Custody business has been dominated by traditional banks, and is one of the oldest known business models in the banking industry.
Institutions (and individuals) protect their assets with banks, and banks charge for this service. Banks have tangible assets that they can leverage for other businesses and institutions get security for their assets.
When it comes to digital assets, things become a bit complicated, the technical might needed to protect these assets can be overwhelming for traditional banks. Regulations in most cases also prevent traditional banks from doing much in this space (there are some exceptions, the US has allowed some leniency in this space).
This where crypto custodians like Copper.co are proving to be absolutely necessary.
Coinbase is the biggest #crypto custodian in the world, but there are many other players. Traditional banks like Barclays are investing and giving them legitimacy in a way.
Coinbase took a loan from Goldman Sachs for an undisclosed amount in USD for an undisclosed amount of BTC. As I am writing this, it just doesn’t sound right…but #crypto apparently is a popular collateral type. Just like any other asset class (I know cryptocurrencies don’t exactly fall under this category, but regulators will tell you otherwise), it was used to take a loan.
The #crypto #custodians do not hold anything physically, unlike traditional custodian business, rather they hold the private keys for the assets which are stored on a decentralized #blockchain.
There can be many types of custodians; exchange houses, but the risk is high with them because of the exposure they have due to the nature of their business. Traditional asset managers also offer this service, and then there are custodian banks.
The security concerns around #digitalassets are at an all time high, and this is further pushing institutions and even individuals towards #crypto custodian institutions.
I believe that the #defi and #tradfi (traditional finance) will have to be interoperable for the foreseeable future, until #defi gains critical mass (…it may never happen btw). Speculative and volatile nature of #cryptocurrencies is still a huge risk and an opportunity that is unpredictable, but securing them from fraud, theft, etc. is probably the 2nd most important concern and crypto custodians do make a difference here.