Investor Tool Kit: Safeguarding Assets Today and Tomorrow

- Crypto has done a good job of reducing hacks and scams through improved security measures

- Geopolitical tensions and the weaponization of the dollar has put stablecoins into focus due to sanctions

- The influx of traditional investors will favour solutions that allow them to access digital assets in a similar way to other asset classes

As Bitcoin is on the brink of becoming a central bank reserve asset and as stablecoins and tokenized money market funds increase their role in the collateral space, custody providers have to meet a higher bar than ever before.

Once a space famous for hacks and scams, the industry has done a good job of improving security in the space, David Newns, CEO of SDX told delegates, noting that while the overall market cap grew some 40%, thefts have fallen by a similar degree.

“What’s really important, first of all is that we acknowledge the overall trend that we’ve seen in the crypto industry over the last nine, ten years, which is to say that while volumes have been going up, the proportion that has been illicit finance has been trending down,” Simone Maini, CEO of data and analytics company Elliptic, agreed.

Brett Reeves, Head of OES at BitGo, noted that the new breed of participants and investors want to use qualified custodians and regulatory requirements are also pushing them to seek appropriate safeguarding for their assets.

“The everyday user and the institutional clients that want to come into this space have fiduciary responsibilities to their investments. They have to store it at a third party. So you have to then start looking at custodians or the third parties...we want to make sure they’re managed and regulated in the program,” Reeves said.

It’s not just who looks after assets that’s changing but what investors want to keep safe as well. Stablecoins are increasingly in the spotlight due to their growing role in the collateral space.

Maini noted that stablecoins have come under the microscope due to geopolitical tensions and sanctions by authorities such as the OFAC in the US, which translates into elevated compliance and legal risks for companies and investors.

“KYC is immense today. If you move from one institution to another one, the work is repeated twice. You know, it’s a stupid thing about the business. Clients should own their own KYC knowledge. We should be in position to verify proposed information,” Nicolas de Skowronski, Executive Board Member and Head of Wealth Management Solutions at Julius Baer & Co Ltd. said.

Panelists also discussed the anticipated influx of traditional institutions into the custody space, with SDX’s Newns emphasizing that TradFi investors want to access products in a way that’s familiar to them and in a way that fits with existing processes and practices. Julius Baer’s de Skowronski agreed and noted that his bank was the first one to make digital assets part of a discretionary portfolio.