The rise of digital assets is becoming imminent by the day, and institutions are already flocking to have a substantial stake in the digital economy. There has been a flurry of institutional investment in digital assets since the 2021 bull run. It will only rise substantially, with the cryptocurrency market cap breaching the $1.71 trillion mark.
According to a survey, 33% of firms increased their investment in digital assets between 2022 and 2023. Firms like MicroStrategy and Galaxy Digital Holdings dominated the digital asset market, with the former alone having 129,699 Bitcoin in its reserve.
Institutional crypto adoption is exploding, but securing and managing assets remains a critical bottleneck. Digital asset custody protocols have positioned crypto custody providers to address the infrastructure and protocol gap for robust, regulated usage of digital assets.
In this article, we explore the top 5 innovative custody solutions that are contributing to increased adoption of digital assets.
Top 5 Institutional Crypto Custody Providers
BitGo
BitGo is one of the most reputed and widely accepted custody solutions in the digital asset space. It uses highly secure muti-sig technology to offer institutional-grade custody through hot wallets, cold wallets, and self-managed custody wallets.
Trusted by leading crypto businesses like Bitstamp, Maple, Hashkey Capital, and Bitcoinira, BitGo offers up to $250 million in insurance against theft or loss of keys. It serves two sets of audiences: institutions and developers. BitGo also allows pairing custodial wallets and hot wallets for increased security. It supports 200+ different assets and is SOC-1- and SOC-2-compliant.
Here are some of the key features of BitGo:
Can Create Private Blockchains: BitGo can create customized private blockchains to serve specific organization needs, restricting access to assets for increased security.
Multi-Sig Wallet: It uses a multi-sig wallet architecture to prevent a single user from mismanaging funds.
Faster Transactions: BitGo lets businesses allow non-confirmed transactions to boost transaction speed for instant settlements.
User Interface: BitGo has an easy-to-implement interface, making it easier for non-development background stakeholders to interact.
However, BitGo has some limitations too. For example, it has limited support for non-custodial trading. Also, its pricing is on the higher side as compared to other platforms on the list. With its high pricing, BitGo is more suited for large enterprises and not so much for crypto SMEs.
Liminal Custody
Liminal is a regulated, qualified and ensured digital asset custody and wallet provider for institutions. Built by seasoned wallet engineers and innovators. Liminal caters to the custody requirements of leading institutions transitioning to DeFi. It follows a zero-key leakage tolerance approach, helping businesses eliminate the risks associated with digital asset transfers, such as cyber-attacks, internal collusion, and human error. Backed by industry leaders like CoinDCX and Elevation and trusted by leading Web3 institutions and regulatory agencies, Liminal has emerged as the most reliable custody solution partner for regulatory bodies and federal agencies across India and different parts of Asia.
Liminal has operations in 12+ countries that continue to expand with strategic partnerships. It has successfully processed transactions worth over $6000 million, helping businesses save 100+ manual hours. It is a regulated custodian of digital assets with operating licenses from different parts of the world, including TCSP from Hong Kong and in-principle approval from ADGM for an FSP license. Besides these, Liminal continues to actively seek approval for licenses like MAS in Singapore, VARA in Dubai, and FIU in India.
Here are some of the most unique features of Liminal:
Automate Wallet Balances and Transactions Through Automation Engine: Liminal Custody’s auto sweeping, refilling, and smart consolidation features optimize wallet balances and operational efficiency, and ensure that funds are readily available for transactions.
Firewall Monitoring for Risk and Compliance: Liminal uses an intuitive rule-based configuration, allowing businesses to define custom rules for monitoring, detection, and applying actions based on specific criteria. On top of that, the firewall prescreens all transactions for security, compliance, and anomaly threats before sending them to the signer, enhancing security substantially.
Government Partnerships: Besides offering custody to crypto startups, Liminal actively collaborates with regulatory bodies and central agencies like India’s FBI to safeguard digital assets confiscated during investigations. Since leading government bodies trust Liminal, it has an extra advantage when it comes to gaining user trust.
However, there are a few limitations that it needs to overcome. With only 3 years in operation, Liminal might need more time before it can handle an enterprise-level asset custody. Also, those serving large enterprises tend to have more flexible pricing as compared to Liminal.
Copper
While Liminal is suited for government agencies and crypto SMEs, Copper primarily offers custody solutions to large enterprises. It leverages the highly secure MPC (multi-party computation) technology to offer enhanced security, efficiency, and customization. Copper offers cold, warm, and hot vault options tailored to the specific requirements of clients. Users have the flexibility to configure online or offline, client-side, and server-side shards, ensuring the utmost adaptability for each asset.
It enables tracking of customer deposits and withdrawals across 30+ blockchains, offering industry-grade interoperability. Also, clients can set up unlimited proxy wallets. Some of the leading clients of Copper include Bitstamp, Nickel Digital, and GSR.
Here are some of the key features of Copper:
Signing Quorum: Copper Custody functions based on a two-of-three signing quorum, establishing a built-in redundancy mechanism. This setup removes the necessity for parties to uphold copies of each other’s shards, thereby enhancing the overall security of the system.
Enterprise-grade Flexibility for Vaults: Copper offers flexible cold and hot vaults to fulfill the diverse security and compliance requirements of clients. It helps Copper emerge as a reliable custody solution for a diverse range of crypto enterprises operating in different regulatory environments.
However, if you are an emerging crypto startup or a small-scale business, Copper’s pricing could put a strain on your budget. Hence, it is important to compare the pricing of other custody solutions before coming to a conclusion.
Coinbase
Coinbase custody is a full-fledged crypto custody software designed to serve Startups, SMEs, and Enterprises. It is a one-stop solution that offers both custody solution and staking under one roof. Coinbase’s custody solution can be accessed through API or the web. It supports nearly 90% of the cryptocurrencies in circulation. While it is designed to offer custody to a wide range of crypto businesses, its primary clients include large crypto enterprises seeking secure storage for their digital assets and private keys.
Thanks to its operations across multiple countries, Coinbase helps these businesses comply with security and regulatory guidelines. Here are a few notable features:
Security: Coinbase employs a multitude of security measures such as offline cold storage, multi-signature wallets, robust authentication protocols, and rigorous operational controls to safeguard the assets.
Insurance: Coinbase Custody extends a $320 million insurance coverage for digital assets under its custody to mitigate the risk of loss resulting from theft or hacking incidents.
Evolving Landscape: It has a strong track record of regulatory compliance and adhering to industry standards. For example, Coinbase Custody operates as a separate entity and is regulated as a qualified custodian to guarantee additional assurance.
However, it lacks the flexibility that other custody solutions offer. Coinbase is primarily designed to serve large enterprises and its role is limited to safeguarding assets and private keys.
Cobo
Cobo is another popular custody solution tailor-made to suit the requirements of crypto institutions. It employs enterprise-grade security solutions like 3-tier private key storage architecture, HSM signing, multi-signature access, key sharding, and global key distribution to offer unparalleled security for digital assets. Cobo supports 70+ chains and 1,800+ tokens, which makes it one of the most interoperable custody solutions out there.
Cobo’s optimized risk control framework, powered by on-chain monitoring expertise, removes single points of failure and operational risk error to offer the highest grade of crypto security.
Cobo ensures the security of your digital assets through two customizable custodial solutions: HSM and MPC.
Full Custody (HSM) fortifies asset security with a multi-layer defense system that incorporates bank-grade hardware security modules (HSM), Intel SGX, and additional protective measures.
On the other hand, MPC Co-Managed Custody allows institutions to retain complete control over their assets with Cobo’s state-of-the-art multi-party computation (MPC) technology. This innovative approach divides a private key into individual encrypted shares.
While it’s extremely difficult to point out a flaw in Cobo’s offerings, pricing is something that could prevent small enterprises from selecting the platform.
Choosing the Right Crypto Custodian
Following all the comparisons, the question remains – How to select the right crypto custodian? Different businesses have different custody requirements depending on their operational geography, fund size, regulatory and security obligations, and customization requirements.
One must take into account all the aforementioned requirements before making a decision. Here are a few key factors to evaluate before selecting a crypto custody solution:
Solution Type: Different platforms offer different types of custody solutions, e.g., non-custodial wallets, self-custody, hot wallets, cold wallets, etc. It is important to review the security requirements and preferred custody type to make a decision.
No of Assets Supported: This could be a defining factor. For example, some platforms might support just ERC-20 tokens. Therefore, it is important to review operational requirements.
Security Infrastructure: Security trends keep on evolving with the evolution of the Web3 space. Thus, it is equally important to review the security architecture to see if it suits the firm’s expectations.
Compliance: Crypto is one industry where regulatory obligations change from one country to another. Thus, it is important to go for a solution that helps businesses comply with the compliances of the place.
Pricing: In the end, it all boils down to budget constraints. Thus, it is always wise to first check if the solution falls within the budget.
Remember, there are no hard rules to select a custody solution provider. Businesses must always do their due diligence to stay ahead of the trends and make an informed decision.
Secure Asset Custody: A Prerequisite for Mass Adoption
The biggest challenge for crypto businesses and stakeholders is mass adoption. But with security concerns looming, adoption is only possible with secure transactions, faster processing, and interoperability.
Unlike the awareness phase, institutions are well aware of their requirements, and custody solution providers must adapt to them.
As an institutional investor or asset manager, finding the right custody solution could be challenging. With so many platforms offering similar features, making a decision requires an expert perspective. That’s what this article is all about. So, read on.
The Rise of the Crypto Guardians
The majority of the world population prefers banks over digital wallets because banks are bank-able. The foundation of the success of TradFi is built on trust from the users. For DeFi to emulate the success of DeFi, security has to be top-notch.
The historical lack of secure and trustworthy crypto custody options has been a significant challenge in the journey toward mainstream adoption of digital assets. Cryptocurrencies, particularly in their early years, were often associated with a sense of novelty and experimentation.
Innovative Custodial Solutions Rising Up To The Occasion
Roadblocks like technological complexity, lack of regulation clarity, and limited institution participation prevent legacy solutions from offering institutional-grade custody for digital assets.
However, innovative custody solutions have shifted the paradigm by offering top-notch security, TradFi-level simplicity, customization, and interoperability. Thanks to the implementation of smart contracts, the scope of custody solutions now extends beyond safeguarding private keys.
Modern-day wallet infrastructure providers are leveraging features like MPC wallet for hot and cold wallets, policy-based workflows, industry-first cold wallet staking, and custom firewall layers to improve security, throughput, governance, and transaction processing.
The Impact of Evolving Regulatory Landscape
The ban on foreign crypto exchanges like Binance in India is the most recent example of how regulatory changes can impact stakeholders. Thus, businesses must consider this impact while selecting a custody solution for their digital asset protection. Here are the key regulatory factors that may affect custody needs for institutions:
Compliance Requirements: Compliance requirements such as AML and KYC may vary from country to country or state to state. Thus, a customizable custody solution is necessary for firms operating in the space.
Security Standards: Regulatory bodies often set minimum security standards such as secure storage solutions, multi-signature authentication, and regular security audits) for custodial services to safeguard against cyber threats and hacking incidents. Thus, selecting a solution that follows the prescribed standards is important.
Insurance and Asset Protection: Certain regulatory frameworks mention insurance coverage for digital assets held in custody to protect client assets in the event of unforeseen circumstances, providing an additional layer of confidence.
Now that we know what are the challenges ahead of legacy custody solutions and institutions and how innovative wallet-as-a-service providers are tackling them, it is time to explore the options available.
The Final Takeaway
Secure custody of digital assets is paramount for institutions to adopt crypto and trigger an inflow of billions of dollars into the digital asset market. With ever-evolving security risks, regulatory requirements, and market trends, secure custody is a prerequisite for mass institutional adoption. Robust custody solutions instill confidence, meet regulatory standards, and mitigate risks associated with asset loss.
The comparison above provides a clear overview of the current state of the custody solution industry in terms of its offerings. It’s important to note that this is not a ‘one size fits all’ situation. Innovating custody solutions are rising to the occasion like never before, adapting to the changing regulatory and security requirements. With so many reputed platforms joining the game, it’s only a matter of research for institutions to beef up the security of their assets.
