We Have Passed the Point of No Return in Crypto Adoption: Leo N. Shiu
For Leo N. Shiu, MD, new Head of Business Development at Onchain Custodian, there was no single major turning point in the crypto adoption narrative. Instead, it was a culmination of milestone events that solidified norms of adoption.
In this article, he shares some of his insights on how traditional finance institutions have gone from just being a reserved observer of the crypto space to realising they must adopt the new asset class or risk losing relevance. In over two decades of working with some of the biggest traditional finance companies — Credit Suisse and HSBC, Leo’s career saw him participate in a wide range of activities including raising capital/financing for companies in various stages of development (from seed to IPO), to corporate development. His professional network includes high net worth individuals (HNWI), ultra high net worth individuals (UHNWI), and institutions in both Asia as well as Europe.
As soon as Leo joined Onchain Custodian, he witnessed first-hand the increasing demand of institutions looking for digital asset custody solutions. This is no surprise given that the market capitalization of crypto has only continued to increase since 2019, and the growing appetite of institutions to access crypto liquidity through different mediums. Broadly speaking, crypto adoption continues to grow as people gradually understand the underlying technology better, and its potential to fully disrupt not just the financial world but other industries as well.
The surge of retail and institutional interest in digital assets emerged from a wide number of events occurring simultaneously. For him, it was a culmination of factors coming together. “Michael Saylor, (CEO of MicroStrategy) going on crypto was a turning point for me because they are a US publicly-listed company,” Leo said, while taking note of the company’s strong reputation and track record. Saylor actually put Bitcoin in MicroStrategy’s treasury, instilling confidence in the dominant cryptocurrency as an asset class. “Of course, we also have the COVID situation that accelerated digitising the economy, and soon after a number of reputable major investment managers were talking about crypto in a positive way,” Leo added, and he was right. This year, the biggest financial institutions in the world like Morgan Stanley have started to offer bitcoin funds to their clients. Soon after, Goldman Sachs made the same announcement and J.P. Morgan launched its own crypto product available to all of their wealth management clients in conjunction with the New York Digital Investment Group (NYDIG).
Transitioning from traditional system to the future of finance
With decades of experience working in traditional finance, Leo is cognizant of this new industry’s shortfalls and challenges. One of the major challenges that he has noted is whilst everyone in traditional finance speaks the same language, in crypto, there are a lot of buzzwords and technical language that sometimes become a barrier for understanding and adoption on top of the fact that the entire industry is constantly evolving at a rapid pace.
He described how, on a daily basis, he would pick up and learn new things that are all moving at a breakneck speed. “Against the backdrop of a broad spectrum of projects, we need to decipher which information is credible and go through a rationalisation process before even deciding to pick the winning idea.”
Still, Leo noted that too much noise in the space is taking away its credibility in the eyes of a traditional asset manager even though the story of Bitcoin is unequivocally remarkable. He pointed out that some discussions are politicised and encourage everyone to filter out unverified information on an ongoing basis. “For instance, the environmental issue surrounding crypto misses the point that the efficiency of crypto exchange or a crypto bank puts traditional finance’s to shame.” Shiu has taken up many environmental efforts since the ’80s and is fully convinced that crypto mining is not the largest contributor to environmental destruction compared to other industries and people’s activities. He also emphasised that crypto mining can be done with fully renewable energy in the future.
Industry Challenges in Asset Custody and Security Solutions
With his role in Onchain Custodian, Leo sees that most of the prospective clients are already informed about these issues and have mostly done their own research about the true environmental costs. Because of that, HNWI’s primary concern is the security of their digital assets. “Institutional and HNWI clients coming to Onchain Custodian are already familiar with the concept of third-party asset custody and they like the fact that we are not an exchange and therefore not as open (i.e. exposed) as an exchange needs to be.” Leo states. Some of the interested clients are likewise familiar with Onchain Custodian’s SAFE™ platform complemented with a wallet management service by the IBM Cloud™ Hyper Protect Crypto Services which takes advantage of the industry’s first and only FIPS 140–2 Level 4 certified Hardware Security Module (HSM) available in the cloud. (Related article: What is secure, insured, and compliant custody all about )
Most of the clients are very straightforward — they want an institutional-grade, robust, and secure asset custody and insurance solutions for their crypto asset and they find this at Onchain Custodian. The digital asset custody solution that the company has is accompanied by an elite level of technological security for both cold and warm wallets, and the ability to create sub-accounts or sub-wallets with a custom approval process when withdrawing assets.
Clients want an integrated solution of a dedicated service provider, high-grade security, across-the-board insurance coverage, and state-of-the-art technology while also having full accessibility of their digital assets. But the challenge is this: having a combination of security, efficiency, and accessibility often comes with a tradeoff. It takes a special kind of superior technology and risk management expertise to have all these factors harmoniously coexist in a solution.
“There is a counter-argument to security. It is a very educational route that we have to take as trusted custodians in explaining what the trade-offs are in each instance. Onchain Custodian’s principle in managing risk is to ensure the highest priority of keeping the assets safe” Accessibility and efficiency can sometimes temporarily take a backseat when there is an issue of security because no one can build an impenetrable fort that everyone can basically walk into and make it work.
New business models for the growing crypto-asset industry
The role of an institutional-grade asset custodian is well-known in traditional finance and at this point in time, the market expects similar business models customised for crypto assets. “Some exchanges approach us saying they would like to have our custody. Based on the verification of assets held by our clients, they are willing to provide lines of credit for the same clients to trade on their exchanges.” Moving each asset back and forth is highly inefficient but if a third party that can verify the assets is involved, the process can be optimised.
Leo emphasised that a growing number of banks, traders, and financial institutions are taking on an optimistic approach to blockchain technology such that when they see a problem, they want to solve it with the best tools available. “Now that this generation’s tool chest includes blockchain, we can be sure that we are entering a new financial age where the underpinning technology of crypto is the central pillar,’’ Leo said.
The crypto market has seen many advancements in the past years but it is still developing and for some, even sorely lacking in regulation. However, many businesses also recognise the value of this technology and new ways to manage transactions that make them eager to get rid of inefficiencies and costs. “All the serious players are expecting a standardised regulatory framework soon, and Onchain Custodian, being a relatively conservative organisation, welcomes this as we do not like to sail too close to the wind.” For Leo, there is a lot that can be learned from both sides. The evolution of the technologies and convergence of practices from two very different worlds — finance and crypto — are already affecting each other for their own improvement and benefit.
