Crucial Insights on Cryptoasset Custody

Exploring cryptoasset custody solutions

The rise of cryptoassets has revolutionised the financial landscape, offering unprecedented opportunities for wealth creation. However, there is much to consider when choosing a custodian for your assets. In this opinion piece, we will explore the concept of custody and highlight how to select a trusted custodian.

Understanding Custody and the Role of a Trustworthy Custodian

Cryptoasset custody refers to the responsible storage and management of digital assets on behalf of individuals and organisations. Custodians protect these assets against theft, loss, and unauthorised access using robust security measures and best practices. Choosing a reputable custodian is crucial to ensure the safety of your assets and the performance of your cryptoasset portfolio. When evaluating a custodian, it's essential to consider their reputation, track record, and regulatory compliance. A reliable custodian adheres to strict security protocols and has an impeccable record of safeguarding digital assets. 

The first and most important question to ask: Does your custodian use asset segregation?

What is Asset Segregation?

Asset segregation involves separating clients' digital assets from the custodian's assets and other clients' holdings.

Responsible investors must ensure custodians store their cryptocurrencies in separate wallets. This enables owners to easily send and receive their cryptocurrencies through separate on-chain wallets registered in their name. The wallets, independent of a company's balance sheet, guarantee customers have precise control over their digital assets.

Callout box: From the start, Swiss-based XEROF has prioritised the protection of customer funds by holding all clients' cryptocurrency in segregated wallets. By keeping clients' digital assets separate and secure, XEROF ensures that individual holdings are protected from potential threats or mismanagement. Learn more about our approach to custody here.

What About wallets and exchanges?

Any location where cryptoassets are stored is a target for malevolent entities. If the security protocols lack robustness, hackers could access your assets, particularly if the partner requires control over your private keys. The issue is compounded if your assets are placed in an insecure "hot wallet" for trading. In the previous year alone, hackers pilfered more than $3 billion of assets. The best strategy is to diversify your holdings. Hold some liquidity in a wallet or on an exchange for trading and active use, but retain the bulk of your assets in secure custody.

Callout box: XEROF has implemented a multi-layered security system using MPC-CMP with hardware isolation to protect against a variety of threats. Our system meets industry standards such as ISO 27001, ISO 27017, and ISO 27018, and is backed by insurance coverage for theft, loss, and disaster recovery. In addition, all of our cryptoasset deposits are stored in on-chain segregated wallets, providing an extra layer of security. Reach out to us if you want to know more about how you can use both our liquidity and custody services.

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Looking for licensed, insured providers

Cryptoasset investors rely on regulation as the final line of defence. It is imperative to identify the jurisdiction in which your providers are licensed. What options for recourse are available if they act improperly? In the event of breaches or theft, do they have insurance to safeguard against losses?

As a Swiss-licensed custodian, we adhere to rigorous standards for security, client asset segregation, and transparency. Our licensing requires legal compliance with asset segregation, while we also proactively meet all other mandated requirements by SRO and VQF, as well as those by our partners. Teaming up with some of the most established banking institutions in Europe, we uphold their high standards for insurance and security, too.

It's advisable to pay close attention to the jurisdiction of your custodian. If you have concerns, it might be best to relocate your assets. You could also consider an insurance policy, but keep in mind that certain policies won't cover unlicensed or offshore providers.

Find Out More About Cryptoasset Custody Solutions

When it comes to cryptoasset custody, trust and security are paramount. Relying on partners that adhere to strong security and asset segregation practices can significantly mitigate the risks of storing digital assets. 

If you would like to find out more about how we work with exchanges, family offices, financial institutions and others to offer secure custody and accessible liquidity, contact us here.

Disclaimer: Kindly be aware that the information provided herein is intended solely for informational purposes and should not be construed as legal, tax, investment, financial, or any other professional advice.