Why Aren't Your Clients Assets On-Chain?

What Asset Managers and Financial Advisors Should look for in a Digital Assets Partner

If your clients own cryptocurrencies but their ownership is not recorded on the blockchain (assets are held in a centralized exchange's wallet such as Coinbase) there are assumed risks regarding the control and ownership of these assets.  Below are some points to consider when choosing a digital asset partner:

On-Chain Custody and Security: Asset managers and financial advisors require a blockchain partner that offers on-chain custody solutions, ensuring that digital assets are securely stored within the blockchain infrastructure. This includes the use of smart contracts for automated compliance and enhanced security measures such as multi-signature wallets and decentralized storage.

Regulatory Alignment with On-Chain Governance: The partner must navigate the complex regulatory landscape with a focus on on-chain governance models that align with federal standards. This includes participation in decentralized autonomous organizations (DAOs) for decision-making and adherence to on-chain regulatory frameworks.

Integrated On-Chain Services: Asset managers need a partner that provides a comprehensive suite of on-chain services, including trading, staking, and participation in network governance directly from the blockchain. This ensures real-time settlement, transparency, and direct control over the assets.

On-Chain Compliance and Reporting: The partner must facilitate on-chain transaction recording and reporting in compliance with SEC Rule 204-2, leveraging blockchain's immutable ledger for accurate and transparent record-keeping.\

Risk Management on the Blockchain: While acknowledging the speculative nature of cryptocurrencies, the partner should offer risk management tools that are integrated into the blockchain, providing asset managers with the ability to assess and mitigate risks in real-time.

Choices and Diversification:  Initially,  Bitcoin will most likely be the most requested digital asset by clients.  Eventually, and most likely soon, clients will want more options spread across the risk curve, increasing their diversification. Your digital assets partner should be able to offer exposure across the blockchain as well as be able to customize your clients needs.  Thematic portfolio options equivalent to index funds will be vital, especially as we increasingly see real world assets brought on-chain.

Example of a diversified portfolio providing exposure to all aspects of blockchain

On the cusp of a BTC ETF approval, it has never been more important to understand what ownership looks like in the digital assets world.  In the next part of the series we will expose what “owning” shares of BTC ETF entails, versus partnering with a reliable and verifiable partner that is On-Chain.