The custody battle for digital assets
29 Apr 2026
As institutional demand for digital assets accelerates, Zarah Choudhary examines how traditional custodians and crypto-native firms are competing — and converging — to define the future of digital asset custody
Image: iamchamp/stock.adobe.com
For much of the past decade, digital asset custody has been built outside the traditional financial system.
Crypto-native firms developed the infrastructure required to safeguard private keys and manage blockchain-based assets at a time when global custodians remained largely on the sidelines.
But as institutional demand for digital assets accelerates — particularly for tokenised securities and real-world assets (RWA) — custody is rapidly evolving from a niche function into a core component of market infrastructure.
At the centre of this shift lies a fundamental requirement according to the experts: trust.
“Trust is ultimately what allows digital asset markets to scale — and custody is where that trust starts,” says Arnaud de Chavagnac, global head of marketing at Murex.
“Before a bank trades or invests, it needs to be assured that its assets are properly safeguarded.”
Regulation reshapes the landscape
While early digital asset markets operated with limited oversight, regulation is now playing a defining role in shaping the custody ecosystem.
Frameworks such as the EU’s Markets in Crypto-Assets Regulation (MiCA) are introducing clearer requirements around custody provision, asset segregation and risk management — changes that are widely seen as unlocking institutional participation.
“Regulations like MiCA set clear rules around custody: who can provide it, how assets are segregated and how risks are managed,” de Chavagnac explains.
“That clarity reduces uncertainty and gives institutions the confidence to move beyond pilots.”
This view is echoed across the market. According to Viv Diwakar, head of the Canton Foundation, institutional investors are unlikely to scale into markets where governance and client protection remain unclear.
“MiCA is helping shift custody from a patchwork activity into a regulated service category with clearer expectations,” he notes.
“In practice, this should favour providers that can demonstrate substance, controls, and reporting discipline.”
For traditional custodians, this regulatory shift plays directly to their strengths. Long-established expertise in asset segregation, governance and compliance is becoming increasingly relevant as digital assets move into mainstream financial markets.
From crypto to tokenised markets
At the same time, the focus of institutional demand is evolving. While early interest in digital assets centred on cryptocurrencies, institutions are increasingly prioritising tokenised versions of traditional financial instruments.
“Despite the hype for crypto, institutional demand is increasingly focused on tokenised RWAs rather than native crypto,” observes Angus Fletcher, global head of digital solutions at State Street.
Asset managers and owners are turning their attention to tokenised funds, bonds, and securities — use cases that more closely align with existing investment frameworks. This shift is reflected in allocation trends. According to State Street research, institutional portfolios currently allocate an average of seven per cent to digital assets, a figure expected to rise to 16 per cent within three years.
More broadly, the tokenisation opportunity is substantial. Industry estimates suggest the market for tokenised RWAs could reach trillions of dollars over the coming decade, reinforcing the importance of custody as a foundational service.
Redefining the role of the custodian
As digital assets evolve, so does the role of the custodian.
In traditional markets, custody has long been associated with the safekeeping of assets. In digital markets, however, the concept is more complex.
Control of an asset is determined by control of its private keys, meaning custody involves not just safeguarding assets, but managing the cryptographic infrastructure that underpins them. Increasingly, custodians are being pushed beyond this technical role.
“As markets move towards tokenised securities and RWAs, custodians are evolving from ‘key holders’ to orchestrators of the full asset lifecycle,” Fletcher explains.
This includes responsibilities across issuance, settlement, collateral management, and ongoing asset servicing.
Diwakar adds that custody must now sit much closer to the broader financial ecosystem.
“Custodians will increasingly move up the stack from safekeeping crypto to supporting the lifecycle of tokenised financial instruments,” he adds. “That means custody needs to connect to settlement, collateral mobility and corporate action workflows.”
For market participants, this represents a fundamental shift. Custody is no longer a back office function — it is becoming a central layer through which digital assets are issued, moved, and managed.
A converging competitive landscape
This transformation is reshaping competition in the market. Crypto-native firms, such as early digital asset infrastructure providers, were first to develop custody solutions tailored to blockchain environments. Their strengths lie in technology, speed and expertise in managing private keys and 24/7 blockchain operations. However, as institutional participation increases, traditional custodians are entering the space with a different set of capabilities.
“Global custodians bring scale, resilience and regulatory alignment — strengths built over time,” Fletcher notes.
At the same time, the market is not evolving into a winner-takes-all scenario.
“We see this less as a winner-takes-all contest and more as a convergence of capabilities,” says Diwakar.
“The most valuable firms will be those that can connect custody to settlement, collateral and compliant market infrastructure.”
Luke Dorney, head of custody at LMAX Group, agrees that the future will involve multiple providers.
“The market is evolving towards a multi-custodian model,” he says.
“Institutions are unlikely to rely on a single provider. Instead, they’ll use a mix to balance innovation, resilience and regulatory requirements.”
Operational challenges and infrastructure gaps
Despite growing adoption, digital asset custody continues to present significant operational challenges.
One of the most critical issues is governance — specifically, clarity around who controls assets and how responsibilities are distributed across market participants.
“Custody ultimately comes down to who is accountable for assets at each stage of their lifecycle,” Diwakar explains.
“In a multi-network, multi-custodian environment, weak governance creates fragmentation and operational risk.”
Interoperability is another key concern. Digital assets operate across multiple blockchains and systems, while traditional financial infrastructure remains largely fragmented and slower to adapt.
“The biggest challenge is the lack of standardisation across the ecosystem,” Dorney says.
“There’s a fundamental mismatch between instant blockchain settlement and slower, batch-based fiat processes.”
These gaps highlight the complexity of integrating digital assets into existing market structures — and reinforce the importance of custody as a coordinating layer.
Towards a hybrid future
Looking ahead, the emerging consensus across the industry points towards a hybrid model.
Rather than replacing traditional custody, digital asset custody is expected to integrate with existing securities services infrastructure, combining the strengths of both systems.
“We see hybrid models as the most practical approach,” notes de Chavagnac.
“Institutions need to interact with blockchains while maintaining traditional governance and compliance standards.”
This convergence is already underway, with tokenised assets increasingly coexisting alongside traditional securities, and custodians building platforms that bridge both environments.
“Over time, digital asset custody for tokenised RWAs will be absorbed into the traditional securities services ecosystem,” Fletcher predicts.
Similarly, Julian Sawyer, CEO of Zodia Custody, argues that the future lies in integration.
“The future of digital assets is integrated and interconnected, with regulated financial institutions playing a central role,” he says.
A new infrastructure layer
As digital assets continue to mature, custody is emerging as more than just a service — it is becoming a defining layer of financial market infrastructure.
The ability to safeguard, transfer, and manage digital assets across both blockchain and traditional systems will determine how effectively institutions can participate in the next phase of market evolution.
In this context, the question is no longer simply who holds assets.
Instead, it is who controls the infrastructure through which those assets move and, ultimately, who defines the future architecture of financial markets.
Crypto-native firms developed the infrastructure required to safeguard private keys and manage blockchain-based assets at a time when global custodians remained largely on the sidelines.
But as institutional demand for digital assets accelerates — particularly for tokenised securities and real-world assets (RWA) — custody is rapidly evolving from a niche function into a core component of market infrastructure.
At the centre of this shift lies a fundamental requirement according to the experts: trust.
“Trust is ultimately what allows digital asset markets to scale — and custody is where that trust starts,” says Arnaud de Chavagnac, global head of marketing at Murex.
“Before a bank trades or invests, it needs to be assured that its assets are properly safeguarded.”
Regulation reshapes the landscape
While early digital asset markets operated with limited oversight, regulation is now playing a defining role in shaping the custody ecosystem.
Frameworks such as the EU’s Markets in Crypto-Assets Regulation (MiCA) are introducing clearer requirements around custody provision, asset segregation and risk management — changes that are widely seen as unlocking institutional participation.
“Regulations like MiCA set clear rules around custody: who can provide it, how assets are segregated and how risks are managed,” de Chavagnac explains.
“That clarity reduces uncertainty and gives institutions the confidence to move beyond pilots.”
This view is echoed across the market. According to Viv Diwakar, head of the Canton Foundation, institutional investors are unlikely to scale into markets where governance and client protection remain unclear.
“MiCA is helping shift custody from a patchwork activity into a regulated service category with clearer expectations,” he notes.
“In practice, this should favour providers that can demonstrate substance, controls, and reporting discipline.”
For traditional custodians, this regulatory shift plays directly to their strengths. Long-established expertise in asset segregation, governance and compliance is becoming increasingly relevant as digital assets move into mainstream financial markets.
From crypto to tokenised markets
At the same time, the focus of institutional demand is evolving. While early interest in digital assets centred on cryptocurrencies, institutions are increasingly prioritising tokenised versions of traditional financial instruments.
“Despite the hype for crypto, institutional demand is increasingly focused on tokenised RWAs rather than native crypto,” observes Angus Fletcher, global head of digital solutions at State Street.
Asset managers and owners are turning their attention to tokenised funds, bonds, and securities — use cases that more closely align with existing investment frameworks. This shift is reflected in allocation trends. According to State Street research, institutional portfolios currently allocate an average of seven per cent to digital assets, a figure expected to rise to 16 per cent within three years.
More broadly, the tokenisation opportunity is substantial. Industry estimates suggest the market for tokenised RWAs could reach trillions of dollars over the coming decade, reinforcing the importance of custody as a foundational service.
Redefining the role of the custodian
As digital assets evolve, so does the role of the custodian.
In traditional markets, custody has long been associated with the safekeeping of assets. In digital markets, however, the concept is more complex.
Control of an asset is determined by control of its private keys, meaning custody involves not just safeguarding assets, but managing the cryptographic infrastructure that underpins them. Increasingly, custodians are being pushed beyond this technical role.
“As markets move towards tokenised securities and RWAs, custodians are evolving from ‘key holders’ to orchestrators of the full asset lifecycle,” Fletcher explains.
This includes responsibilities across issuance, settlement, collateral management, and ongoing asset servicing.
Diwakar adds that custody must now sit much closer to the broader financial ecosystem.
“Custodians will increasingly move up the stack from safekeeping crypto to supporting the lifecycle of tokenised financial instruments,” he adds. “That means custody needs to connect to settlement, collateral mobility and corporate action workflows.”
For market participants, this represents a fundamental shift. Custody is no longer a back office function — it is becoming a central layer through which digital assets are issued, moved, and managed.
A converging competitive landscape
This transformation is reshaping competition in the market. Crypto-native firms, such as early digital asset infrastructure providers, were first to develop custody solutions tailored to blockchain environments. Their strengths lie in technology, speed and expertise in managing private keys and 24/7 blockchain operations. However, as institutional participation increases, traditional custodians are entering the space with a different set of capabilities.
“Global custodians bring scale, resilience and regulatory alignment — strengths built over time,” Fletcher notes.
At the same time, the market is not evolving into a winner-takes-all scenario.
“We see this less as a winner-takes-all contest and more as a convergence of capabilities,” says Diwakar.
“The most valuable firms will be those that can connect custody to settlement, collateral and compliant market infrastructure.”
Luke Dorney, head of custody at LMAX Group, agrees that the future will involve multiple providers.
“The market is evolving towards a multi-custodian model,” he says.
“Institutions are unlikely to rely on a single provider. Instead, they’ll use a mix to balance innovation, resilience and regulatory requirements.”
Operational challenges and infrastructure gaps
Despite growing adoption, digital asset custody continues to present significant operational challenges.
One of the most critical issues is governance — specifically, clarity around who controls assets and how responsibilities are distributed across market participants.
“Custody ultimately comes down to who is accountable for assets at each stage of their lifecycle,” Diwakar explains.
“In a multi-network, multi-custodian environment, weak governance creates fragmentation and operational risk.”
Interoperability is another key concern. Digital assets operate across multiple blockchains and systems, while traditional financial infrastructure remains largely fragmented and slower to adapt.
“The biggest challenge is the lack of standardisation across the ecosystem,” Dorney says.
“There’s a fundamental mismatch between instant blockchain settlement and slower, batch-based fiat processes.”
These gaps highlight the complexity of integrating digital assets into existing market structures — and reinforce the importance of custody as a coordinating layer.
Towards a hybrid future
Looking ahead, the emerging consensus across the industry points towards a hybrid model.
Rather than replacing traditional custody, digital asset custody is expected to integrate with existing securities services infrastructure, combining the strengths of both systems.
“We see hybrid models as the most practical approach,” notes de Chavagnac.
“Institutions need to interact with blockchains while maintaining traditional governance and compliance standards.”
This convergence is already underway, with tokenised assets increasingly coexisting alongside traditional securities, and custodians building platforms that bridge both environments.
“Over time, digital asset custody for tokenised RWAs will be absorbed into the traditional securities services ecosystem,” Fletcher predicts.
Similarly, Julian Sawyer, CEO of Zodia Custody, argues that the future lies in integration.
“The future of digital assets is integrated and interconnected, with regulated financial institutions playing a central role,” he says.
A new infrastructure layer
As digital assets continue to mature, custody is emerging as more than just a service — it is becoming a defining layer of financial market infrastructure.
The ability to safeguard, transfer, and manage digital assets across both blockchain and traditional systems will determine how effectively institutions can participate in the next phase of market evolution.
In this context, the question is no longer simply who holds assets.
Instead, it is who controls the infrastructure through which those assets move and, ultimately, who defines the future architecture of financial markets.
NO FEE, NO RISK
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Asset Servicing Times
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Asset Servicing Times
