The unraveling of cryptocurrency custodian Prime Trust in the recent past has vitally emphasized the lurking risks associated with self-custody in the booming cryptocurrency landscape, as per Diogo Monica, CEO of the San Francisco-headquartered cryptocurrency bank Anchorage Digital. Monica, during his interaction with a recognized crypto news platform, pointed out that the downfall of Prime Trust was not due to the technology adopted for safeguarding digital assets. Instead, it was their inability to use it effectively, branding it as an “integration failure.” A critical predicament faced was an error titled “Wallet Incident,” where tokens were continued to be stored in an old wallet despite acquiring a new one, leaving millions in assets stranded.
The CEO highlighted that the failings of Prime Trust reflect a wider issue persisting in the crypto custody sector, a noticeable dearth of proficient custodians. With this shortage, many have turned to self-custody. Recognizing this, some regulators have initiated considerations on the necessity of investment advisers using qualified custodians for digital assets. While this is a step in the right direction, Monica reiterated the potential value of traditional finance’s existing custodian rules to ensure solid protection for clients’ funds in the dynamic cryptocurrency niche.
Anchorage Digital, known for becoming the first federally chartered crypto bank in the US, has been vocal in its call for clear digital assets definitions by the Congress. This move would not only facilitate the entry of additional custodians into the crypto sphere but would also enhance the protection afforded to investors. The absence of this clarity was cited as a significant reason for the firm laying off approximately 20% of its workforce back in March this year.
Nevertheless, amidst this uncertainty, Anchorage Digital has witnessed a remarkable surge in its operations this year, attributed largely to institutional clients seeking more secure methods for their crypto storage. Monica even referenced the firm’s inflows in billions, indicative of noticeable institutional interest in the crypto sector. Though the current pie might not be vast, Monica sees this as a “major shift from retail domination to institutional accumulation.” While we swim through these uncharted waters, effectively addressing the challenges surrounding digital asset custody is paramount to ensure the evolution of the crypto industry.
Source: Cryptonews
