Custody in the age of digital assets : The path to building market infrastructure fit for a tokenised economy

Abstract

This paper charts the dynamic evolution of finance and capital markets amid the digital asset surge. Tracing the historical trajectory from conventional banking to the current digital era, the paper underscores the intertwined narrative of finance and technology. Distributed ledger technology (DLT) and digital assets take centre stage, driving continuous financial operations and reshaping market dynamics. Custody emerges as a pivotal factor in this digital transformation. Established financial institutions strategically invest in digital asset infrastructure, recognising the seismic potential of tokenisation. Research from major companies projects significant tokenisation of assets, prompting global banks to align their strategies accordingly. The paper explores diverse use cases, from custody and trading services for cryptocurrencies to tokenising financial securities and real-world assets. Navigating the regulatory landscape proves crucial, with varying regulations across jurisdictions posing challenges. A unified regulatory framework is advocated for fostering global adoption. The paper delves into the technological nuances of safeguarding digital assets, exploring key management solutions such as multiparty computation (MPC) and hardware security modules (HSMs). The paper anticipates a shift towards recentralisation as the digital asset market matures, with established financial institutions and custodians poised to leverage trust, balance sheets and regulatory compliance to open up commercial opportunities in the digital asset space. In essence, the paper provides a sweeping overview of the current digital asset landscape, offering insights into challenges, opportunities and technological considerations shaping the digital asset custody value chain.