A leader in financial innovation, Switzerland is at the forefront of the digital asset revolution. As a ‘crypto nation’, Switzerland’s reputation for security makes it a prime hub for crypto custody services. Recently, we have seen a strategic shift towards the use of multiple custody solutions within organisations, driven by the diverse and rapidly evolving needs of the crypto market. Diversification of custody solutions is becoming essential.
Inside Switzerland’s crypto custody landscape
Switzerland has firmly established itself as a global hub for digital asset and blockchain activity, underpinned by a supportive regulatory environment and a reputation for financial innovation. In this dynamic landscape, the crypto custody ecosystem plays a crucial role by providing secure storage solutions for digital assets. As digital assets become increasingly integrated into the financial system, the demand for reliable custody solutions has become paramount, driven by both institutional and retail investors.
A significant trend within this ecosystem is the shift towards the use of multiple custody solutions. Traditionally, financial institutions have often relied on a single custody technology provider to manage digital assets, such as Taurus, Fireblocks, Securosys, Ledger Vault, and others. Some players also use a proprietary solution. However, as institutions recognise the potential risks of relying on a single solution, many are exploring a diversified approach to custody. This strategy allows them to leverage the strengths of multiple providers and optimise their overall digital asset management strategy, while mitigating the limitations that can arise from reliance on a sole platform.
A multi-provider approach allows institutions to tailor their strategies to specific client needs (e.g. by offering staking services and custody services for more exotic tokens and assets) and market conditions, enabling them to navigate the complexities of the crypto market with greater agility and resilience. Trends such as decentralised finance (DeFi), asset tokenisation, and the increasing adoption of blockchain across sectors further highlight the importance of diversification.
Why custody in crypto matters
Custody is a critical aspect of the digital asset ecosystem due to the unique characteristics of digital assets. Unlike traditional assets, digital assets rely on cryptographic keys for the assignment of ownership, making secure storage and management essential. The decentralised nature of digital assets means that losing keys can result in the permanent loss of assets, underscoring the need for robust custody solutions.
Different stakeholders within the digital asset ecosystem have different custody needs. Institutions engaged in trading aim to maximise security while also requiring liquidity and fast access to their assets, often balancing these factors carefully. Those with a long-term holding strategy, on the other hand, tend to prioritise security over immediate accessibility.
The risks associated with crypto custody are significant and include threats to confidentiality, where unauthorised persons may access private keys and backups; availability risks, where private keys and backups may become inaccessible or unavailable in a timely manner; and integrity risks, where private keys or backups might be altered and rendered unreadable. These risks affect both users storing assets with custody providers and the providers themselves, as challenges in managing these risks can directly impact service continuity. Custody providers, however, can establish control reports which can be used to assess and monitor the outsourced processes, risks, and controls as described in our article "Crypto custody: risks and controls from an auditor's perspective."
Embracing a diversified custody strategy is not just about mitigating risk – it’s about future-proofing your financial institution in an ever-evolving digital landscape.
Soner AydinManager, Digital Assurance & Trust, Digital Assets, PwC SwitzerlandBenefits of multiple custody solutions
One of the key advantages of using multiple custody solutions is risk diversification. By distributing digital assets across multiple custody solutions, financial institutions can minimise the impact of potential failures, such as technical issues, cyber-attacks, or the insolvency of a single custodian (in the case of a custodial solution). This approach not only mitigates risk, but also allows institutions to manage a more diverse portfolio of assets, each with a different risk profile, thereby optimising their overall risk management strategy.
Multiple custody solutions also give financial institutions the flexibility to offer customised services to meet the specific needs of their clients. Whether a client requires custody for trading, long-term holding, exotic tokens and assets or participation in staking services, institutions can choose the most appropriate custody provider for each purpose. This flexibility improves client satisfaction by providing targeted solutions that meet individual requirements.
Challenges and considerations
While multiple custody solutions offer clear benefits, integrating them into one cohesive system is challenging. Ensuring interoperability between different custody platforms and traditional legacy systems is critical, but often requires significant investment in technology and expertise. The lack of standardised procedures among custodians can further complicate this process, leading to potential inefficiencies and increased operational risks and costs.
Managing security across multiple custody solutions adds complexity and increases the attack surface, potentially exposing institutions to greater risk. Each custodian may have different security protocols, necessitating comprehensive measures such as regular audits, real-time monitoring, and advanced encryption to protect digital assets. In addition, the use of multiple custody solutions can come with increased costs, including service fees, integration costs, and the need for specialist skills. Institutions carefully weigh these costs against the benefits of risk diversification and enhanced service offerings to determine the most cost-effective solution.
How we support
In the rapidly evolving and complex digital asset landscape, diversifying custody solutions is critical to securing your digital assets and optimising service offerings and operations. PwC Switzerland specialises in crypto custody and related topics, such as key generation ceremonies, key management, and operations-related controls. Drawing on our expertise, we can provide control reports, where we are the market leader in the Swiss crypto space, making us the ideal independent partner to navigate the Swiss market.
Whether you need to diversify custody, ensure compliance, or enhance security, we can help.
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Bastian Stolzenberg