As the digital asset space continues to evolve, investors are now shifting their attention from Bitcoin to emerging DeFi protocols and layer one blockchains such as Solana.
But as more investors pump in liquidity into what are essentially computer codes, there is now growing concern over how their interests can be safeguarded.
This is why cryptocurrency custodial services are fast rising in importance, according to panellists during a session titled “The market overview: What are the challenges for mainstream institutional adoption?” at the recent Cryptocurrency Trading Forum.
What Makes a Good Cryptocurrency Custodian?
One question that came up during the discussion was: what are some factors that investors should consider when choosing a custody provider?
One major consideration around custody solutions is now in making sure that they are compliant with regulations, said Damien Loh, CEO of Matrix Asset Management.
Another key consideration revolves around the technical aspects of custodians and their ability to keep pace with market trends and developments, such as the addition of new crypto coins.
“We are thinking of launching a tracker fund, which will track the top few coins by market cap, in which case the custodian that we choose has to be able to custodize many different coins,” said Loh.
“But they will also have to be able to keep abreast of the market and add new coins as they become more popular.
“With every rebalancing we will like to keep our coins with the custodian. If they are not keeping up with market developments and not accepting those new coins, then that will become a big issue for us,” he added.
Security is also an area of concern. Loh says the ideal custodian should use best practices, such as allowing for multi-signing (or multi-party computation) so that a few people have to sign off before funds can be moved in and out of the custodian account. Such a feature will prevent one bad actor from moving the funds around by themselves.
Finally, the degree to which the funds within a custodian account can be used to interact with DeFi applications, as well as the ease and frequency of moving them from a cold wallet to a hot wallet, also factor into Matrix Asset Management’s decision process in selecting a custody provider.
“People not familiar with crypto think Bitcoin is synonymous with crypto, but that’s not the case at all. Because of the variety of coins, I think it’s really important that people understand that custody is not just for BTC but also for all these other coins. That will keep growing as the industry grows overall,” said Loh.