OKX, the world’s second largest cryptocurrency exchange by trading volume, has enlisted the services of digital asset storage firm Komainu, allowing institutional users to keep their crypto within the Nomura-backed custodian while using those funds to trade on the exchange.

It’s a partnership that demonstrates how vertically integrated crypto exchanges can start to emulate traditional finance, segregating operations using third party custodians, in a bid to avoid the possibility of another FTX collapse.

OKX is the first client to use Komainu Connect, a regulated settlement and custody system for institutional customers that offers 24/7 trading with a mix of cold storage, multiparty computation (MPC) and hardware security modules (HSMs).

“Funds deposited in a Komainu custody wallet are moved to a Komainu collateral wallet and then linked to an OKX account,” OKX chief commercial officer Lennix Lai told CoinDesk via email. “The OKX account then mirrors the balance and allows active trading across OKX's 700-plus spot and derivatives markets.”

The Komainu Connect collateral wallet, which OKX has visibility into, is linked to an institutional-grade tri-party account change agreement, Komainu’s head of strategy, Sebastian Widmann explained.

“There exists a tri-party legal agreement between Komainu as the custodian and OKX as the liquidity venue and provider, and Komainu’s client, as the client of OKX,” Widmann said in an interview. “This allows Komainu’s client to trade directly on exchange with Komainu taking care of the settlement requirements.”

OKX would not go into detail about how much assets under custody would be transferred to Komainu, but Lai said it was “significant” and it's expected to grow as the firms enhance their institutional product offering.

“Our standpoint is the more solutions users have, the better. We are offering on-exchange, off-exchange and third-party balance mirror custody solutions,” Lai said.

Komainu was launched in 2020 as a joint venture between Nomura, digital asset manager CoinShares, and digital asset security company Ledger. It’s regulated in Jersey and Dubai with offices in London, Dublin and Singapore.