The shift from Direct custody to Self-custody
Where we are today
As the global economy’s hunger for digital assets and inclusion grows, so does the desire of many traditional institutions to have a share of it as well. So far in 2022, various financial institutions globally are investing in digital assets which are also reflected in the crypto market cap, which currently sits at just over $1 trillion at the time of this writing, and the number of crypto wallets has surpassed 260 million users!
The ever-increasing interest in digital assets has also given rise to companies offering Institutional Custody services, which is essentially a fancy word for “Crypto Banking for Organizations”, or where organizations go to deposit their crypto assets. This space is broadly divided between Self-Custody, where an organization is its own custodian, and Custodial Servicing where an organization gives its crypto assets to a 3rd party “qualified custodian” that acts as a broker every time the organization wants to make deposits or withdrawals. Let’s dig a little into the differences between the two… Spoiler alert — Not your keys, not your tokens!
The term “qualified custodians” is a legal one, defined by the SEC as a bank, broker-dealer, futures commission merchant, or other entity that maintains client funds and securities in specific ways. This definition tends to include all hedge fund managers — especially managers of large hedge funds.
It doesn’t take someone with a Ph.D. to realize that being a “qualified custodian” also means falling into the old habits of traditional finance, and very much against the Web3 and DeFi ethos. Qualified custodians, by their very nature, are not decentralized, not permissionless, not censorship-resistant, etc. Furthermore, a qualified custodian is the worst of the words of TradFi and DeFi when it comes to asset custody, and here’s why: In TradFi, banks and depository accounts are usually insured accounts dealing with “stable” fiat assets. Most of the time, these accounts have multiple insurance policies all the way up to the Federal Government to backstop any wrongdoing or business missteps their management might take (think Lehman Brothers, Wachovia, etc.).
On the opposing side, a crypto “qualified custodian” has neither the stability of a mature fiat market nor the ability to get insurance to protect their depositors’ funds. One only needs to look at recent events in 2022 where multiple so-called “tier-one” custodians went belly-up due to poor risk management, filed for bankruptcy, and smoked billions of dollars from their customers both on the retail and business side. Companies like Three Arrows Capital, BlockFi, Celsius, and Voyager, who once were considered industry giants, are not but the bad taste of a textbook example of corporate greed.
Self-Custody VS. Qualified Custodians
It goes without saying we stand firmly in favor of self-custody, and we are building a future with Mean SuperSafe where self-custody is as easy and ubiquitous as warm water and every person and organization on the planet can open and manage their own. We believe in a future where everyone is in control of their economic means 24/7/365, in a safe and censorship-resistant protocol where they can access their assets freely without 3rd party interventions as they need.. Anything less than that will not make it.
Mean Finance is bringing financial freedom to people and businesses worldwide. Through the Mean Protocol, we provide real-time cash flows and crypto asset management solutions for businesses and institutions. Teams and organizations can easily set up their crypto corporate treasuries, issue investors’ vesting contracts, and run their payroll operations with real-time payment streams.