Crypto Reinvents Custody04.23.2019
Digital custody remains a work in progress for custodial banks, according to panelists during the recent Synchronize 2019 conference in lower Manhattan.
Unlike typical securities, digital assets are held directly by the owner rather than indirectly by the custodians and puts the settlement systems at odds with each other, noted Caitlan Long, co-founder of the Wyoming Blockchain Coalition and who moderated the custody panel.
As a result, BNY Mellon has taken a thoughtful approach to offering digital custody, according to panelist Lucien Foster, head of digital partnerships at BNY Mellon.
“It requires a different set of learnings, know-how, and infrastructure,” he said. “We have taken a thoughtful approach to the whole are because custody, as you said in the digital asset space, is quite different from custody in our more traditional areas and requires a different set of learnings, know-how, and infrastructure.”
The demands placed on digital custodians come from a different place than those of a long-only world developed for different asset types, added Justin Chapman, senior vice president, global head of market advocacy and innovation research at Northern Trust and panelist.
Northern Trust has been providing custody for digital private issues via a blockchain for the past three years. During that time, the custodian noted that standard custody model was not fit-for-purpose for institutional clients.
“Custodians still can deploy their existing technology and architecture without losing some benefits,” he added. “We believe the technology and architecture should allow for immutability and liquidity in the market space without losing the benefits of safety and assurance you need from proper financial services market,” he added.
Fidelity Digital Assets has taken a slightly different approach by becoming an institutional brokerage that focuses on digital currency as well as the most liquidity digital assets, according to fellow panelist Tom Jessop, head of corporate business development at Fidelity. “We are thinking about eventually providing custody for digital assets issued in a tokenized form.”
Eventually, however, Jessop expects that once custodians address the new cyber-security, operational security, and physical security needs that digital assets require the resulting infrastructure will end up looking like Fidelity’s existing infrastructure.
“There is this idea that blockchain is an autonomous concept,” he said. “It runs headlong into the reality of a more communal capital markets world and is trying to find the balance between the two.”
The venture capital firm believes we are entering the golden era of web3.
FTX Stocks provides an integrated platform for retail investors to trade crypto, NFTs and equities.
Crypto exchange-traded products could gain $100bn in assets over the next five years.
The Crypto Assets and Cyber Unit in the Division of Enforcement will grow to 50 dedicated positions.
Capabilities are going live on a weekly basis.