April 14, 2024

A joint report by Aspen Digital and PwC titled “State of Digital Asset Custody – Understanding and implementing digital asset custody for institutional investors” reveals a rising demand for institutional-grade digital asset custody solutions among family offices, high-net-worth individuals (HNWIs), and external asset managers (EAMs) in Asia.

The report highlights that digital assets, now a $1.2 trillion market, have evolved into an alternative asset class over the past decade, with more than 120 custody providers as of April 2023. While self-custody solutions offer full control and access over digital assets, many institutions are recognizing their limitations for ongoing trading and operational needs, leading to a preference for third-party custody service providers.

According to PwC’s 2022 Metaverse Survey, 82% of executives expect to integrate metaverse into their business activities within three years. However, the report indicates that most NFT custody services offered by self-custody solutions may pose a challenge for institutions new to the industry.

Digital asset custodians have expanded their role from merely safeguarding cryptocurrencies to helping investors navigate and participate in new business opportunities and asset classes, such as Decentralized Finance (DeFi), non-fungible tokens (NFTs), and metaverse. The report predicts an increase in third-party custodians worldwide enhancing their technical capabilities and service offerings.

Duncan Fitzgerald, Digital Assets & Web3 Co-Leader of PwC, emphasized the importance of safekeeping assets in the digital environment. Elliot Andrews, CEO of Aspen Digital, stated that understanding the unique characteristics of custody solutions and providers compared with traditional assets is one of the biggest impediments when considering investment.

Despite the growing need for institutional-grade digital asset custody, there are hesitations among family offices and HNWIs about adopting custodian solutions, particularly regarding asset security, navigating fragmented regulations across jurisdictions, and providing comprehensive insurance coverage.

The report findings are based on feedback from family offices, HNWIs, and EAMs based in Asia in the second quarter of 2023. In-depth follow-up interviews were also conducted to acquire additional perspectives on custodian adoption.

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