks, thereby reducing the likelihood of any unjustified interference with our funds.
Mitigation Measures:
While efforts are made to implement a straightforward Proof of Reserve process, the fact remains that users are reliant on the effectiveness of these measures to mitigate risks. The custodian's role becomes crucial in ensuring the security and transparency of the ENSC reserves.
We also ensure a stringent adherence to the KYC/AML processes as stated in the SEC’s Virtual Assets Regulatory Framework
Potential Future Innovations: Acknowledging this trust dependency, future innovations may aim to eliminate risks associated with custodial roles, providing a more decentralized and trustless solution for asset-backed cryptocurrencies.
It's essential for users and stakeholders to be aware of this trust dependency and carefully evaluate the custodial arrangements when engaging with ENSC. ProsperaVest ESG LTD continues to explore avenues for enhancing decentralization while maintaining the stability and security of the ENSC ecosystem.
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