Stepping stone or roadblock? Institutional Custody in The Era of Tokenization-1.47

As presented in our second publication, “Mapping business opportunities in The Era of Tokenization — a $24trn game”, institutional custody, as of today, is one of the biggest open battles for further market growth of Digital Assets (tokenized assets). Hence, it is one of the verticals with the highest potential and opportunities in the financial services landscape for tokenized assets. Custodians need to implement the necessary technology and infrastructure to secure tokenized assets which means protecting the private keys and developing secure mechanisms to support transactions in and out of custody. In addition to storage of the private keys, custodians also need to adapt their technology architecture to manage cybersecurity risks when interfacing with a public blockchain to facilitate asset transfers.

Lack of sophisticated custody solutions (for various reasons) currently prevent institutional money from flowing into the ecosystem. Consequently, it cannot exploit the full potential and benefits of asset tokenization, which is ultimately necessary to provide increased liquidity and market depth. Currently, Digital Asset custody providers are mainly based in the US and these providers focus mainly on cold storage solutions and offer a limited coin/token spectrum. The competition, however, is expected to intensify by the end of 2019. Recent announcements from larger traditional financial players (e.g. Fidelity) to offer institutional custody solutions are positive news for the entire Digital Assets ecosystem.

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