What the experts say 💬  

Insights from Twitter Space on Crypto Custody hosted by Symbiote

We recently hosted a Space on Custody with Jonathan from OKX. A super interesting discussion ensued - here are the highlights:

🔒 Security Emphasis: Speakers explored intricate security measures used by custody providers, emphasizing the paramount importance of safeguarding digital assets.

🤖 Industry Intelligence: Stressed the need for industry intelligence to make informed decisions, advocating for a discerning approach in navigating the dynamic crypto landscape.

🎙️ Guest Insights (OKX): Jonathan from OKX provided valuable insights into the web3 ecosystem and effective wallet management practices.

💪 OKX's Strategy Post-FTX: Highlighted OKX's success post-FTX collapse, focusing on their strategic approach and commitment to enhancing platform safety.

"The collapse of FTX was impactful for the entire ecosystem. OKX gained traction after the collapse as it had been in the industry for some time." - Jonathan, OKX

🏦 Institutional Influx: Noted the increasing institutional interest in crypto, with mentions of collaborations with partners like Copper, signaling a growing trend of institutional involvement.

🤳 User Experience Innovations: Explored simplifying user experiences through technological innovations like QR codes, showcasing how streamlined processes can enhance overall usability.

"It's all about simplifying the process for users. Building products and innovations to make it as simple as possible, similar to using Facebook or Instagram."- Jonathan, OKX

Why your crypto needs custody 🔒️ 

We all know the story of James, a Welsh IT worker who accidentally in 2013 discarded a hard drive with a digital wallet that contained close to 7,500 bitcoins. Today, those bitcoins would be worth nearly $250 million. Since then, he has been trying to retrieve his lost fortune from a local garbage dump but hasn't succeeded still.

This situation isn't uncommon, and James, like many of us, has learned the hard way. Not having a full understanding of the fragility of digital assets can have serious consequences.

Since 2011, hacks and compromises of crypto assets native to public blockchains have resulted in at least $9.8 billion in losses at current valuations (source- KPMG), and who can forget the big dent FTX created on so many lives

This is where the concept of crypto custody comes into play.

Crypto custody is the process of storing and protecting digital assets, such as Bitcoin and Ethereum. It is important to have a secure and reliable place to store your crypto assets because they are digital and can be easily lost or stolen.

Self Custody 🔏 

For most individual crypto enthusiasts, storing their digital wealth typically involves using digital wallets, where the custody of their assets resides. These wallets are fortified with various security features, including the use of a "seed phrase," a 12 or 24-word password, to protect your holdings from unauthorized access.

Institutional Custody 🏦 

However, when it comes to larger investments or institutional assets, a standard digital wallet might not suffice. This is where third-party custody services step in. These licensed institutions offer enhanced security measures to guarantee the safeguarding of your crypto assets, and some even extend the assurance of insurance coverage in the event of unforeseen compromises.

But before you're ready to entrust your digital fortune to one of these highly secure custodians, you need to navigate the landscape of different types of crypto custody providers. In the following sections, we'll break down the various options and help you understand which one might be the right fit for your specific needs.

Types of institutional crypto custody 🦺 

"Don't put all your eggs in the same basket. Diversify your custody on different exchanges or different types of custody." - Jonathan, OKX

The crypto custody landscape offers a range of options to cater to different requirements and preferences:

1. Crypto Exchanges: Platforms like Coinbase and Gemini not only facilitate crypto trading but also offer secure wallets to store your assets. These wallets can be owned by the exchange itself or one of their trusted partners.

2. Traditional Custodian Banks: Well-established financial institutions like BNY Mellon and JPMorgan Chase, historically responsible for safeguarding traditional financial assets, have expanded their services to include institutional crypto custody. This transition was made possible in 2020 through an updated policy from the Office of the Comptroller of the Currency (OCC). This is helping to legitimize the crypto industry and make it more accessible to mainstream investors.

Some other recent developments in this area -

• Nomura-backed digital asset custodian Komainu has received registration as a custodian wallet provider to offer crypto custody and collateral management services to clients in the UK. [6thOct23]

• Deutsche Bank is working with Taurus, a Swiss startup specializing in cryptocurrency safekeeping, to establish digital asset custody and tokenization services [Sep23]

• Nasdaq paused crypto custody plans citing the ‘shifting’ regulatory climate [Jul23]

3. 

   Entities performing crypto custody | Source: KPMG Report (https://kpmg.com/kpmg-us/content/dam/kpmg/pdf/2022/kpmg-cracking-crypto-currency.pdf )

While third-party custody is an attractive option, it's crucial to note that it comes at a cost. You may encounter deposit, withdrawal, and storage fees, and many custodians impose minimum storage requirements. So, if your crypto holdings fall short of these requirements, you may not be eligible for their services.

Furthermore, there are certain compliance hoops to jump through. All crypto custodians are mandated to conduct thorough Know-Your-Customer (KYC) and Anti-Money Laundering (AML) checks on their clients, adding an extra layer of complexity to the setup process compared to self-custody.

Key trends driving the custody market 📈 

According to Markets and Markets, the crypto custody market is estimated to be worth $223 billion as of January 2022, up from $32 billion in January 2019. Through 2028, estimates have it growing at a CAGR of 26.7%

Crypto custody is evolving in response to changing cryptocurrency landscapes and regulations. Key trends include:

1. Rise of Institutional Investors: Institutional investors are entering the crypto market, demanding high-security and compliant custody services to safeguard their investments.

2. Technological Advancements: Technologies like blockchain and distributed ledger technology are fueling the development of innovative custody solutions. Multi-Party Computation (MPC) technology is gaining prominence for securing private keys.

"Account abstraction and making the journey easier for people will be one of the largest steps the industry can take." - Jonathan, OKX

3. Increased Regulation: The crypto industry is facing growing regulatory oversight, leading to enhanced legitimacy and investor protection. This drives the creation of new rules and standards for crypto custody.

Choosing the right digital asset custodian for enterprises involves 🔑 

• Asset Security: Custodians should prioritize security with cold storage and regular audits to prevent hacks.

• Convenient Access: Balancing security and accessibility is key to handling volatile digital assets.

• Multichain Support: Look for custodians that support a wide range of assets across different blockchain networks.

• Licensing and Regulation: Ensure custodians comply with evolving regulations and hold necessary licenses.

• Cost Efficiency: Analyze pricing structures to find cost-effective solutions based on your specific needs.

Conclusion ✨ 

In conclusion, our exploration of crypto custody underscores the critical need for secure and reliable solutions in safeguarding digital assets. The insights from industry experts, discussions on security measures, and the evolving trends in institutional involvement highlight the growing significance of this sector.

Whether through self-custody or institutional services, users must navigate the diverse landscape of custodial options with careful consideration of fees, compliance, and security. The market's growth, driven by institutional investors and technological advancements, signals a maturing industry adapting to regulatory changes.

As the crypto custody market continues to expand, choosing the right custodian becomes paramount. Prioritizing asset security, convenient access, multichain support, regulatory compliance, and cost efficiency will be key in ensuring the safekeeping of digital wealth in this dynamic and evolving crypto landscape.