What is your view on the impact that DLT and Blockchain is having in reshaping asset and wealth management? What is the current state of the space and how do you foresee it moving forward?
Distributed ledger technology has created the opportunity for both real-world and Digital Assets to become tokenized, re-shaping how market participants exchange value and claim ownership. We’re in the middle of a big shift, and the past two years have seen an acceleration towards a reality where crypto and Digital Assets become mainstream.

In 2021, crypto was once again the best-performing asset class of the year, with the market cap of cryptocurrencies growing from under US$1 trillion to exceeding US$3 trillion, and finally settling at under US$2.5 trillion at year-end. Adoption of stablecoins increased, particularly with corporate treasuries, while tokenization of assets finally picked up ground, driven by interest in NFTs.

The heavyweights of the financial services and wealth management industry understand that it is now imperative to invest in offerings around crypto and Digital Assets. And they are well placed to capture the opportunity: they have the trust that comes from decades of taking safe custody of assets for clients and institutions; they are regulated and therefore can get to market faster with digital asset services; they have the significant expertise accumulated f rom making markets around structured products and complex assets; and they have the customers, so they don’t have to incur the time and expense of acquiring them.

Pioneering banks are already responding to the opportunity
BBVA Switzerland has recently gone to market with a crypto custody and trading offering, initially aimed at HNWIs in Switzerland, but later expanded to a global scale across EU, LatAm, APAC, to mass-affluent segments. In Singapore, DBS Bank has launched DBS Digital Exchange, offering institutional custody and trading services for various Digital Assets, including security tokens and cryptocurrencies, with more than 600 institutional investors already onboarded in the first year of operations. We’ve also seen the rise of digital asset banks, such as Sygnum which, operating across Europe and Asia Pacific, now holds more than US$2 billion worth of Digital Assets under custody, and is already pioneering various use cases of tokenizing luxury goods and art NFTs (e.g. Crypto Punk NFT).

The market opportunity is massive
What we observe, from our interactions with banks and financial institutions worldwide, is that they build the internal business case to invest in the technology and processes that will enable them to interact with Blockchains, on crypto custody and trading alone. With custody, brokerage and trading fees for crypto assets being 4x-6x higher than traditional assets, and with up to 20% of existing clients of incumbent financial organizations adopting crypto services in the first 12 months after launch, we’re already looking at some great returns on investment.

But while the investment for crypto custody technology pays for itself, what it ultimately offers is a foundation for all future opportunities. Unpriced upside potential.

The World Economic Forum estimates that the potential value of assets to be tokenized by 2027 is US$24 trillion. Stablecoins, while currently at US$150 billion market cap, have the potential to disrupt and replace a big part of cross-border payments market worth between US$150 and US$250 trillion by 2027. We at METACO believe that eventually, everything will be tokenized, so we’re looking at the starting point of the market opportunity as being the current size of the capital markets, +US$350 trillion.

This is the moment to invest
For a financial institution, however, knowing that their firm needs to invest in digital asset infrastructure is not the same as knowing what their value proposition or business model should be. Like any nascent market, the digital asset market is evolving and investment cases are changing quickly. Value propositions will also inevitably evolve. Financial institutions are likely to change strategy over time - about, say, whether to tokenize assets directly or whether to create secondary markets for tokenized assets. Whether to do exclusively self-custody or diversify risks across multiple vaults and sub-custodians.

Digital assets give banks and wealth managers the chance to start afresh; to rebuild the future of their businesses without legacy processes and technology. By working closely with some of the largest banks around the globe, we’ve observed that the challenge they face is how to avoid binary technological decisions leading to a closing down of future business options. If this is a problem now, it will grow exponentially in the near future where every asset class is tokenized and CeFi and DeFi are bridged.

So the key for any institution will be to be keep its options open, which to a great extent will be synonymous with not creating legacy technology.

Orchestration is the answer
The solution lies in financial institutions building their stack on top versatile orchestration systems. An orchestration system is like a computer operating system in that it manages many-to-many interactions. In the same way as an operating system sits between hardware and software applications, an orchestration system sits as the heart of an ecosystem consisting of customer channels, trading venues, custodians, settlement networks and other constituents.

It buys a financial institution massive optionality at a low premium cost. Any decision a firm takes now about technology or business model does not bind it permanently (or expensively) to that path. New business models will emerge and the only thing we know for sure is that they will be based on facilitating the interaction of value between an ecosystem that – for the foreseeable future – will have to bridge between the old world of centralized finance (CeFi) and the rapidly emerging one of decentralized finance (DeFi).

We’re moving into a virtuous cycle where, with institutional backing, individual investors and their banks feel increasingly comfortable with investing in this market. If, until now, no banking professional got fired for ignoring crypto, soon that won’t be the case.

Figure 13: METACO Harmonize platform, securely bridging financial institutions to DeFi

What solutions does your company offer that asset and wealth management firms should consider?
METACO is the leading provider of security-critical, foundational technology and infrastructure enabling complex financial and non-financial institutions, to store, trade, issue and manage Digital Assets. Its digital asset custody and orchestration platform enables institutions of all sizes to create, scale and harmonize their digital asset business model.

METACO delivers the most flexible and secure digital asset custody solution in the market in combination with the secure orchestration of workflows across the entire digital asset stack.

Its technology is live and tested, in production with significant Tier 1 and Tier 2 private, custodian and universal banks across the globe, including FINMA, BaFin, FCA, Banco de España, and MAS regulated institutions.

METACO’s main product is called Harmonize, an end- to-end orchestration system acting as a single point of integration and unified and scalable governance for various digital asset backends, third-party systems and market participants, such as self-custody vaults, sub-custodians, trading venues, post-trade settlement networks, tokenization engines etc.

Enterprise-grade, security-first, future-proof technology
Component-based and microservices architecture allows for local variations of stack and deployment to meet regulatory requirements. Multi-layered architecture allows for trusted vs untrusted component segregation.

Fully extensible, open and ecosystem enabled
Feature-complete APIs and SDKs with extensive documentation allowing ease-of-integration and freedom to build. Pre-integrated with the broadest array of third-party technology providers.

Secure governance, automation and operations at scale
Highly flexible policy engine designed specifically for digital asset use cases and with a security architecture. Full automation services, billions of segregated wallets, high availability, horizontal and vertical scalability.

METACO also offers a product called Vaults, which enables institutional self-custody, by securing the cryptographic keys and the digital asset transaction execution process for a wide range of DL protocols, with one or multiple key repositories operating in parallel: hardware security modules (HSM) and multi-party computation (MPC), in the cloud or on-premise, from hot to fully air-gapped temperatures.

For banks and financial services providers
Integrate digital asset use cases into your business model, irrespective if you’re a large retail, corporate, private bank or a fast-growing challenger bank.

For asset managers
Get exposure to new asset classes and diversify custody risks across a network of trusted custodians in all major jurisdictions.

For custodians
Use your traditional custody expertise to provide an inf rastructure enabling institutional investors and companies worldwide to operate in the emerging digital asset space.

High-level benefits

• Speed to market - meeting your client demands, now.
• Orchestration - across multiple self-custody vaults and custodians.
• Secure automation, at scale – efficient governance.
• A single point of integration - no more legacy spaghetti.
• Scalability with full flexibility - today and into the future.
• A platform to grow - move beyond custody, whenever.

This article is from The Wealth Mosaic's WealthTech Views Report: DLT & Blockchain 2022. Access the full report here