The blockchain ethos of the self-custody of digital assets remains relevant over a decade after the creation of Bitcoin in 2009. Numerous scams later, users at their receiving end get suggested to hold on to the keys that provide access to their coins and tokens. While that is the safest way to go, many users, especially institutional investors and enterprises, frequently transacting tremendous amounts of digital assets prefer third parties handling their value. The reasons for delegating the keys to third parties are manifold, with convenience being the frontrunner. While many have burnt their hands seeking convenience, relying on regulated, trustworthy custodians is the way to go. Activities like trading or running crypto-native enterprises benefit from the convenience engendered by custodians. The Issues Relevant to The Digital Asset Custody Landscape in the Past The issue, however, has been safety. The custody of digital assets has had no regulatory directives until recently, thus leaving safeguarding assets to enterprises operating conflicting verticals and not possessing the right capabilities. For a long time, crypto exchanges and other crypto enterprises offered custody services. However, such enterprises would also be involved in profit-generation activities like lending and investing with their own assets and portfolios. Without adequate regulations, some of these without the knowledge of their users. enterprises decided to hypothecate their user assets in risky strategies Such activities are a big no-no as user-deposited assets must never get comingled with enterprise profit-generation activities. The assets must remain in safe storage so the enterprises can honor all their user withdrawals simultaneously, preventing runs. In fact, many enterprises lost the assets they held on behalf of their users due to the strategies they indulged in going bust, leading to bankruptcies and causing their users to wave goodbye to their entrusted assets forever. Thus, digital asset users relying on third-party custody were at the losing end in the past. However, with growing awareness about such instances and regulatory entrance into the industry in various jurisdictions, third-party custody of assets is being done right. Custody services now offer adequate safety and convenience to those who do not want to manage their crypto holdings themselves. The Revival of the Custody Markets and Its Reasons The TradFi world has operated with third-party custodians for decades and proved that regulations and controls can, in fact, offer tremendous amounts of safety and let enterprises and investors conduct their activities with ease. The digital asset sector is no different. Some of the industry’s top custodians have operated honestly through their long tenures, and their users can attest to this fact. With regulations, many are implementing TradFi-like systems. Those in jurisdictions with no digital asset regulations are still following global regulatory trends to offer nothing but the best to their clients. A common trait with regulation-oriented custodians is that they do not operate verticals other than safeguarding user assets. That is what TradFi regulations have directed custodians to do for decades. With crypto regulations bringing the same dictates, users can know their assets are protected. The regulations discourage custodians from operating conflicting verticals and require them to maintain transparency with their regulators and get insured. Such requirements provide levels of . Custodian wrongdoings are identifiable from the get-go and can get nipped in the bud. safety that mirror the self-custody of assets Moreover, users can stay assured that their assets are always accessible, even during calamities like custodian bankruptcies and losses to hacks and thefts. Custodian insurance enables users to reclaim their assets, moving them away from third-party risks. What Can Be Expected by 2030 With that, many users have already begun using third-party digital asset custodians in droves. 2022 was a great year to be in the custody business, despite all the commotion in the crypto markets due to failing projects, lack of controls implemented by top exchanges, hacks, and a persisting bear market. The , showing the interest many digital asset users possess in trustworthy custody services. market size of crypto custodians rose to a whopping $447.9 billion While that is just the beginning, the digital asset custody market is set to rise at a CAGR (compounded annual growth rate) of 23.65%, taking its market size to $1.6 trillion by 2028 and closer to $2 trillion by 2030. The projection comes from a recent Proficient Markets Insight report that shines a light on digital asset custody usage. It includes various market segmentations of the digital asset custody landscape, like custody types, regions, industries, and custodians. The Custodians Enriching the Digital Asset Custody Market The data from the segmentations all point to one thing – burgeoning institutional interest in the digital asset ecosystem, with custodians providing the safety checks they need. While several custodians operate in the industry, a few dominate the markets thanks to the trust they have built over the years and the features they provide. Coinbase Custody Coinbase, as an entity, offers more than just its popular exchange service. Its custody service is one of the industry’s most trusted, with the company maintaining adequate controls to prevent the intermingling of user-stored assets with its other verticals. Its services are licensed by the New York State Department of Financial Services, a regulator known to enforce the most stringent checks before approving licenses to applicants. Resultingly, Coinbase Custody possesses $128 billion in AUM (assets under management), handing it the lion’s share of the industry’s assets under custody. Coinbase lets its users custody assets in its ‘Vault Storage’, a proprietary digital asset storage solution amalgamating the security of offline, cold wallets with MPC (multi-party computation) or MultiSig capabilities. The solution also addresses redundancies with and effortless integration of team members to access enterprise wallets and their contents. The features are usable through the platform’s intuitive dashboard. high levels of asset storage security by providing easy-to-use workflows Furthermore, Coinbase Custody supports 400+ assets, which users can use in activities like staking, lending, and DeFi yield generation right from the platform. Users utilizing its custody and allied offerings have their assets in storage insured by up to $350 million, ensuring they are protected when undue situations occur. BitGo Another massive player, BitGo, is a runner-up to Coinbase Custody in the custodian market share, with over $90 billion in AUM. The custodian opened its doors in 2013 and has remained a household name in the industry thanks to its efforts in securely storing its clients’ assets. Like Coinbase Custody, BitGo, too, is licensed by the New York State Department of Financial Services. The platform utilizes computational consensus for its wallets’ functioning, meaning users store their assets in cold storage, with its wallets configured with MPC or MultiSig setups. BitGo’s custody solutions let users tap into profits through staking, lending, DeFi, and other activities with their assets in storage. Furthermore, BitGo lets institutions and enterprises employ its custody services by harnessing its wallet-as-a-service (WaaS) offering, enabling the ventures to store assets by simply connecting to its APIs. There is no need for complex coding to utilize its WaaS application – convenient drag-and-drop capabilities allow users to integrate BitGo offerings into their workflows smoothly. The custodian lets users store over 600 digital asset types from multiple blockchains, protecting their deposits with insurance of up to $250 million. Also, users can utilize their funds from BitGo’s custody in various applications, similar to what Coinbase Custody provides, like staking, lending, and DeFi yield generation. Newer Custodians Look to Take the Reins of the Growing Markets While several more established digital asset custody providers exist, including famous TradFi banks like BNY Mellon, the crypto ecosystem is witnessing new names filling the increasing demand for custody services. These new entrants give established players a run for their money, offering highly secure storage facilities bolstered by state-of-the-art technologies to introduce additional layers of security and convenience. Liminal Custody Solutions Birthed in 2021, Liminal is creating bigger waves than any competitor recently entering the custody landscape. The custody service provider offers various banking-grade digital asset storage options to institutions and enterprises exclusively, making it an all-encompassing solution for the crypto ecosystem. To that end, the platform has grown to safeguard digital assets worth over $600 million in its short time here. Keeping in line with the secureness offered by the top players, Liminal utilizes MPC and MultiSig technologies to fortify asset storage in its wallets. The platform offers a range of custody solutions, comprising custodial cold and hot wallets, self-custody solutions, and business solutions like wallet infrastructures and white-label offerings. Moreover, Liminal also provides an exhaustive suite of integrations like an automation engine, firewall configuration, compliance checks, and DeFi connectivity at no extra cost. Liminal brings algorithmic capabilities to the asset storage and transaction processes, offering equal parts convenience and security. Zodia Custody Zodia Custody, the Standard Chartered and Northern Trust developed and owned digital asset custodian, represents the surging institutional interest in digital assets. The custody service began operations in 2020, with the TradFi heavyweights entering the digital asset space to facilitate safeguarding digital assets for their client bases interested in interacting with tokenized value. Like the other custodians, Zodia Custody utilizes the much-needed MPC and MultiSig technologies to safeguard digital assets for users. The custodian has the advantage of its parent companies originating from the banking sector, implementing multiple hardware security modules (HSMs) from the TradFi banking world. Also, Zodia Custody is licensed across multiple countries – the UK, Ireland, and Luxembourg, ensuring its dedication to providing banking-grade custody services. While that is already evident due to the companies responsible for its genesis, and convenience to institutions utilizing its services. the custodian takes all the steps needed to provide banking-level safety Its efforts materialize as insurance coverage for stored assets, secure and quick transaction settlements, and yield generation capabilities through staking integrations. Conclusion As custody requirements become more pronounced with evolving regulations and institutional entrance into the ecosystem, established and recently developed solutions will witness massive growth. As we move closer to 2030, the industry can expect a surge in new custodians that bring cutting-edge developments to offer the highest levels of security to digital asset storage.

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Future of Digital Asset Custody Market by Size and Valuation in 2030

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Future of Digital Asset Custody Market by Size and Valuation in 2030

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Nikhil Gupta

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