Institutional Digital Asset Infrastructure Advances

Shanny Basar
MTS Expands in European-Denominated Corporates

Cowen, the US broker-dealer, has partnered with PolySign to give clients access to cryptocurrency and digital assets while Copper, a digital asset infrastructure provider, has raised $50m (€41m) in funding.

Mathew McDermott, Goldman Sachs

Mathew McDermott, global head of digital assets at Goldman Sachs, said in a report by the bank that digital custody is very different from traditional custody but institutions are getting more comfortable as there institutional-grade offerings which have improved security, execution and risk management.

“Many of these entities are now raising capital in the public markets, both to further institutionalize their offerings and credentialize their activities,” he added. “The quality of custody both in terms of the technology itself as well as the products around it have evolved with the market.”

McDermott continued in the report, Crypto: A New Asset Class ?, that the three key constraints to institutions investing in crypto and digital assets are mandate limitations; ease of access and whether having crypto exposure makes sense for their portfolios or balance sheets.

“But as evidenced by the increased inflows, more and more entities are becoming comfortable with having some exposure to the crypto space,” McDermott added.

Michael Sonnenshein, chief executive at Grayscale Investments, said in the report that the biggest obstacles for institutions primarily relate to the plumbing around crypto assets but this is being actively addressed.

“The underpinnings of the crypto ecosystem are still maturing, but tremendous work is underway in terms of improving order management systems, tax lot reporting, algorithms, application programming interfaces (APIs), custodial solutions, and all of the nuts and bolts that digital assets need to thrive,” he added.


Cowen and PolySign launched a partnership in May 2021 to give the broker’s clients seamless access to the new markets in a sign of increasing institutional acceptance of crypto and digital assets

Cowen also made a $25 million strategic investment in PolySign, leading the $53m first close of PolySign’s Series B fundraising. Other investors in the round were Blockchain.com, Race Capital, Sandia Holdings and PilotRock Investments.  The funds will be used to accelerate PolySign’s ongoing development of institutional blockchain applications.

Jeffrey Solomon, chair and chief executive of Cowen, said in a statement: “As digital assets continue to grow and mature as an asset class, institutional investors need trusted custody and trading solutions on par with their requirements for investing in traditional securities.”

Jack McDonald, chief executive of PolySign, told Markets Media that the increase in interest from institutions has been overwhelming.

“In the series B round we wanted to find a strategic partner that has outstanding deep relationships with institutional clients in different aspects of the capital markets but also wanted to pivot to digital assets,” he added. “We found the perfect balance with an investment bank that has been around for 100 years.”

He continued that since the partnership was announced he has had many conversations with institutions who have a sense of trust in adopting digital assets though an existing counterparty.

“For many institutions entering into a digital asset ecosystem and forging new relationships with new exchanges, new custodians and new service providers is a bridge too far,” added McDonald.

Standard Custody & Trust Company, a PolySign subsidiary, will provide institutional-grade, regulated custody solutions. Standard is one of the few firms to have received a trust company charter from the New York State Department of Financial Services as a regulated qualified custodian of cryptocurrencies and other digital assets.

McDonald said PolySign made a deliberate choice to apply for approval from New York state.

“We went in with eyes wide open. We knew New York would take a lot longer, would cost more money and have a greater level of scrutiny,” he added. “However, ultimately it would afford us a better brand patina to enter the institutional market.”

As a New York regulated financial institution PolySign can act as a sub-custodian to other financial institutions regulated by the state and the firm is looking into some of those opportunities. McDonald continued that PolySign was proud of being the first de novo applicant to receive a charter from the New York State Department of Financial Services.

“The other licensees had pre-existing businesses,” he said. “We were able to impress the regulators and instil a sense of trust in what we were doing and who we are.”

Some of the fund-raising will be used to expand PolySign’s regulatory footprint with more state licences and also for international expansion in Europe and Asia.

Standard’s security program combines proprietary blockchain technology, end-to-end encryption, and distributed trust protocols to protect secret keys. The integrated escrow platform enables investors to buy and sell digital assets directly from custody, reducing the risk of external transfers and inefficient transactions between multiple accounts and different providers.

Jack McDonald, PolySign

McDonald said: “Standard is the only custodian to use third-party transaction verification and tun blockchain technology through ‘smart’ hardware security modules which differentiates us and has a lot of value from a security and regulatory compliance standpoint. In addition, our ability to have more throughput and capacity is second to none.”

PolySign and Cowen intend to pursue opportunities to integrate PolySign’s digital banking technology into Cowen’s sales and trading platform. The partnership is not exclusive and McDonald said Polysign has had expressions of interest from other banks to licence its software.

“Traditional banks are all carrying out their own analysis for digital assets and whether to build their own solution, buy it outright, licence software or rent a platform,” he added.

Established custodians such as Standard Chartered have also announced that they will launch into digital assets but their solutions have not yet gone live.

“Ultimately I think there’s going to be an M&A phase when big banks will realise that it’s difficult and time-consuming to build your own solutions,” said McDonald. “It is also hard to find engineers with this skill set and many of those engineers would rather work for start-ups.”

McDonald said another differentiating factor is that the PolySign team bring together technology, innovators and experience from financial services.

McDonald was formerly chief executive of Conifer Financial Services, an independent asset services firm acquired by SS&C. Arthur Britto, founder and president of PolySign, previously co-founded Ripple and co-designed the XRP Ledger. Tim Keaney, vice chairman of PolySign, is retired vice chairman of BNY Mellon.

McDonald said: “We don’t think of ourselves as a cryptocurrency custodian but as a digital asset infrastructure company. Traditional assets will be digitized and tokenized over time so even if cryptocurrencies go to zero, which we certainly don’t think they will, our business has a monster opportunity in front of us.”


Copper, the London-based digital asset infrastructure provider, closed a $50m Series B funding round in May 2021 co-led by Dawn Capital and Target Global.

The round follows Copper’s Series A funding in February 2020, bringing total capital raised to date to $60 million. Other participants in the round were Illuminate Financial Management, LocalGlobe and MMC Ventures, and a number of fintech executives and entrepreneurs.

Asen Kostadinov, Strategy at Copper, told Markets Media: “We provide a one-stop shop solution that provides a safe and secure gateway for institutions to store digital assets and mechanisms to use those assets to trade.”

Copper was founded by chief executive Dmitry Tokarev in 2018. Kostadinov explained that custody of crypto assets is very different to traditional assets, as they are essentially  bearer assets, which leads to another layer of complexity.

Copper’s base layer is enabled by MPC, the newest technology for management of private keys.

“One of the key advantages of MPC is that it is a layer that is abstracted away from the individual chains.” He added. “Therefore, new types of assets can be added easily as the market evolves very quickly.”

Kostadinov continued that moving assets out of custody to a venue to trade increases risks and is an inefficient use of capital. Operational risks could include an employee misappropriating the assets, a venue freezing assets or getting hacked.

“Transferring assets on a chain takes time during which people can’t take advantage of trading opportunities,” he added.

Transferring digital tokens from a secure cold wallet into an exchange’s hot wallet can often take between ten minutes to one hour, with possible delays in withdrawals and post-trade settlement. To solve this problem Copper launched  ClearLoop in May 2020, which enables clients to trade without moving assets to venues.

ClearLoop aims to  enable off-exchange settlement in less than one second. Copper’s assets under custody have increased 40 times since the end of the third quarter.

Asen Kostadinov, Copper

Kostadinov said: “ClearLoop has been transformational to the market because it brings the crypto market structure closer to traditional securities.”

Bitfinex, a digital token trading platform, integrated ClearLoop, in March this year.

Paolo Ardoino, chief technology officer at Bitfinex, said in a statement: “Our platform’s relationship with Copper is driving uptake of digital token trading among hedge fund and asset managers worldwide, transforming how institutional customers engage with digital tokens, by providing market-leading custody and trading solutions.”

Copper aims to bring the biggest crypto venues into the network. To date, Copper has integrated more than 25 major exchanges into its ClearLoop and Walled Garden networks.

“We’re getting quite good traction with some of the top five venues, and there is a network effect,” Kostadinov added. “In the past three to four months we have seen Copper clients asking different venues to join the network in order to continue trading because that is the only way they can assure their assets are safe.”

He said Copper had seen a marked increase in institutional interest since the fourth quarter of last year. Copper has more than 200 customers including traders, wealth companies, private banks, cryptocurrency funds and family offices.

“Crypto currencies and digital assets are very specialised technologies that traditional financial firms can’t really spin up in a matter of months,” added Kostadinov. “The only path available to them is either to buy or partner in some shape or form.”

Tier 1 banks have shown interest in accessing Copper’s technology in order to service their clients which want exposure to crypto and digital assets.

Kostadinov said: “Partnering with traditional banks has definitely been part of our plan and it has happened quicker than we thought.”

Traditional financial services firms are looking to enter the crypto and digital asset world. Kostadinov argued that one of the differentiating factors for Copper is that the team has deep experience and understanding of three things which are required to be successful in this space – financial services, security and technology.

“We will enable some of the bigger firms by selling some of our technology, such as custody,” Kostadinov said “They will also need our continuous support to service the new tokens and products that appear in crypto all the time and which require specialist knowledge to master.”

Kostadinov said the firm will use the fundraising to scale across the board in order to be able to satisfy demand.

“Very importantly, we are dedicating a significant portion of the budget towards regulatory licences,” he added. “In some jurisdictions you are required to have regulatory capital.”

In addition Copper will use the funds to broaden its international footprint across the US and Asia, with plans to open at least two new regional offices. The firm intends to triple headcount by the end of this year.

Josh Bell, general partner at Dawn Capital, said in a statement: “With the proliferation of institutional investment in digital assets over the last few years, we had been tracking Copper since its entry to the market just three years ago. It is rare to find a team that so expertly understands not only traditional asset management, but that of digital assets and how to marry the two worlds to provide institutional-grade infrastructure that truly meets investors’ requirements.”

Kostadinov continued that more people are realising that the infrastructure that powers crypto is the future infrastructure of financial markets, for example, central bank digital currencies and securities being issued on blockchains. He sees crypto and traditional financial services eventually converging.

“Companies that are well-prepared to operate in crypto will be well-positioned to enable the transition that is about to occur,” he said. “Our goal is to stay focused on crypto and solidify our position to prepare for what is coming in the short to medium term in wider financial markets.”

Institutional growth

Michael Novogratz, chief executive of Galaxy Digital Holdings, said in the Goldman Sachs report that institutions need to participate in crypto ecosystem. However, institutions need  more regulatory clarity which they are likely to get soon as Gary Gensler, the new chair of the US Securities and Exchange Commission is very knowledgeable about the crypto space.

“Within his first nine months, a clear regulatory framework will likely emerge that will make it easier for institutions to get involved,”  Novogratz added.

For example, it is hard for institutions to use DeFi (decentralized finance) due to uncertainty around Know Your Customer requirements.

“With a little more innovation and regulator understanding over the next few years, DeFi protocols and projects will probably explode,” Novogratz said. “Uniswap could become a bigger exchange than the CME or the NYSE which will pull people in.”

In contrast, Nouriel Roubini, professor of economics at New York University’s Stern School and chief executive of Roubini Macro Associates, was skeptical about cryptocurrencies radically transforming the financial system.

Roubini argued that the crypto ecosystem is not decentralized as an oligopoly of miners essentially controls about 70-80% of bitcoin and ether mining.

“These miners are located in places like China, Russia, and Belarus, which are strategic rivals of the US and have a different rule of law,” he added. “99% of all crypto transactions occur on centralized exchanges.”

He continued there is some evidence that the ownership of crypto wealth is also highly concentrated.

“Less than 0.5% of addresses own around 85% of all bitcoin, based on CoinMarketCap data,” said Roubini. “There’s also evidence that whales holding a large amount of the total supply of bitcoin and other cryptocurrencies actively manipulate their prices.”

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