The Insider's Guide to Choosing the Right Digital Asset Custodian

The Insider's Guide to Choosing the Right Digital Asset Custodian

With the rise of cryptocurrencies and the increasing need for secure custody solutions, digital asset custodians have emerged as essential service providers. Whether you represent an institution, a family office, a crypto fund, or an exchange, selecting the right digital asset custodian is a critical decision for ensuring the integrity and security of your digital assets.

In this comprehensive guide, we highlight the importance of digital asset custodians and list the 7 essential criteria that will help you make an informed decision when choosing a trusted crypto custody provider for your valuable assets.

The Importance of Digital Asset Custodians

Cryptocurrencies are, by nature, digital and can be vulnerable to theft, hacking, or loss if not properly secured. Digital asset custodians, acting as the bridge between users and the world of web3.0, play a vital role in mitigating these risks. Similar to their counterparts in traditional capital markets, digital asset custodians are responsible for safeguarding client assets. The crucial difference is that, instead of holding the assets, digital asset custodians safeguard the keys to these assets. Through secure key management techniques, digital assets are protected through cryptographic and other security measures, ensuring that unauthorized parties cannot access the keys and consequently, the client assets.

Options for Digital Asset Custody Solutions

A variety of digital asset custody solutions are available to serve different segments of users.

Smaller entities such as family offices or small-scale crypto funds as well as retail users often rely on conventional self-custody solutions like Metamask, Trust Wallet, and hardware wallets such as Ledger. These solutions are favored largely for the low-cost although the technical setup can have a steep learning curve at the start. However, managing your own private keys can be a heavy responsibility. Keys can be easily misplaced, stolen, or subject to human errors, leading to irreversible losses.

For bigger institutions, the stakes are high and requirements are more complex in terms of governance, transparency, and auditability. This makes conventional self-custody solutions impractical. Moreover, digital asset custody is no longer about just secure storage but also about utilizing assets in a new economy. Fortunately, there is a growing ecosystem of institutional-grade self-custody solutions that offer rich functionalities, including role-based access controls, team collaboration tools, custom workflow support, and more, while enabling users to maintain full control over their assets. These solutions primarily fall into two categories: multi-party computation (MPC) wallets and smart contract wallets, such as multi-signature wallets.  

For institutions who want convenience and prefer to entrust the responsibility of key security to experts, there are numerous custodial wallet options in the market. Given that the custodian will be managing clients’ keys (and therefore assets) on their behalf, it is imperative to carefully choose a trusted and reliable custodian to ensure the complete safety of your assets.

Regardless of the custody solution preferred, users should pay attention to finding the right digital asset custodian. In the next section, we will dive into the top criteria you should consider during your selection process.

Key Considerations When Choosing A Digital Asset Custodian

Selecting the right digital asset custodian is an essential step for all entities and individuals in the crypto space. By tailoring your choice to your specific needs, conducting thorough research, and seeking expert advice when needed, you can confidently select a digital asset custodian and custody solution that delivers the security, compliance, accessibility, and reliability you need to scale your crypto business and investments.

Range of Assets Supported

Having a crypto custodian that supports a diverse range of tokens and blockchains, with the ability to quickly onboard new ones, is vital in this dynamic and fast-evolving crypto world. You want to be empowered to stay ahead of the curve, act swiftly and capitalize on emerging trends and opportunities. A wide coverage of assets also reflects the custodian's deep understanding of crypto market dynamics, technical know-hows, and dedication to meeting client needs.

Industry Track Record

A digital asset custodian's track record in the industry demonstrates their reliability, resilience, and understanding of client needs. Look for custodians with a long-standing presence and the ability to navigate and thrive through market cycles. It is also important to assess the custodian’s ability to securely manage and transfer large sums of cryptocurrencies, implement industry-leading encryption technologies, and adhere to rigorous security protocols and best practices (tip: SOC 2 Type 2 is widely regarded as one of the most comprehensive certifications within the Systems and Organization Controls protocol).

Security Infrastructure

Security is at the heart of custody. When choosing a custodian, evaluate the security infrastructure they employ to protect your digital assets. Do they use advanced encryption technologies to safeguard against fast-evolving threats? Are they equipped with the necessary technical expertise and a multi-layer defense mechanism to combat against all attack vectors, both internal and external? Look for custodians who are recognized as thought leaders in digital asset security.

Pricing Structures

Understanding the pricing structures of crypto custody providers is crucial to ensure they align with your budget and expectations. Consider the features you require and the value of the crypto assets you plan to store when evaluating custody solutions. Pro tip: Institutional-grade custody doesn’t have to be expensive. Look out for affordable pay-as-you-use options, especially if you’re a small growing team.

Licenses and Regulations

Selecting a licensed digital asset custodian provides you with added security and peace of mind. Additionally, the custodian's familiarity with local laws and regulations is also an indication of stability and reliability.

Access to Web3.0

Custody is not just about storage. Crypto custodians should empower you to confidently and seamlessly navigate the exciting world of web3.0. Look for custodians that allow you to connect to a multitude of DApps and protocols including DeFi, NFTs, DAOs, etc, and provide value-added tools and services that help propel your success. For example, some custodians offer instant zero-fee transfers, trustless settlement, on-chain monitoring, DeFi bots, staking, audit support, and so on.

Customer Focus

Many crypto custody solutions are designed for individual users and are not geared for institutions. Ensure that the custodian you choose has the necessary sophistication, capability and proven track record in serving institutions and also the flexibility to adapt to your changing needs as your organization scales.

Final Thoughts: Cobo - The World’s First Omni-Custody Platform

As a pioneering omni-custody platform, Cobo offers a full spectrum of custody technologies designed specifically for institutions. From full custody based on bank-grade hardware security modules (HSMs), to advanced multi-party computation (MPC) custody, and smart-contract-based self-custody, we empower institutions to secure and manage their digital assets their way.

In addition, Cobo provides easy-to-use Wallet-as-a-Service APIs, an MPC-backed off-exchange settlement network (SuperLoop), and cutting-edge DeFi tools for you to automate, delegate, and secure your DeFi investments. As a licensed digital asset custody service provider, Cobo is an industry leader in security standards with an impeccable track record since 2017. We are committed to empowering our clients with the industry’s widest token support of 1,800+ tokens across 70+ chains.

Interested to learn more about Cobo? Speak to us today!

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