Digital asset custody is and is not like traditional custody: Can customers have both safety and revenue?

Early investors in digital assets rediscovered the value of independent custody the hard way. So appreciation of the value of traditional custody techniques such as asset segregation are predictable, and symptomatic of a growing convergence between the old and the new in digital asset custody. Meanwhile, Stablecoins and tokenised money market funds have emerged as the principal linkages between DeFi and TradFi, posing questions about conventional aspects of custody such as sourcing the cash leg of delivery versus payment and mobilisation of cash collateral. But customers of digital asset custodians now also expect their providers to generate returns, through staking and lending. This is not only obliging providers to offer access to the unfamiliar universe of DeFi apps, but confronting custodians with the uncomfortable prospect of sharing more of the returns on assets in custody with their owners. That development is bound to discomfit an industry which has long enjoyed the largest share of the returns on lending assets in custody, depositing cash awaiting investment and settling cross-currency transactions. It is a problem regulators must ponder too.