Crypto for Advisors: Crypto custody’s evolution

In today’s newsletter, Paul Frost-Smith, CEO of Komainu, covers how institutional crypto is converging with traditional finance, but speed can introduce risk if legal and compliance layers aren't aligned.

Then, in “Ask an Expert,” Sam Boboev, from the “Fintech Wrap Up,” details the key coordination risks institutions must solve for.

Beyond custody: why connectivity will define the next era.

Institutional crypto markets

Institutional adoption of crypto has matured rapidly. The challenge is no longer simply securing assets, but moving and managing them efficiently across a fragmented ecosystem of custodians, exchanges and counterparties. With assets under professional custody now exceeding $200 billion, the inefficiencies of siloed infrastructure have an increasingly material impact on trading, hedging and liquidity management.

Treasury teams often find assets stranded across multiple platforms, creating operational friction that slows trades, constrains intraday liquidity and increases risk exposure. Idle assets tie up capital, amplify counterparty risk and raise the cost and complexity of managing institutional portfolios. In a 24/7 market where speed, execution and real-time visibility matter, the ability to mobilise capital across platforms is no longer optional, it is a prerequisite for scale, efficiency and resilience.

The next phase of market evolution will be defined by connectivity. Platforms that link custody, liquidity and collateral in real time are no longer “nice to have,” they are critical infrastructure. Networked systems enable assets to move faster, collateral to be rehypothecated safely and positions to be adjusted instantly without the delays inherent in siloed setups. Institutions that can leverage integrated infrastructure gain a direct advantage in capital efficiency, risk management and operational agility.

Technologies such as Bitcoin’s Liquid Network illustrate the potential. By combining security, transparency, and near-instant settlement, these networks provide a model for institutions to operate efficiently while mitigating counterparty and operational risk. Assets that are digital-native and programmable can be pledged, transferred and released automatically according to predefined rules, bringing crypto markets closer to the operational standards expected in traditional finance.

The implications are clear. The efficiency and integration of underlying infrastructure directly affect portfolio outcomes. A digital asset’s value is no longer defined solely by its market price; mobility and utility are just as important. Firms that can connect these “pipes” of digital finance gain better liquidity, faster execution and strategic flexibility at scale, enabling them to deploy capital more effectively across trading, hedging and yield-generating activities.

This shift also signals a broader trend, with custody evolving beyond its traditional role. Once synonymous with storage, it now functions as a dynamic, active layer that validates, transfers, and interacts with assets programmatically. Institutional investors evaluating service providers should look beyond security and regulatory compliance to consider the ability to support fast, interconnected and reliable market activity.

Looking ahead, interoperability and network connectivity, not just regulatory clarity, will define which institutions can scale efficiently in crypto markets. Those that build their strategies around connected, integrated infrastructure will be positioned to capitalise on opportunities that siloed competitors cannot.

As institutional participation deepens, the competitive edge in crypto markets will increasingly come from how effectively firms can deploy and mobilise capital. Connectivity, interoperability and real-time collateral mobility will define the infrastructure institutions rely on to trade, hedge and manage risk at scale. Those that prioritise integrated systems today will be better positioned to navigate a market that is becoming faster, more interconnected and more operationally demanding.

- Paul Frost-Smith, CEO, Komainu

Ask an Expert

Q1: What defines the next phase of institutional crypto market structure?

The next phase is defined by convergence with traditional financial infrastructure. Crypto is no longer operating as a parallel system; it is being absorbed into existing institutional frameworks. This shows up in three areas: regulated custody, tokenized financial instruments and stablecoins as settlement rails. Institutions are not adopting crypto for speculation, but for balance sheet efficiency, faster settlement and programmable financial flows. The market structure is shifting from exchange-led liquidity to infrastructure-led integration.

Q2: Where is the real value being created right now?

The value is moving down the stack into infrastructure. Custody, tokenization platforms and stablecoin issuance are becoming the core control points. These layers determine how assets are issued, transferred and settled. Distribution still matters, but control over settlement and asset representation is where defensibility is forming. This is why we are seeing traditional players focus on tokenized money market funds, on-chain repo and institutional-grade stablecoins.

Q3: What are the key risks institutions need to solve for?

The primary risk is not volatility, but coordination across legal, technical and operational layers. Tokenized assets can settle instantly, but ownership rights, compliance rules and jurisdictional enforcement still operate off-chain. This creates a structural mismatch. Institutions need systems where the ledger, compliance logic and legal frameworks are aligned. Without that, speed introduces risk rather than efficiency.

- Sam Boboev, founder, Fintech Wrap Up

Keep Reading

• Bitcoin enters the public bond market as Moody’s gives a first-of-its-kind crypto deal a rating.
• Franklin Templeton is launching a dedicated cryptocurrency division, Franklin Crypto, anchored by its planned acquisition of crypto investment firm 250 Digital.
• Australia has passed its first comprehensive crypto law, requiring exchanges and custody platforms to obtain financial services licenses within six months.