Opening Remarks and From Vaults to Smart Contracts: Why Custody Is TradFi's Gateway to Digital Assets

Institutional adoption of digital assets hinges on one foundational capability: secure custody. For traditional financial institutions, custody is more than just safekeeping—it is the key to enabling new services, building client trust, and capturing emerging revenue streams in tokenization, digital trading, and beyond. This session unpacks the strategic imperative for TradFi players to move into on-chain custody, the market forces driving demand, and how established players can leverage their trust advantage to compete in this rapidly growing space.

Transcription: 
Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio for the authoritative record. 

Bailey Reutzel (00:14):
All right. Hey everyone. In the wide world of finance, custody might strike some of us as a bit dull, but trust me, we're not here today to lull you into your afternoon nap. No, we're going to make sure you understand the importance of a custody solution and even come to think of it as the first step to some really exciting opportunities. Nowhere else is that more true than in custodying digital assets. Let's make sure we're all on the same page first. If you already know this, bear with me. What is a custodian? It's a financial institution that holds and safeguards customer assets. ¹ That could be securities, bonds, Bitcoin, or other digital assets. They're safeguarding those from theft, loss, or any other kind of damage. Now, this is different than just any old asset wallet or trading platform.

(01:05):
A custodian is specialized in the protection of assets. ² They provide institutional-grade storage. ³ This isn't your grandma's desktop computer with the password "1234" on a sticky note. This is top-notch security that generally includes a combination of cold or offline storage and hot or online storage. ⁴ It also includes other cryptographic measures, such as multi-signature wallets, which means assets can't move unless a specified threshold of signatures—two of three, three of five, et cetera—are present. ⁵ These are heavily regulated institutions under strict compliance. Depending on whether you're custodying assets for retail or institutional customers, a custodian might also offer a number of other services. This could include providing accounting services and tax compliance, distributing dividends and interest, providing foreign exchange management, placing investment orders, and much more. ⁶ Custodians can also operate wild and innovative mechanisms for staking.

(03:01):
Now that we have that broad understanding of custody, let me give you a quick bit of housekeeping before we jump into the meat of the day. The virtual summit is made up of three sessions. We start with a panel to define custody and set the context for how and why you would want to participate in the digital asset custody space. Then in the second session—which I'm very excited about—it's a fireside chat where you'll hear from a banker from a small regional financial institution who built a digital asset custody solution back in 2021, dealing with a much less open regulatory environment than the one we see today. That will be an insightful conversation from someone who's done it all before. Finally, we'll finish with a future-looking panel that touches more specifically on the products and services custody unlocks, especially in the digital asset space. Throughout these sessions, the Q&A feature will be open, so feel free at any time to drop your questions in there. Moderators will be keeping an eye on those and we'll either weave them into the conversation or save time at the end to get them answered.

(03:59):
With that, let's get into it. I am your host and moderator for this first session, Bailey Reutzel, Senior Director of Content and Strategy for Live Media at American Banker. My expert panelists today are Rachel Anderika, Global Head of Operations at Anchorage Digital Bank; Ryan Marsh, Head of Innovation and Strategic Partnerships, Investor Services and Issuer Services at Citi; and Paul Unterberg, Chief Product Officer at Uphold. To start, I want you all to tell us how you operate in the custody space. Rachel, let's start with you. Tell us a little bit about Anchorage and anything else regarding custody that's worth our audience knowing.

Rachel Anderika (04:17):
Yeah, sure, Bailey. Thank you so much for the great introduction. Anchorage Digital was founded in 2017 by two security engineers, Nathan McCauley and Diogo Mónica. ⁷ The whole premise was that institutional custody needed to be built differently. They looked at the trade-off Bailey was talking about: cold storage versus hot wallets, or safety versus accessibility. They believed the institutional investor shouldn't have to make that trade-off. They built a security solution based on government-grade hardware security modules to enforce institutional intent for every transaction. At the heart of what we provide is a security solution, and we convey those services via a regulated bank charter.

(05:27):
We started out with a South Dakota trust charter and, once the regulatory licensing world opened up, we were able to convert that into an OCC bank charter. Through our bank charter, we provide custody services, obviously. We allow for sub-custody into various IDIs and banks. We allow for staking through our platform, and allow clients to participate in on-chain governance and the settlement of trades. Essentially, you can think of it as highly secure infrastructure for engaging in the space. That is the foundation for how you want to operate and engage in the financial activities afforded through other providers.

Bailey Reutzel (06:34):
Yeah. We'll certainly get into staking and on-chain governance to set the context for what that's all about. Ryan, I want to pass it to you. It was reported that Citi is looking to launch a digital asset custody solution in 2026. ⁸ Why is that? What do you think the benefits are there?

Ryan Marsh (07:00):
Yeah, sure. Just before we go there, a little bit about me. I've been in and around the custody business for almost 30 years. I've had roles in operations, product development, product management, and more recently leading innovation and partnerships across the entire security services business here at Citi. Citi is a bank, but we are also a major custodian. ⁹ We've been in the business for decades and are licensed as a custodian in more than 60 countries. Rachel mentioned sub-custody; we are that sub-custodian in more than 60 countries, which is more than any other custodian. We're also one of the largest in terms of assets under custody, handling tens of trillions of dollars today. Effectively, Bailey, you mentioned that custody is about safeguarding, but we see it as more than that.

(08:06):
We've seen an evolution where we're no longer just service providers; we are strategic partners. We're there to help clients navigate complex market events and support their operating models. We see ourselves as part of our client's ecosystem and an enabler to their business strategy. For us, there's clearly client demand for digital assets. It's the next evolution in asset format and we are here to support that. We are building capabilities in this space because we're reacting to client demand.

Bailey Reutzel (08:59):
Very interesting. We'll dig into that client demand further. Paul, I want to give you a chance to introduce Uphold. You are not a custodian, but you get those questions often from your customers. Take us through that.

Paul Unterberg (09:12):
Yeah. Uphold is a FinTech company; we are all about bringing the magic of cryptocurrency into traditional firms and making it very easy to interact with. In order to do that, you need safe key management and secure architecture. You need to be able to support programmatic events because, unlike traditional assets, digital assets are living computer entities that you can make do certain things. You want to make sure your custody arrangements are secure. We work with all types of different custodians as we bring our APIs to traditional finance institutions so they can get the benefits of digital assets, whether they're offering buy, hold, and sell to their customers, or more exotic decentralized financial technologies.

Bailey Reutzel (10:06):
Can you tell us a little bit about the institutional customer base you have for those APIs?

Paul Unterberg (10:14):
We service everyone from crypto wallets looking for an on and off-ramp from traditional fiat currencies or card payments, to large brokerages looking to give liquidity and offer crypto trading, as well as settlement for institutional counterparties. If you think about the crypto ecosystem, customers have many options. We provide all-in-one quotes and OTC quoting for institutions so they can fulfill liquidity on less traded, thinner markets for alternative cryptocurrencies, as well as the big ones.

Bailey Reutzel (10:59):
Nice. Ryan, you mentioned this is about customer demand. I would also argue that this is about regulatory clarity and the environment becoming more open to digital assets. Talk to us about how that regulatory clarity, at least in the US, was impactful.

Ryan Marsh (11:25):
Yes, for sure. This is really the question of "why now." Crypto and digital assets have been around for a number of years. ¹⁰ The key changes for us have been, firstly, significantly more regulatory clarity, certainly in the US where it has moved at pace this year. As a bank, we cannot operate in a gray area. We need clear regulatory clarity to engage, and we are now starting to see that trend globally. Secondly, technology has matured.

(12:10):
We're seeing public blockchains used for crypto, but also for digital versions of traditional assets. For instance, asset managers are adopting public blockchains for permissioned digital fund structures. They see blockchain as a new distribution channel and recognize the potential increased utility of digitally native funds. Money market funds are a great example. The third driver is that ecosystems have started to take shape. We're increasingly seeing partnerships between TradFi firms and crypto firms. We recently announced a partnership with Coinbase around payments. Those three things, along with client demand, have really opened up this space. Our clients are telling us they want us to support their activity as they move in. The combination of client demand, maturing technology, and regulatory clarity means this is the right time.

Bailey Reutzel (13:41):
And for the clients asking for this, can you give us an idea of who those folks are?

Ryan Marsh (13:46):
We're an institutional custodian only, so we don't support retail. We're seeing this across multiple segments, including asset managers, banks, some hedge funds, and some corporates. The demand is not just for crypto, but for a wide range of assets on public blockchains. That's really what we're focused on supporting going forward.

Bailey Reutzel (14:20):
Rachel, I'm interested in the clientele you are seeing over at Anchorage.

Rachel Anderika (14:27):
It is probably very similar, with a slight bent toward crypto-natives because that's where we grew up. Institutional funds make up about 50% of our client base. We also see token issuers needing to token their treasuries and distribute assets to employees. Another interesting area of growth is digital asset treasuries. They come to us not only for custody but for prime trading services to maximize yield on those treasury assets. With the advent of our stablecoin issuance platform, we have several different white-label or issuing partners. The first was Ethena, and we were able to onshore their stablecoin.

(15:56):
The second is USAT, which will be the US issuance of Tether. ¹¹ The third, announced about two weeks ago, is Western Union partnering with us for their stablecoin issuance plans in 2026. Exactly what Ryan was saying, we see a shift from crypto-native participants to more traditional financial players. Regulatory clarity had a lot to do with that, particularly for financial institutions that were previously chilled by the need for supervisory non-objection. Once that was taken away, there was a green light. You can't plan out several quarters with regulatory uncertainty. We're also seeing the technology get better, which allows us to meet institutional demand for use cases that reduce costs, move money quicker, and finalize settlement faster.


Bailey Reutzel (17:32):
I started my career at American Banker in 2012 covering crypto. This has been an ongoing discussion about how to legitimize crypto while remaining competitive with traditional financial institutions. Paul, Uphold has been around for a long time. Talk to us about the maturation of crypto and this merging with traditional finance.

Paul Unterberg (18:05):
We were founded in 2014, so we have seen the adoption and maturing Rachel talks about. The old narrative from the cypherpunks about "replacing the banking system" was probably a little naive. These systems don't swap things out; they iteratively and incrementally improve functioning as new technologies come on board. When internet-based transfers arrived, wires remained, but you could trigger them from a website instead of a branch. We improve systems so they are more efficient and money moves with lower friction.

(19:05):
All of that requires a great deal of orchestration. Assets may sit with a custodian who is protecting them, but the customer doesn't care about the plumbing. Automated processes have to happen to give the customer new capabilities—like buying Bitcoin or sending money cross-border instantly—while tying back into other operations. Reconciliation is probably just as important as the speed of movement. You need infrastructure in place to support this, get all data signals back, and have the assurance that a transaction took place exactly as intended. Custodians and your technology infrastructure are vital for that.

Rachel Anderika (20:09):
I'd like to draft off Paul's point. At Anchorage, we believe we will see success when you're dealing with Anchorage and you don't even know it. Providing that safe infrastructure is extremely important. I'm reminded of companies you've never heard of that run the world, like common securitization solutions. DTCC is another example; the average person trading stocks doesn't really know what DTCC does. Everyone who spent time building through this bear market and period of regulatory uncertainty is now moving toward harmonization. The space is mirroring traditional finance and iteratively improving on it.

Bailey Reutzel (21:31):
Ryan, did you want to add anything?

Ryan Marsh (21:32):
Just a slightly different perspective. As in traditional finance, our clients don't really want to know how the plumbing works. Our job as a custodian is to connect them to the places where assets are to settle, safekeep, and service them. As an industry, we've probably spoken about "blockchain" too much. What really matters to our clients is access to an asset that might happen to reside on a blockchain. The period we're in now is a significantly more fragmented financial landscape than before.

(22:39):
Our clients are asking us to abstract that complexity away. You are already our custodian for traditional assets; service our digital assets under the same operating model and service level. They don't want to fragment their custodians, which leads to cost and complexity. We are building digital asset custody capabilities fully integrated into our existing business to provide a seamless experience across traditional and new assets. ¹²

Bailey Reutzel (23:26):
Are you saying we talk about crypto and blockchain too much?

Ryan Marsh (23:31):
Our clients don't necessarily want that; they just want access to assets.

Bailey Reutzel (23:39):
Fair enough. I am wondering if there is a difference between custodying digital assets versus traditional assets. Are you having to build a lot more infrastructure?

Ryan Marsh (24:04):
When I started, custody was about holding physical stocks, shares, and bonds in physical vaults. Many were bearer certificates, hence the need for a vault. Banks initially added value through that infrastructure. But that was inefficient; selling assets could take weeks because it required physical delivery. In the late 90s, we saw the electronification of markets and the rise of central securities depositories (CSDs). That allowed us to create electronic registers representing ownership. Settlement became just a movement on a register.

(25:11):
Custody moved from physical safeguarding to legal registration of ownership. On blockchain, we're moving toward digital bearer instruments. Safeguarding those is about protecting and safekeeping the keys that control the assets. That does require new technological capabilities. We've moved from physical security to a combination of physical and digital security. Other key differences are novel risks, especially around compliance and cyber risks. As a bank, that is top of mind. We will not move into this space unless we are absolutely buttoned down on both security and compliance.

Bailey Reutzel (26:41):
Rachel, tell us about what you've had to build at Anchorage to deal with digital asset custody.

Rachel Anderika (26:50):
I'll echo Ryan. We think of custody in the digital asset space as inherently a security activity. We have a team of over 150 engineers. You have to safeguard and safekeep securely, but you also have to verify intent. Because of how digital assets exist and move, you have to verify the intent to move the asset. Once an asset is gone, there aren't several layers to unwind or redirect the transaction. It's gone.

(27:56):
We built a lot of controls at the outset to verify that a transaction is what the user intends. Our entire bank is built with that security notion in mind. It looks very different than a traditional bank. Our examiners have had to get their minds around how we deal with security and what access looks like. The regulatory perimeter opening up is important because it creates a safer space where we are all held to the same level. Ryan at Citi and I are both held to high standards for information security, the Bank Secrecy Act, and anti-money laundering. We also have controls around fiduciary activities. As Ryan said, the old rules were written for things like joint custody between two physical persons. We think about how our security system reaches that same level of dual controls to ensure there is no unilateral movement of assets.

Bailey Reutzel (30:18):
Core modernization moves take a lot of time and money. I want to shift gears to future use cases. Paul, what are the products and services that retail or institutional customers are looking for?

Paul Unterberg (30:58):
Before Uphold, I built a stablecoin. The process seems simple but is operationally complex because you have issuance, reserve management, and the security of that reserve. That adds basis points to the cost. The worst thing you can do with a reserve-backed stablecoin is have it instantly redeemed, which doubles the issuer's complexity. I'm excited about advances in tokenized deposits. They remove a lot of that friction. You have your bank core that writes the blockchain balance at the same time it writes the actual balance your ATMs use, keeping them in sync.

(31:58):
We're working with a bank now to deliver that. It means there's no longer friction in interacting with digital assets. Users can move on the tokenized deposit ledger, take out money from an ATM, and instantly convert it to a digital asset. That is a major step beyond the stablecoin era.

Bailey Reutzel (32:31):
Ryan, what do your institutional customers want once the custody solution is set up?

Ryan Marsh (32:40):
Citi has a tokenized deposit product called Citi Token Services. ¹³ Client adoption is increasing quickly. From an infrastructure perspective, CSD-based securities were a big improvement over physical, but settlement cycles still take at least one day. Blockchain is borderless and always on, which opens potential for more efficient asset movements. ¹⁴ Collateral use cases are interesting—improving the speed of collateral mobility and the ability to assess and move asset pools far more frequently, potentially multiple times a day. The infrastructure is superior.

Bailey Reutzel (34:10):
Rachel, can you give the audience a breakdown of staking and on-chain governance? Those are two big services provided after custody.

Rachel Anderika (34:27):
I want to disaggregate use cases for infrastructure from those for engaging in speculative assets. Both are important. On a proof-of-stake blockchain, staking is how your holdings secure the network. ¹⁵ You validate transactions by "posting" your assets, making them unavailable for other use. In return for that service, you are provided rewards. Clients holding proof-of-stake assets want to engage in that to get the network rewards they are due. We consider this part and parcel to digital asset custody.

(35:42):
On-chain governance is a unique feature where you are a holder of an ecosystem or network and have the opportunity to vote on important things happening in that ecosystem. You use our platform to interaction with that network and cast your vote in a secure environment. You want a secure environment where you can still access and interact with those assets.

Bailey Reutzel (36:57):
Describing staking feels tedious; every time I introduce proof-of-stake, it becomes complex so fast. Ryan, is there a parallel in traditional finance for staking or on-chain governance?

Ryan Marsh (37:30):
Staking is pretty unique. You have lending of assets in the traditional world, but staking is different. It's a novel service. From a governance perspective, investors in securities participate in governance by voting at annual meetings. ¹⁶ There is obviously a lot more functionality in the on-chain world. It will be interesting to see how that plays out when securities are tokenized onto blockchains at scale.

Paul Unterberg (38:36):
Staking is technically complex. Based on the rules of different networks, your staked funds could disappear—a process called "slashing"—if you don't participate correctly or your node goes offline. That's why it is important to have service providers who ensure you are staking correctly and not at risk of negative consequences.

Bailey Reutzel (39:10):
For smaller banks or credit unions that aren't building this from scratch, what should they think about regarding building versus partnering?

Paul Unterberg (39:38):
Staking or buying assets is a small part of the problem. You can find an engineering team to build the capability, but the harder part is embedding it into your day-to-day operations. You want partners who have done this before and can tell you how to track daily settlement reports, catalog data for regulators, and handle KYC specifically for crypto. Building that expertise takes a long time. Compliance is huge. You want a partner who can help integrate existing compliance operations or provide a backstop, because you're making this part of your entire ecosystem.

Ryan Marsh (41:03):
I don't think this is unique to crypto. Whenever a firm moves into a new space, we ask if we are building, buying, or partnering. At Citi, we are well-connected to the FinTech ecosystem and we assess which bits are most important to build and where it's better to partner with a specialist. That's a normal process for any new initiative.

Rachel Anderika (41:50):
If I were running a small bank, I wouldn't try to build this capability by myself. You won't get to market fast or safely, and it's not good for your clients. There are unique risks that require a level of technical expertise that isn't as available as you might think. A few years ago, someone asked me how nervous I was about mid-size institutions building on their own. I said, "we have a hundred engineers and it's still hard." You might build custodial access to Bitcoin and ETH, but the space moves so fast it's hard to build the infrastructure you need to keep up with new products and assets.

Bailey Reutzel (43:26):
Where should people go to understand who to partner with?

Paul Unterberg (43:49):
See who is doing it at scale and in public. Look at the types of integrations they've done and talk to their engineers to make sure they can fit into your operational plans.

Bailey Reutzel (44:18):
And where would somebody learn what "slashing" is?

Paul Unterberg (44:22):
Google or ChatGPT. Just for the audience: slashing is the penalty for not following the rules of a proof-of-stake network. ¹⁷ For example, if you propose a transaction that has already been spent, you lose a portion of the stake you pledged. Find a partner who can explain these things to you.

Bailey Reutzel (45:12):
Rachel, any thoughts?

Rachel Anderika (45:15):
Look at the maturity of the partner. For us, you can look at our cap table and our regulated status. You want an organization that has the financial wherewithal to exist in the future. We are at a level now where partners have come through crypto winters and bear markets. They have strong balance sheets and oversight.

(46:24):
If you are a relatively small bank, there's a spectrum of things that look like traditional financial services. Do you want to allow people to borrow against their Bitcoin? Start with what the clients want to do with their assets and work backwards. Then you won't get distracted by red herrings or shiny things that aren't good for your clientele. You are there to provide financial services in a safe and sound way.

Ryan Marsh (47:34):
It's about being careful and doing research. We've been looking at this for a long time because the conditions weren't right until now. There is no quick fix. It should be a risk-based decision. Any entity is entrusting someone else with their money, so they need deep due diligence on whoever they work with.

Bailey Reutzel (48:17):
We have two audience questions. "Most Layer 1 protocols do not support recording of future obligations (payables) on-chain. How do you as a custodian record and report accrued receivables like principal, interest, or dividends on tokenized assets for clients?"

Ryan Marsh (48:52):
It depends on the structure of the asset and the custodian. Not everything will be on-chain. The custodian will do a number of things off-chain, like running their own ledgers. If a custodian runs an omnibus position on-chain, they need an off-chain ledger to show client entitlement.

Rachel Anderika (49:47):
I'll echo that. We should segregate the custodial question from the accounting question. For us, we try to do as much as we can connected. We don't use omnibus wallets; everything is segregated on-chain. However, there are off-chain settlements we must do before broadcasting the transaction to the network. I'd love to follow up with that person to see what specific use case they are trying to solve.

Bailey Reutzel (50:56):
One more question: "The internet is not designed for DeFi or digital assets. Cross-border KYC is a huge issue. Do you think we need a new digital fabric covering the US, and what could this be?"

Ryan Marsh (51:32):
The original internet was not ready for this, which is why blockchain was created to enable the transfer of value. Regarding KYC, public blockchains give more transparency on one hand but anonymity on the other. There are really good compliance tools now that provide deep data and tracing. The industry has come a long way.

Paul Unterberg (52:16):
You have to KYC people at both ends of a transaction. You can set it up so only KYC-verified people can participate in a protocol. Regarding a new digital fabric, the market is adaptable. Something like Worldcoin is trying to solve identity, but so far most use cases can be solved through other mechanisms.

Rachel Anderika (52:58):
KYC is what a regulated financial institution does under the Bank Secrecy Act. When I pay you from my wallet to your wallet, KYC does not and should not exist, just as it doesn't when I pay you in physical dollars. Cross-border is an amazing use case for crypto. You start at a financial institution that does KYC and send it cross-border. You might send it to a self-hosted wallet, and you are allowed to do that. You still have transparency and traceability of that transaction. If you want to launder money, a public blockchain is the worst place to do it because you are signing up to be surveilled. Stablecoins are essentially surveillance tools. We are going to see the identification of more illicit activity and a real crisp analysis of endpoints.

Bailey Reutzel (54:23):
Interesting point. Thank you all very much for being here. We will be back in five minutes with a fireside chat. Stay tuned.