The in recent months has underscored the inherent risks of self-custody within the cryptocurrency industry, according to Diogo Monica, CEO of San Francisco-based crypto bank Anchorage Digital.
Speaking in an with crypto news outlet Decrypt, Monica emphasized that Prime Trust’s failure wasn’t due to the technology they used to safeguard digital assets but rather their inability to effectively utilize it.
He described it as an “integration failure” and highlighted that the company lacked the technical expertise necessary for its core mission of asset custody.
The critical issue, dubbed the “Wallet Incident” in a court filing by Prime Trust’s CEO Richard Lai, revolved around Prime Trust continuing to store tokens in an old wallet despite acquiring a new solution from digital asset security platform Fireblocks.
This led to a situation where millions in assets became inaccessible, he said.
In addition to custody problems, Prime Trust also mishandled client funds through risky investments, further compounding its issues.
TradFi custody rules should apple to crypto
According to Monica, Prime Trust’s case reveals a broader problem in the crypto custody industry.
He pointed out that there has been a shortage of qualified custodians for years, which has pushed many to opt for self-custody.
While regulators have begun to address shortage of custodians by proposing rules requiring investment advisers to use qualified custodians for digital assets, Monica stressed that existing custodian rules from traditional finance could provide a solid framework for protecting client funds in the cryptocurrency space.
Call for regulatory clarity
Anchorage is the first company to have become a federally chartered crypto bank in the US, and the firm has called for clear definitions of digital assets by Congress to facilitate the entry of more custodians into the crypto space, and better protect investors.
“Because if these things were clearly securities, there’s hundreds of broker dealers and banks working with companies doing this correctly,” he said.
In March this year, , or roughly 20% of its workforce, citing regulatory uncertainty in the United States as a key reason.
Surge in business in 2023
As reported back in July, this year, fueled by institutions that are seeking safer ways to store their crypto.
Commenting at the time, Monica said the inflows to the firm are in the “billions of dollars,” with institutions clearly interested in the crypto sector.
“We’re seeing a major shift from retail domination to institutional accumulation. Even though the pie is smaller, the institutionalization of the pie is getting larger,” Monica said at the time.