As digital-asset adoption has surged, so has demand for institutional-grade digital-asset custody. Family offices, high net-worth individuals and external asset managers increasingly see that self-custodial solutions have limitations in supporting the ongoing trading and operational needs of their portfolios.
In response, custodians have expanded their role from the safekeeping of cryptocurrencies to helping clients navigate and participate in new business opportunities and asset classes.
One of the earliest movers in this field was BNY Mellon, whose digital-asset custody platform went live in the US in October 2022, enabling clients to hold and transfer Bitcoin and Ether.
According to a survey of institutional investors commissioned by the bank to coincide with the launch of the platform, more than 40% of respondents held cryptocurrency in their portfolio, while 70% said they would increase their digital-asset activity if services like custody were available from recognised and trusted institutions.
In May, Standard Chartered signed a memorandum of understanding with Dubai International Financial Centre to collaborate on digital assets, including digital-asset custody, with custody services provided by subsidiary Zodia Custody.
“We offer cold storage that enables financial institutions to transact in under 10 seconds without any compromise on security or compliance, given our bank-owned heritage,” says Zodia Custody’s chief executive, Julian Sawyer. “This means institutions can operate within a familiar framework and be sure of high risk-management standards.”
Providers
The following month, Caceis Bank became the first custodian to be registered with the French financial regulator, the AMF, as a digital-asset service provider.
“We are ready from a technical point of view to provide custody services for any digital asset, but will start by offering custody services for tokenized financial instruments and providing a fund share tokenization service,” explains Eron Angjele, senior expert digital assets at Caceis. “At a later date, we will offer custody services for other digital assets, including cryptocurrencies like stablecoins.”
Tokenization of fund shares is a key theme asset managers want to explore to attract new, smaller clients and cut distribution costs
Eron Angjele, Caceis
He says the bank has received requests from financial institutions including asset managers, exchanges and banks to present its digital-asset custody solution – and that digital-asset custody is a primary concern for regulated investors.
“Following the collapse of FTX and the ongoing prosecution of various crypto players, the credibility of the custody solutions offered by crypto exchanges has suffered greatly,” says Angjele.
In addition to demand for cryptocurrency custody, he notes that tokenization is a factor driving institutional interest in digital assets.
“Tokenization of fund shares is a key theme asset managers want to explore to attract new, smaller clients and cut distribution costs,” says Angjele. “Tokenization of financial securities is still in the experimental stage, but it is necessary to establish market standards at the outset to create the secondary market in these instruments.”
In September, Citi announced the provision of digital custody for clients trading on BondbloX Bond Exchange.
“This is our first market for digital custody,” explains Nadine Teychenne, head of digital assets within Citi’s securities services unit. “The proprietary technology is scalable and will allow us to provide settlement and custody services for clients investing in assets issued on permissioned blockchain networks and digital financial market infrastructures.”
The bank is working with technology providers to test a system for custody for assets on public networks.
Services
Digital-asset servicing can be divided into two elements, the first of which relates to the custody of the assets – the technical part of the business that manages the infrastructure to host the cryptographic keys substituting the property of the asset. The second relates to the management of the asset, such as recording it in a ledger, delivery versus payment, valuation of the asset, and trustee and other services.
“Our custody offering is focused on this second part of digital asset servicing,” says Yvan Mirochnikoff, head of digital solutions at Societe Generale Securities Services. “We have partnerships with technical companies and providers who are managing the first leg of the custodian function.”
Deutsche Bank is building a digital asset-agnostic solution for custody, which will be its platform for offering custodial services to clients globally, says Paul Maley, global head of securities services at Deutsche.
“At the launch, our scope will be limited to selected tokens, services, jurisdictions and our largest clients only,” he says. “Similar to many of our peers, we will initially cover the most liquid and well-established cryptocurrencies.”
Deutsche did not comment on when the solution would go live.
