Switzerland as the world's digital vault

Switzerland has established itself as a global leader in the custody of digital assets such as cryptocurrencies, tokens and NFTs. With a regulatory framework that encourages innovation and diversity, the country provides compliant and secure access to digital assets for professional and institutional investors. The custody services offered include various options such as B2C and B2B accounts, off-balance sheet custody, deposit insurance, and tax reporting. This and much more is in the first Swiss Digital Asset Custody Report 2023, launched by Home of Blockchain.swiss.

Digital safe: Manage private keys securely

Secure custody of assets is critical, as custodial service providers must manage risk while ensuring the safety of their customers' assets. Custody of digital assets presents unique challenges compared to traditional finance. Private key custody is essential to the recoverability of digital assets. Erroneous transactions are difficult to correct due to the irreversibility of blockchain transactions. Balancing security, convenience, transaction speed, and cost presents an important optimization problem.

"Private markets hold the greatest potential for digital assets, especially in areas not yet traded on traditional exchanges, such as digital bonds," points out Alexander Brunner, author of the report and president of Home of Blockchain.swiss. "Custody in facilitating institutional adoption is crucial. In this context, it is essential to manage private keys securely."

Strengthening Switzerland in wealth management

In Switzerland, various institutions have specialized and established themselves for the safekeeping of digital assets. The Swiss ecosystem is diverse and includes various business models and providers, from technology companies to universal banks. The Custody Report identified a total of 34 institutions, including established companies such as Bitcoin Suisse and Crypto Finance as well as newer players such as Berner Kantonalbank BEKB. 44.1 percent of the providers are banks such as Julius Baer, Vontobel or Credit Suisse, which offer trading and staking services in addition to asset custody. 70.4 percent of respondents are subject to regulatory supervision or hold a license. This ranges from an SRO membership to an asset management license to a security firm or bank license.

Another indication of the diversity of the Swiss digital asset custody ecosystem is the client base. Fifty percent of respondents serve both private clients and professional and institutional clients, with 26.5 percent exclusively serving professional clients.

The recent collapses of crypto providers from FTX to Celsius have demonstrated the critical importance of keeping client assets bankruptcy remote and off-balance sheet. Again, 70% of respondents offer off-balance sheet solutions, while the remaining 30% offer self-custody solutions where the client directly oversees the assets or are pure technology providers.

Advantages of blockchain highlighted

The report also highlights the potential benefits of blockchain-based assets such as efficiency gains, algorithm-based functionalities, transparency, improved risk management and strengthened governance enforcement. "Local, secure custody of digital assets is key in the fund space, as many jurisdictions require a local custodian," said Lorenz Arnet, senior business counsel at the Asset Management Association Switzerland. "Reliable and trustworthy institutional custody solutions are a promising catalyst for accelerating the adoption of digital assets in Switzerland. We therefore welcome the publication of this first Swiss custody report for digital assets," Andrea Luca Aerni, Policy Advisor Digital Finance, Swiss Bankers Association, also said.

The Swiss Digital Asset Custody Report was launched in collaboration with Switzerland Global Enterprise, Swiss Banking Association, Asset Management Association Switzerland, Capital Markets and Technology Association and Swiss Blockchain Federation.

Source: Home of Blockchain.swiss