Custody of Digital Assets - DDSP Note

"Financial entities need to redefine their role in the crypto market to be custodians of new digital assets."

October 27, 2021
DDSP - Digital Money and Payment Systems

The day before yesterday (October 25) we celebrated the 13th session of the group's year DDSP extension de Fide Foundation on "The custody of digital assets» with contributions from alfonso gomezCEO BBVA Switzerland and Adolf C., responsible for institutional development of Prosegur Crypto. Digital assets are understood as those that are fundamentally registered in blockchain and its custody and security parameters are very different from current financial assets, such as bank money or deposits and titles in book entries in regulated entities.

Custody is being offered by companies without a specific license using figures of money transmitter o EMI, although in the EU dedicated licenses will be required under the Mica
Custody options are today very fragmented, being a market still in configuration, despite the fact that the capitalization of the cryptoassets is over $ 2,3 trillion, mostly through exchanges, brokers crypto or online custody solutions segregated into subaccounts or cold or offline custody.
It will be essential that custody solutions allow liquidity to be obtained from crypto assets (although some seek simple hoarding), which is easier with online solutions, but it is also possible with offline custody. The market requires solutions that allow staking and make the exposure profitable.
Financial entities need to redefine their role in the crypto market to be custodians of new digital assets. This entails an update of the customer service model and a strategic decision on its custodian model, especially if it is developed internally or if it is outsourced.
Counterparty risk is key for clients. Will it be a market only for the grown-ups or for everyone? In addition to custody, they will offer crypto intermediation and services DeFi? How will banks make money and which models will be successful?
Regulation Mica will be key and it is already urgent, since in several countries it is being regulated bespoke shoe in anticipation, in others casos the market grows without dedicated regulation. It must be understood that in the crypto market competition is even more global than in traditional assets.
The role of Bigtech, companies like Paypal card issuers and neobanks will be crucial in custody solutions, since especially the former are the growing user interface in payments.
In this line novifinancial de Facebook (now Meta) represents a brilliant move in the market for d i digital wallet relying on custody in Coinbase and in the stablecoin Paxos