Unlocking Institutional DeFi: The Future of Secure Crypto Custody

First and foremost, the future of finance is evolving, and the inherent benefits of DeFi are significant as the market matures—from removing intermediaries to lowering costs, unlocking efficiencies, and creating a more transparent, resilient, and better-distributed financial system. However, what we are still seeing at the moment is a thin layer of decentralization, where we haven't eliminated the systemic risk of trust but have introduced the inefficiencies of public blockchains. Until we advance on the journey of full decentralization for end users to reap the full benefits.

DeFi promises a streamlined way to generate yield on digital assets while offering lower fees and risks and deeper liquidity than traditional market services. This is achievable using the same mechanisms as traditional finance, such as trading, lending, and hedging. However, institutional investors are often left stranded, unable to capitalize on this new frontier due to a lack of proper custody, security, and due diligence checks, and the nascent overall strategy of market applications that are not always user-friendly or easy to trust.

The potential impact DeFi could have on traditional finance made pursuing this emerging market a straightforward decision for Trustology, especially as our TrustVault solution had already been built with this functionality in mind. We did not want to build another cold storage solution. We wanted to be solving the next problem, i.e., crypto safekeeping in the fast lane.

DeFi is set to become a multi-billion dollar industry, with a growing total value locked. This is evident in the significant adoption of assets like WBTC to mint DAI. This major development signals demand for non-ERC-20 assets, meaning the sector is starting to expand beyond just Ethereum. Ethereum remains at the forefront with upgrades like Ethereum 2.0's proof-of-stake system and the staking opportunities on the network. We are now seeing major centralized exchanges eager to move into the sector. The emergence of competitors' smart chains signals a race for DeFi dominance. It will be fascinating to see how yields compare between staking at the base protocol level versus higher-level DeFi protocols like lending.

As the diversity in blockchains increases, there's a growing need for cross-chain functionality. Trustology identified this early, extending its support to Binance Chain and BEP-2 tokens, DEXs, and their upcoming smart chain.

It isn't just about facilitating access, either. It's about enabling participation in the safest, fastest possible way so our clients never miss a trade or opportunity in the market. Custodians can mitigate risks arising from fraud, scams, and hacks—as well as regulatory risk—with a combination of insurance, policy checks, transaction controls, and best-in-class hardware, software, and security protocols.

Thanks to our Metamask integration, we are one of the first insured custodial wallet providers to give our users secure access to DeFi dApps.

Institutional investors are under regulatory and investor scrutiny. Beyond securing their digital assets, they need to demonstrate they are adequately mitigating risk, which involves obligations to mitigate custody and settlement risk. Plus, let's face it, with crypto funding of trading accounts comes the headache of managing millions of keys, and the need to transact directly and securely. Manual processes are too costly and unmanageable, making automation essential for speed, scalability, and security. With DeFi, you need to support an almost infinite variety of protocols, do so securely, and in real-time with segregated keys and controls fit for institutions without compromising on speed or access. That's difficult to achieve with custody solutions that aren't real-time, such as cold storage.

Also, let's not forget that insured and regulated custodians can protect against compromised private keys—and thus compromised assets—as well as the scams and hacks to which the crypto industry is unfortunately prone. An example of this was seen when the DeFi protocol dForce was exploited for a significant amount of user assets. This shouldn't be surprising; DeFi is in its nascency. As such, opportunists can exploit loopholes in the sector's processes. But, as counterintuitive as it sounds, this needn't deter investors.

It's been said that DeFi protocols are only as secure as their smart contracts. While this is largely true, we don't entirely agree. Users and businesses involved in DeFi can do much more to protect themselves when it comes to the secure custody of their private keys. Partnering with a custodian to secure locked assets in DeFi staking protocols, for instance, ensures withdrawal keys are protected. With a custodian, the duty of care falls to them. If, in the unlikely event, they fail, insurance buffers ensure user assets remain intact.

Additionally, custodians help to not only enhance the legitimacy of the sector but also facilitate the burden of managing the technical risk and overhead that comes with DeFi, such as running your own infrastructure (e.g., nodes, indexers). For less tech-savvy individuals and businesses, this can be a significant barrier to entry. Some investors, such as family offices and other institutional entities, simply want to dip their toes into an exciting new market opportunity without fear of risk. Custodians like Trustology provide that option, allowing secure and compliant access to an unregulated space to enable mass adoption. As such, institutional investors no longer have to worry about KYC and AML or any other regulatory compliance, as it's built-in along with other time controls like multi-sig and allowlists (or whitelists, as they are commonly known).

Capturing the trust of institutional investors is a win-win for the sector. More institutional participation breeds greater legitimacy and brings more capital. The sector grows as a result, benefiting retail investors as well.

First and foremost, Trustology's wallet is fast, user-friendly, and highly secure. Capable of transaction processing times of 350 milliseconds, which outpaces hardware wallets by a significant margin, we combine end-to-end hardware security, agent-based software flexibility, and statistics to offer a fully automated solution for individuals and businesses with set human intervention to reduce operational risk. We support and enforce transaction controls like multi-signature, requiring multiple parties to sign off on a transaction, as well as 'allowlists' or whitelists to create controlled environments. This allows the user to block certain unvetted addresses and dApps, providing an additional layer of security otherwise non-existent within DeFi. These extra layers of security and compliance build a hugely compelling case for institutional investors.

The fully regulated nature of our company, combined with the programmability of our technology, really sets us apart, though. Unlike MPC (Multi-Party Computation), we provide full custody of the keys on behalf of our users, offering a custody wallet solution that uniquely combines speed, security, and usability. In short, we make the solution hassle-free, secure, and accessible. The richness of our APIs, our resigning engine, and segregated wallet strategy enables us to create and manage an infinite number of addresses at scale for thousands of users. This is something that can't be done with cold storage, for instance. It makes us agile and able to support any blockchain or protocol faster than many providers in this niche market. Currently, we support some of the major blockchains out there—Bitcoin, Ethereum, and Binance—as well as their respective token standards—ERC-20 tokens and BEP2.

We also enable regulatory compliance through permanent, built-in KYC and AML controls. This allows institutional investors to participate at ease in DeFi—something that is key to mass adoption.

Finally, and perhaps most importantly, no other DeFi wallet is insured and regulated. Of the many decent DeFi wallets on the market, none offer real-time, third-party custody. They are all self-custody, which means managing your own private key. This can become incredibly debilitating—and even prove costly—for individuals and businesses entering DeFi for the first time. This is especially true given the latent risks exhibited by the aforementioned DeFi exploits.

Trustology is the only insured and regulated custodial wallet providing secure access to dApps via a Metamask integration—allowing a proven and trusted method of entry while providing trade-insured coverage and regulatory assurance. If everything else falters, the user will always be covered.

As an additional layer of security and flexibility, we have technology that allows us to re-sign transactions and easily support a range of assets and decentralized exchange side-chains, as the technology is blockchain and protocol agnostic. So we can go to market with new chains and assets faster than most. This includes Binance's upcoming smart chain as well. Currently, we support a myriad of tokens, including BTC, ETH, and ERC-20 tokens such as DAI, ZRX, HOT, LINK, MKR, OMG, BAT, UNI, USDT, and VXV.

Our resigning engine technology is unique to Trustology and enables us to re-sign and support any transaction. This is one of the reasons why we're able to quickly add our support to new enterprises like Binance's smart chain and Ethereum's 2.0. Moreover, once developers start creating their own tokens on top of the smart chain, the ability to re-sign means we'll be able to support those assets as well. This extends to the upcoming launch of ETH2.0, which adopts a new BLS signature scheme that we can easily support.

It's crucial, particularly in this fast-paced industry, that crypto companies are able to quickly pioneer and adapt to the market by launching support for emerging protocols.

The next step for Trustology is extending support to ETH 2.0 to enable staking within TrustVault. We are one of six firms joining ConsenSys Codefi's pilot staking program for ETH2.0, so we're pretty excited about this. For us, this ties in with our strategy of continuing to work on what our customers need to trade, lend, borrow, or hedge. It also aligns with our vision and mission of mass adoption. Right now, we have heavy overlap at the moment across centralized and decentralized ecosystems because we're still on a migration path to full decentralization. To get to that end state, our role is to introduce complementary solutions in DeFi that make it seamless, whatever the use case. It's about finding the best path as an open, smart custody layer to plug in where it makes sense to offer best-in-class execution for our clients without defying regulatory requirements like segregation of duties. Our rich API capabilities allow us to do this, and one of the areas we're focused on is acting as a key agent that works across multiple shared networks rather than across privatized networks, which is not sustainable in the long term nor cost-effective.

Once we have more migration to DeFi, it could become the de facto global finance mechanism, and we're looking forward to being the regulated custodial gateway for that ecosystem.