Opinion by Dominic Lohberger, Chief Product Officer, Sygnum.
Counterparty risk has always cycled in crypto: exchange failures prompt stricter standards, then attention drifts and complacency returns. This time the shift looks structural. Incumbent financial firms are entering digital assets with established practices and the supporting infrastructure is finally mature. Institutions can now custody assets with regulated custodians while trading on venues via mirrored balances instead of depositing funds directly on exchanges. That is a lasting change in how institutional capital moves through crypto markets.
A clearer separation of roles is forming. Recent moves—Ripple’s acquisition of Hidden Road and banks such as Standard Chartered expanding into prime services—show value concentrating in institutional trading infrastructure rather than in monolithic exchanges. Early crypto platforms bundled trading, custody and clearing because the ecosystem was nascent. But events like FTX and major hacks exposed how dangerous that conflation can be. Separating custody from execution has become a baseline expectation for institutional participation.
Two models now remove on-exchange counterparty exposure, each with trade-offs. The first is off-exchange custody using tri‑party arrangements: an independent custodian holds the assets while the exchange displays a mirrored balance to the trader. Where assets are segregated and held off the exchange’s balance sheet, exchange counterparty risk is effectively eliminated. These setups are cost-efficient because custodians are not required to post balance-sheet capital for trading flows.
The second is crypto prime brokerage, which layers operational services—unified onboarding across venues, cross-venue netting, consolidated settlement and access to leverage. Prime services suit market makers and funds operating across many venues, but they shift counterparty exposure from the exchange to the prime broker. In traditional finance that risk is absorbed by very large bank balance sheets; in crypto the prime brokers are growing and well connected but typically smaller than systemically important banks. Many institutions accept that trade-off for the operational advantages.
Collateral economics are changing the incentive calculus. When custodians are regulated banks, institutions can pledge traditional short-dated assets—especially US Treasury bills—while keeping the underlying holdings at the custodian. T-bills can be mirrored on an exchange at high loan-to-value without leaving custody, and custody fees are small relative to the yield on those securities. In some cases, this counterparty protection can produce positive net return rather than being a pure drag on performance. Even when a strategy requires using the underlying crypto as collateral, placing assets with an independent custodian materially reduces the risk surface.
The eligible-collateral set is expanding beyond stablecoins to tokenized money market funds and other yield-bearing instruments. The market is moving toward multi-asset collateral frameworks that allow institutions to shift margin across venues quickly and securely, often in near real time and around the clock.
Expect more global systemically important banks to offer off-exchange custody and to broaden accepted collateral, custodians to add richer operational tooling, and prime brokers to deepen custody and risk frameworks. Over time the line between models may matter less than the outcome: institutional-grade risk management and operational capability.
After years of wondering whether institutions would come, they clearly have. Rather than institutions adapting to crypto, crypto infrastructure is adapting to institutional needs. Firms that design for that reality—prioritizing a clear separation of custody and execution, robust collateral frameworks, and the operational capabilities of prime brokerage—will set the rules for the next era of digital-asset markets. Those that don’t will be left managing yesterday’s risks with yesterday’s tools.