Custodial layers: friend or foe?

Let’s assume you’re a small shop owner and you’re convinced about the value proposition for your business and stakeholders to tokenize gift cards. Your biggest concern is probably how to make it easy for consumers and stakeholders to transact. What is a private key anyway?

In this previous blog we discussed a model where suppliers and retailers can tokenize vouchers and gift cards on Stellar. We looked at the advantages for all stakeholders to have access to a global value transfer network.

Crypto enthusiasts heavily emphasize the importance of managing their own private keys … if it’s not your keys, it’s not your coins! We agree this is very important. The beauty of cryptocurrencies is the freedom of choice to be your own bank and the only person you need to trust is yourself.

However, in some use cases such as tokenizing vouchers and gift cards the need to manage your own keys are less relevant. First and foremost, gift cards are typically representative of relatively low values, while ease of use is king. One way to solve the issue of unnecessary user obstacles is to launch a custodial wallet for your token that abstracts all the crypto related complexities.

A custodial layer for tokenized assets makes it more viable for businesses and consumers to get on board without unnecessary complexities of managing private keys as a prerequisite.

Custodial solutions are no new concept. In fact, retail banks operate in the exact same way today managing fiat currencies and other assets. The value represented in any individual’s bank account is simply a ledger entry and the individual can do as they please with their ledger balance. However, in the back office, banks are settling with other banks, merchants, governments etc. from an aggregated pool of funds to keep the balance sheet in check.

In the case of tokenizing gift cards and vouchers the value is not only in giving users the option of managing their own keys, but rather the advantage of having access to a global value transfer network to trade in any kind of asset. Custodial solutions provide an additional layer of control to businesses and ease of use for end consumers. Providing users with the option of managing their own keys is a bonus.

Functions of a custodial solution

In our next blog we’ll unpack some of the functions of a custodial layer in a bit more detail.


If you’re keen on launching your own custodial wallet with Stellar’s native currency or your token then check out our guide on Configuring a Stellar application on Rehive.

Visit www.rehive.com for more information contact us for whitelabel wallet solutions.