Future of Finance


Is the digital asset custody industry ready to grow up? (9 June 2022)

[JUN 2022]

A Future of Finance webinar with custody banks, digital asset companies, regulators and technology companies on June 9 at 2pm UK time

Safe custody is the crucial service for crypto-currency investors. The theft, loss or destruction of the unique private keys to the digital wallets in which cryptocurrencies are held is irreversible and – unlike conventional cash deposits – they are not insured by any commercial provider or guaranteed by any government or government agency. Data analytics firm Chainalysis estimates that a fifth of all Bitcoins ever mined (or somewhere between 2.78 and 3.79 million of them, worth over US$200 billion) are now lost. Losses to hacks (such as the US$97 million stolen from Liquid Exchange in October 2021, the US$200 million stolen from Bitmart in December 2021, the US$320 million lost via the Wormhole bridge in February 2022 and the record US$624 million taken from the Ronin Network in March 2022) remain disturbingly frequent. Although some retail investors have ignored these risks, institutional investors cannot. These facts alone explain the two distinct surges in the foundation of digital asset custodians. The first was at the height of the Initial Coin Offering (ICO) boom and early crypto-currency exchange hacks in 2017-18, when no less than 65 specialist custodians were founded, including well-recognised brands such as Copper, Fidelity Digital Assets, HEX Trust, Komainu and Propine and leading custody technology vendors such as Fireblocks. The second boom occurred in 2021, as the first institutional investors such as Ruffer and MassMutual invested in crypto-currency. The two biggest global custodians in the world, BNY Mellon and State Street, found themselves pressed by watching buy-side clients to provide a crypto-currency custody service. A further impetus to invest was imparted by the leading crypto-currency exchanges, which launched independent, institutional grade and (most importantly) regulated custody services. Coinbase, for example, has established an independently capitalised institutional custody business (Coinbase Trust Company) that is regulated by the New York Department of Financial Services (NYDFS). A third threat to the established custodians has come from specialist, independent, regulated, institutional grade custodians such as HEX Trust, Komainu, Standard Custody & Trust and Anchorage Digital. According to Blockdata, another US$1 billion of venture capital money was invested in digital asset custody businesses in 2021, taking the total raised since 2017 to US$4.6 billion. In its most recent fund-raising, technology vendor Fireblocks was valued at US$8 billion. In its last fund-raising, Copper was valued at US$3 billion. In a low margin business, these valuations indicate high growth expectations, and global custodian banks and central securities depositories (CSDs) are right to be concerned that they might be disrupted or even bypassed. That concern ought to become acute if the crypto-currency boom is followed by an equivalent boom in security tokens, though there are at present plenty of bystanders. London-based token exchange Archax is building its own CSD because no existing CSD can meet the needs of its customers. Only 15 banks have shown a public interest in developing a digital asset custody capability. One reason for this is that the long-awaited security token boom has struggled to take flight, and digital asset custody remains marooned for the most part in crypto-currencies. Coinbase, which is probably the largest single digital asset custodian, claimed that at the end of Q1 2022 it had US$256 billion in “assets on platform.” That definition includes crypto-currencies as well as other digital assets, but Coinbase is demonstrably still a crypto-currency custodian: 97 per cent of “assets on platform” consist of Bitcoin (42 per cent), Ethereum (24 per cent) and other crypto-assets (31 per cent) rather than what it calls “fiat” or securities tokens. Accurate data on the size of the security token markets is unavailable, but global market capitalisation is unlikely to exceed US$50 billion, which is one six thousandth the size of the conventional equity, bond and funds markets. If crypto-currencies are added to the list of custodiable assets, the global market is still worth just US$1.35 trillion, a ninetieth the size of the global bond markets and an eightieth the size of the global equity markets. Yet the Blockdata website lists 113 providers[1] of digital asset custody services, or one for every US$12 billion of assets, when BNY Mellon alone has US$45.5 trillion in conventional assets under custody. Custody is a business which demands scale. Coinbase collected US$136.3 million in custodial fees in 2021, or 0.06 per cent on average “assets on platform” of US$234 billion. In short, the digital asset custody field is over-crowded, which is one reason why failures, as well as mergers and acquisitions, are now taking place. Future of Finance has identified 80 survivors of the 2017-18 and 2021 booms, net of withdrawals from the market for various reasons. More than half are regulated, which indicates an appetite for institutional business. The most conspicuous buyers of digital asset custodians are crypto-currency brokers, which need a custody capability to extend their product offering to income-producing services such as staking, lending and crypto-currency prime brokerage. Although these new services sound daring, they are a predictable response to complaints by investors that they hold a highly volatile asset that produces no income. Generating fees from “mining” and validating blocks of transactions is a low-risk way to solve that problem, while lending crypto-currency into Decentralised Finance (DeFi) protocols provides a higher risk alternative. The analogue with lending and borrowing of securities in custody in the conventional markets is not misplaced. Nor is the burgeoning business of crypto-currency prime brokerage, in which leading crypto-currency brokers enable institutional traders to finance, hedge and arbitrage crypto-currency prices on blockchain-based marketplaces without incurring counter-party risk through collateralisation, tokenisation and netting rather than moving assets and settling trades atomically. This too, like old-world prime brokerage, is largely about accessing idle assets in custody. It is also a safer way to trade digital assets across multiple blockchain-based exchanges than via coded blockchain “bridges,” which have proved vulnerable to defalcations – an example of the sort of risk old-fashioned securities custodians exist to manage. Indeed, agreement on data standards of the kind used by custodian banks in the securities markets would probably do more to make it easier to trade digital assets across multiple blockchain protocols than any other step. The more digital asset custody strives to be different the more it seems the same as conventional securities custody. It is at the operational level that the convergence of the securities and securities tokens markets is really happening. The trillion-dollar question is whether operational change is enough to draw in a sufficient number of security token issuers and investors to create a sufficiently liquid market for it to be capable of self-sustaining growth. This Future of Finance webinar will probe the maturity of the digital asset custody industry, ask whether it can disrupt conventional custodians, and inquire whether it yet provides the necessary measure of safety to persuade institutional issuers and investors to ignite the security token markets.

  1. How can the incidence of hacks be reduced (e.g., better processes or better code)?
  2. What are the consequences of persistent thefts of crypto-currencies?
  3. Does a focus on a narrow range of assets (e.g., Bitcoin, Ether) help security as opposed to liquidity?
  4. What is the extent (and value to investors) of auditing of data and security controls in crypto-currency custody (e.g. to the ISAE 3402 standard)?
  5. Can crypto-currency exchanges and independent digital asset custodians disrupt the global custodian banks?
  6. Why are established custodian banks and central securities depositories (CSDs) so (apparently) dilatory in their approach to digital asset custody?
  7. What should conventional custodian banks do now?
  8. What should CSDs do now?
  9. Should established, traditional custody businesses build or buy (e.g., a provider or a technology)?
  10. Are crypto-currency custody techniques (e.g., cold storage/multi-sig, HSM, MPC) a source of competitive advantage anymore?
  11. Crypto-currency and security token custody risks are different. How well is this understood by institutional investors?
  12. Is there an inter-operability opportunity for a standards body?
  13. How are digital asset custodians making assets available while retaining them in custody?
  14. Are staking, lending, and prime brokerage legitimate monetisation opportunities for digital asset custodians to exploit?
  15. What new risks does crypto-currency staking, lending and prime brokerage create?
  16. What role should regulation play?
  17. Can regulation be “technology-agnostic” in the case of digital assets?
  18. Would it help to tie ownership of digital assets to digital identities?
  19. Digital asset custody is a complex, fragmented eco-system. Does it need consolidation and simplification?
  20. Is safer custody the necessary pre-condition for security tokens to take off?

[1] The BlockData report, Crypto Custody: The Gateway to Institutional Adoption, January 2022, uses a figure of 73 providers (page 26).


Massimo Butti, Product and Business Development Director at SDX

Over the years Massimo has worked for investment banks, prop trading firms, market makers and exchanges with roles in trading product and market development, cooperating closely with buy-side and sell-side traders, analysts and portfolio managers and helping creating markets and strategies to support them. 

At SDX he leads the equity team and he is dedicated to enhancing the funding process for private companies and improving the issuance, custody, and transfer of digital securities in SDX’s regulated CSD. He is responsible for reinforcing the interaction and collaboration between equity investors and companies in the digital age.

Prior to his current role, Massimo was seven years at the London Stock Exchange where he was head of equity derivatives markets and global account director developing the group key strategic accounts.  


Johann Bornmann, Product Lead for MetaMask Institutional part of Consensys

Johann is the Product Lead for MetaMask Institutional. Since launching the product in February 2021, Johann has managed the product strategy and roadmap, design and operations, and also crypto custodian integrations. Prior to joining ConsenSys, Johann spent time as a Fintech founder, Director of Product for a Pan-European Robo-advisor, and Global Macro Portfolio Manager, where he helped to start and build the business.


Swen Werner, Head of Digital Custody and Payments at State Street Digital

State Street Digital, is the business division focusing on digital assets and technologies including cryptocurrencies, central bank digital currency, blockchain, and tokenization. Swen is responsible for designing new products, leveraging different emerging technologies, including distributed ledger technologies and engagement with industry partners to design industry-leading service and operating models.  

Swen has been working in the financial services industry for over 15 years and has held senior roles in Europe, the United States and Asia with J.P. Morgan, Deutsche Bank and Deutsche Börse, focusing on product management for custody, clearing and collateral management. Swen has and continues to be actively engaged in regulatory and industry developments affecting the securities services environment and was selected by Global Custodian magazine in December 2019 to be one of “30 names who will shape the future of securities services.”

Swen holds an Executive Master of Business Administration (EMBA) from the Bayes Business School (formerly Cass) in London.


Dale Quantz, Chief Technology Officer at Polysign


Neil Fillary, Co-Founder at Shuttle Holdings

Neil has a capital markets, venture capital, investment, wealth & asset management background – nurtured over 20 years in leading organisations.  Neil started his career at RBS a proprietary analyst for Listed Derivatives, then moved to Deutsche Bank AG in 2004 as a derivatives-focused prime brokerage associate – Neil then spent 6.5 years at JPMorgan in various senior roles in the Investment Bank and Asset Management business. Currently, Neil serves as strategic advisory board member to Cardea – a global asset management and wealth advisory firm, he is also Co-Founder to a Multi-Family Office called Horizon (institutional grade co-investments for multi-generational families).  

Neil is an angel investor in emerging technology businesses – in particular, blockchain, digital asset infrastructure, DeFi & DLT. He is the Co-Founder and former Chief Strategy Officer @ DACS “Digital Asset Custody Services” – an innovative start-up building a robust architecture designed to manage the lifecycle of digital assets laying the institutional foundations in a new tokenised market paradigm.Neil is the Co-Founder, Partner, and former Chief Executive Officer @ Shuttle Holdings (4 years – privately backed VC firm with a focus on blockchain infrastructure, DLT and fintech) – Neil is a general partner in the groups hedge fund called Shuttle Fund Advisor (a CFTC regulated NFA approved fund in the US).  

Neil has successfully operated & owned a family office advisory business called NicheFort since 2014 devising investment and operational strategy with UHNW families and private institutions. Neil remains an advisor to Family Offices and HNWI’s having experience in launching a Single-Family Office in 2015