Nickel: Increased digital asset allocation hinges on improved security
Matching the custody and security standards at traditional financial firms would reap substantial benefits for the digital asset sector, new global research from London-based Nickel Digital Asset Management (Nickel) shows.
More than nine out of 10 (92%) of institutional investors and wealth managers say they would be likely to increase digital asset allocations in response to enhanced security and custody standards including 32% who would be very likely to increase allocations.
The study with over 200 institutional investors and wealth managers, found high-profile hacks, exchange failures and DeFi exploits have a major impact on firms’ willingness to invest in the sector. Nearly nine out of 10 (87%) questioned in the study across the US, UK, UAE, Germany, Switzerland, France, Italy, the Netherlands, Singapore, Brazil and the Nordics say they have a very or quite significant impact on willingness to invest with just 1% saying it has no impact. Around 13% say it only has a slight impact.
Indeed the study found nearly half (46%) identified cybersecurity or hacking risks as the biggest barrier preventing institutions from increasing allocations with 43% siting custody and private key management as the biggest barrier. Just 28% pointed to price volatility as the biggest barrier while 24% raised insufficient liquidity or market depth.
Organisations are split on which security safeguard does the most to increase. Around 19% would want regulated institutional custody with independent audits while 17% would like comprehensive crime or cyber insurance for custody and trading and 16% independent proof-of-reserves and proof-of- liability.
They are most likely to be comfortable with asset manager managed custody with independent oversight which was chosen by 38% of survey respondents, while 27% would like specialist regulated digital asset custodian and 20% direct custody with a regulated bank or trust company.
More than half (57%) would be comfortable gaining exposure to DeFi or yield-generating digital asset strategies only with audited smart contracts and ongoing monitoring, while 44% would be happy with conservative collateral and liquidity controls. Nearly two out of five (38%) would want transparency with counterparty and protocol exposures.
