As the digital asset market evolves, an increasing number of traditional financial institutions are beginning to offer digital asset custody services. By leveraging their existing solutions and advantages, these institutions can provide digital asset custody services to their clients, thereby deriving value.

Digital asset custody services refer to providing secure storage, management, and access services for holders of digital assets. Similar to custody in traditional financial markets, the goal of digital asset custody is to protect clients' cryptocurrencies and digital assets. However, unlike traditional custody, digital asset custody places more emphasis on asset storage through secure key management. This means that clients' cryptographic assets are protected in a controlled manner, usually managed by professional service institutions that handle clients' private keys, or by technology providers offering customized custody solutions that allow clients to control their private keys.

In recent years, the digital asset market has shown a trend of rapid growth. This trend has attracted increasing institutional and individual investors to the digital asset market. According to Coingecko, as of January 31st, 2024, the total market cap of the global crypto market amounted to $1,731,398,134,448.

Opportunities for Traditional Financial Institutions

With the continuous development of the digital asset market, more and more institutional and individual investors are looking to include digital assets in their investment portfolios. By participating in the digital asset custody business, traditional financial institutions can obtain the following values: Firstly, meet market demands and attract new customers. As the digital asset market continues to develop, more investors are looking to include digital assets in their investment portfolios. Traditional financial institutions can meet investors' needs and attract new customers by offering digital asset custody services. Secondly, enhance their competitiveness and brand image. By collaborating with digital asset service providers, traditional financial institutions can expand their business scope and offer a broader range of financial services, thereby maintaining an advantage in market competition. At the same time, they can establish an innovative and forward-looking brand image by demonstrating an open attitude towards emerging technologies. Thirdly, expand market share and achieve business diversification. The digital asset market has enormous potential, and by offering digital asset custody services, traditional financial institutions can expand their market share and gain more business opportunities in the digital asset field. Moreover, they can generate additional income from custody fees or other related service fees, achieving business diversification.

There are mainly two models for traditional financial institutions to offer digital asset custody services:

• Build their digital asset custody business: Traditional financial institutions can leverage their financial strength, technological capabilities, and regulatory experience to build their digital asset custody business. This model provides more flexibility and control for the institutions but also requires a significant investment of time, money, and resources.

• Collaborate with third-party digital asset custody institutions: Digital asset custody involves complex technology, and traditional financial institutions need to master and enhance relevant technological capabilities, such as blockchain technology, encryption technology, and digital asset security management technology, to provide secure and reliable digital asset custody services. Therefore, traditional financial institutions can choose to collaborate with mature third-party asset custody institutions in the crypto industry to jointly develop secure and reliable digital asset custody solutions. This model can help traditional financial institutions quickly enter the digital asset custody field, but it also necessitates the review and due diligence of third-party custody institutions to ensure custody security.

Institutional Adoption of Digital Assets is Growing 

According to a study by NYDIG, 82% of investors want their financial advisors to provide them with advice on Bitcoin. In fact, Coinbase sees institutional digital asset transactions of $130 billion each quarter alone. To meet the growing demands of clients, many financial institutions, including BlackRock, JPMorgan Chase, Goldman Sachs, and Citigroup, are adopting blockchain technology to facilitate the flow of digital assets. For example,

• Bank of New York Mellon (BNY Mellon) launched a digital asset custody platform in 2022 to support client needs. BNY Mellon announced in February 2021 its plans to hold, transfer, and issue Bitcoin and other cryptocurrencies on behalf of its asset management clients. As of December 31, 2021, BNY Mellon custodied $46.7 trillion in assets and had $2.4 trillion under management. It is the first multi-asset platform in the industry to connect digital and traditional asset custody.

• JPMorgan's Onyx digital asset platform, launched in 2020, has already processed nearly $900 billion in digital assets (JPMorgan).

• Germany's Second-Largest Bank Adopts Digital Asset Custody Platform: As Germany's second-largest bank by assets, DZ Bank launched its digital asset custody platform in November 2023, utilizing blockchain technology to serve institutional clients. The platform, designed specifically for institutional clients, offers encrypted securities, including Siemens' encrypted bonds subscribed by the bank six months earlier.

Holger Meffert, head of the securities services and digital custody department at DZ Bank, believes that a significant portion of capital market business will be processed using DLT-based infrastructure over the next decade, with DLT serving as a complementary technology to the existing capital market process infrastructure. The bank applied for a cryptocurrency custody license from the German Federal Financial Supervisory Authority (BaFin) in June 2023.

• Standard Chartered Bank Plans to Custody BTC and ETH for Institutional Clients in Dubai Starting Q1 2024 As early as 2020, SC Ventures, the innovation and venture capital subsidiary of Standard Chartered Bank, announced an agreement with asset service provider Northern Trust to launch Zodia Custody, an institutional crypto custody solution. Zodia began operations after receiving formal approval from the UK Financial Conduct Authority (FCA).

Source: theblockbeats

Standard Chartered Bank plans to start custodying BTC and ETH for institutional clients in Dubai starting Q1 2024. The service will be provided by Zodia Custody, leveraging the security and compliance advantages of Northern Trust.

Traditional financial institutions entering the digital asset custody field have enormous potential, but the digital asset market is still in its early stages, and regulation is not yet fully developed. When participating in digital asset custody, traditional financial institutions need to fully understand relevant regulatory requirements, such as Anti-Money Laundering and Counter-Terrorism Financing (AML/CFT) requirements, information security and privacy protection requirements, investor protection requirements, etc. They should mitigate risks by establishing comprehensive AML/CFT compliance systems, adopting advanced security technologies to protect digital assets, and signing clear custody agreements with investors to specify the rights and obligations of both parties. Additionally, as many investors are still unfamiliar with digital assets, traditional custodian banks need to conduct customer education, fully understand investors' needs, and provide comprehensive customer education services to help investors understand the risks and rewards of digital assets and make informed investment decisions.

ChainUp's Custody Services: A Cut Above

ChainUp enters the scene as a pivotal player, offering an array of benefits through its digital asset custody services:

• Advanced Security Protocols: Employing cutting-edge encryption and blockchain technologies, ChainUp ensures unparalleled security for digital assets.

• Regulatory Compliance: ChainUp's solutions are designed with strict adherence to global regulatory standards, providing peace of mind to institutions and their clients.

• Seamless Integration: ChainUp's custody services are engineered for easy integration with existing financial systems, ensuring a smooth transition for traditional institutions venturing into digital assets.

• Expertise and Reliability: With a proven track record in blockchain technology, ChainUp offers reliable and expertly managed custody solutions, setting a benchmark in the industry.

ChainUp's digital asset custody services not only align with the evolving needs of traditional financial institutions but also provide a secure, compliant, and efficient gateway into the digital asset market. For more information on how ChainUp can revolutionize your digital asset custody offering, visit ChainUp's Custody Services.

The intersection of traditional financial institutions and digital asset custody represents a significant stride towards a more inclusive and secure financial ecosystem. As these institutions navigate the complexities of the digital asset market, partnerships with seasoned players like ChainUp can offer the expertise and innovation needed to thrive in this dynamic environment.