- Key insight: The crypto industry is entering an era of "co-opetition," in which rival companies simultaneously cooperate and compete for mutual benefit.
- What's at stake: Institutions that centralize everything with one provider may find themselves out of alignment with supervisory expectations.
- Forward look: As digital asset markets mature, the firms that embrace co-opetition will be better positioned than those attempting to own every layer.
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Aware of this, big crypto firms have begun fostering a network of third-party providers to diversify risk and reassure institutional clients. They understand that, in order to grow, they need to help their competitors grow as well. The crypto industry simply can't scale without that calculus. In other words, the crypto industry is entering an era of "co-opetition," in which rival companies simultaneously cooperate and compete for mutual benefit.
When a single firm controls trading execution, holds assets, manages yield strategies and clears transactions, risks compound across the entire stack. A technical outage can freeze liquidity, or a compliance issue can disrupt custody. A solvency scare can cascade across multiple lines of business at once.
Boards and audit committees recognize this dynamic. That's why institutions are expected to demonstrate diversification across critical service providers. Relying on a single crypto firm for every function makes that conversation uncomfortable very quickly.
Procurement processes reflect the same reality. Redundancy is standard policy: Trading desks maintain multiple venues, custody is often segregated and risk teams demand independent reporting. A provider that insists on owning the entire stack often collides with how institutional decision-making is structured.
It's also a matter of regulation. Supervisors globally have grown more sensitive to commingled functions, particularly when custody and trading sit inside the same organization. Segregation of duties reduces conflicts of interest and strengthens internal controls, and compliance teams frequently mandate multi-vendor architectures regardless of commercial preferences.
Institutions that centralize everything with one provider may find themselves out of alignment with supervisory expectations.
There is also a simpler truth: No firm excels equally across every function.
Execution venues focus on liquidity and price discovery. Custodians, on security frameworks. Staking providers are experts in validator performance, slashing mitigation and yield optimization. Compliance vendors build tools for auditability.
New York extracted $5 million and a broker registration from Uphold over its promotion of CredEarn, a yield product whose issuer collapsed in 2020.
Trying to combine all of those competencies under one corporate roof obviously dilutes focus. Depth in one area often comes at the expense of another. For retail users, that trade-off may be acceptable, but for institutions managing significant capital, it rarely is.
Market conditions reinforce the point. Liquidity shifts across venues, spreads change under stress, and certain platforms dominate specific assets or regions at different times. The upshot is that institutions that confine themselves to a single venue accept inferior pricing and reduced flexibility during volatile periods. Put differently, maintaining multiple relationships preserves optionality when markets tighten.
This may sound obvious, but by adopting a modular infrastructure (instead of building their entire crypto exposure on a one-stop shop), institutions can easily swap components without overhauling their entire operations. A new custodian can be onboarded without dismantling trading relationships, or a stronger liquidity venue can be added without migrating assets wholesale.
Vendor lock-in, by contrast, constrains negotiating leverage. When custody, execution and yield services are bundled, switching costs rise, and commercial terms become harder to challenge. Over time, operational disentanglement grows more complex.
Early industry growth, driven by retail, favored vertical integration because capturing a big part of the stack simplified user acquisition. But institutional adoption changes the incentives. Crypto's largest companies understand that, in order to grow, they need third parties to grow as well — otherwise institutions will never do anything more than dip their toes into the crypto ecosystem.
Heavyweights are now investing in third-party integrations and external partnerships. They support independent custodians, connect to multiple liquidity venues, and integrate external compliance tools. Helping adjacent providers scale strengthens the overall market. Institutions are more likely to commit capital when they see an ecosystem that resembles traditional financial infrastructure: distributed, interoperable, and competitive.
Telecom offers a useful parallel. The industry began with vertically integrated national carriers that controlled infrastructure end to end, but growth accelerated once interconnection became mandatory. The breakup of AT&T opened the door to competitors such as MCI Communications, while mobile operators such as Vodafone and Deutsche Telekom expanded globally through roaming agreements that enabled networks to work together rather than operate in isolation.
Shared technical standards and infrastructure reinforced that shift. Tower companies such as American Tower reduced capital costs through neutral infrastructure. Competition remained fierce, but interoperability widened the market and accelerated adoption in ways closed systems never could.
Crypto is moving along a similar path. Interoperability is becoming a foundational expectation. Institutions entering the space look for structures that resemble what they already know: multiple venues competing on execution, independent custodians safeguarding assets, specialized providers handling discrete functions.
The strongest crypto firms will adapt to that reality. They will compete aggressively where they excel, and collaborate where integration increases overall participation. As digital asset markets mature, the firms that embrace co-opetition will be better positioned than those attempting to own every layer.
