How Crypto Custody Providers Will Advance Institutional Markets
In spite of recent market events, institutional participation in the digital asset economy continues to show signs of positive growth. Traditional financial institutions are seeing increased trading and custody of the more established digital assets, Bitcoin and Ether, on their digital exchanges. Many have reverted to partnering with crypto-native custodians to offer institutional investors a gateway to the digital asset economy, signaling a promising trend towards trusted and robust platforms to access the market.
Regulations around the world are rapidly changing and adapting to an evolving cryptocurrency landscape in jurisdictions looking to make themselves more attractive to institutional investors and, more generally speaking, to companies looking to establish and grow their digital asset presence.
With user asset security at the top of most agendas, the importance of crypto custodians has never been more pronounced.
Building back trust
Transparency and accountability are paramount to ensuring our industry maintains the highest levels of security and providing users with confidence and peace of mind that their digital assets are safe when engaging with crypto companies. The lack of proper governance controls and institutional infrastructure, as evidenced by the market downturn’s effects that are still reverberating to some degree across the industry, have reinforced the need for security-first platforms with the right infrastructure in place. Institutional crypto custody providers are built with security at the core of their infrastructure and are paving the way towards a safer ecosystem.
Offering 100% cold storage solutions as the foundation of their operations, their solutions have expanded in recent years to allow institutional investors to do more with their crypto assets than to leave them sitting idle in their cold wallet. The inherent expertise of institutional crypto custodians in developing such solutions, including staking and off-exchange settlement, has attracted a wide variety of institutional investors looking to kickstart, continue, or increase their exposure to cryptocurrencies.
Minimizing counterparty risk
A recent JP Morgan survey highlights key concerns of market volatility and liquidity availability as the top hindrances preventing the 835 institutional traders surveyed from participating in crypto trading. While centralized exchanges remain the biggest source of liquidity for institutions, the FTX debacle has shaken confidence in leaving significant holdings in such venues. Counterparty risk management has become a top priority for investors looking to access deep liquidity without compromising on security.
Off-exchange settlement solutions the likes of Mirror enable institutions to deploy their liquidity on an exchange while their assets remain off-exchange in their segregated cold wallet. Such solutions have become increasingly attractive to asset managers, hedge funds, market makers, and other institutional investors wanting to maximize capital efficiency while minimizing counterparty risk.
Facilitating institutional adoption
Ceffu addresses evolving institutional needs with institutional-grade custody and liquidity solutions to help you store, manage, and utilize your digital assets efficiently. Built upon our cold Qualified Wallet solution, our off-exchange settlement product Mirror has seen significant adoption over the last quarter of 2022 and early 2023. Being the sole institutional custody partner of the Binance Exchange, clients on Ceffu can access some of the market’s deepest liquidity across the top digital assets while their assets remain secure in their Qualified Wallet on Ceffu.
These off-exchange solutions represent an important step in the evolution of institutional crypto custody providers that can offer a secure and battle-tested bridge to the world of cryptocurrencies.
Market downturns are often followed by more innovation. Such monumental shifts force us to rethink our current models and systems, listen to client concerns and feedback, and be adept at developing more secure and efficient products.