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1. Where and how will we play?
In this environment, many wealth and asset managers are starting to think about a digital assets strategy. They need to decide:
- Where will we play – origination, trading (direct, derivatives etc.), staking or yield enhancement?
- How will we custody and access assets?
- How can we onboard clients given anti-money laundering (AML) concerns?
- Do we develop in-house capabilities or collaborate with specialist providers?
- What sort of operating model will work best?
- How do we get comfortable around controls?
More and more of the wealth and asset managers we talk to are looking for speed to market. In many cases, that comes down to the right partnering or leveraging components from other service providers, such as technology firms.
Whichever path they take, institutions must, as a priority, build trust into their crypto and digital assets services.
According to data firm, Chainalysis, roughly $14 billion in fraudulent transactions occurred in the cryptocurrency world in 2021, up by 79% from a year earlier, thanks in part to the rise of DeFi.¹ Scams tied to cryptocurrencies and digital assets, including worthless NFTs, may well be the biggest threats facing individual investors in 2022.
A major issue is the "fine print" in the smart contracts that many cryptocurrencies are linked to. Investors who lack a knowledge of computer coding find it hard to understand what’s inside a smart contract. This allows hackers to launch scam currencies that either cannot be resold or, on resale, remit huge portions of the token’s value in fees back to its inventor.
No wonder the tech news site, Gizmodo, has started reporting on "crypto scams of the month", with the tagline "Be careful out there, folks".