The Hardest Part of Digital Asset Adoption Isn't Trading; It's Everything Around It

While institutions are making progress on integrating digital asset custody and settlement into existing frameworks, infrastructural friction continues to present challenges.

The transaction itself is rarely the problem - the issue is whether the institution can connect that transaction into the systems that already govern the business, determine where the official record sits, define who can approve each action, manage exceptions when something fails and maintain consistency across front office, operations, compliance and technology.

That is the view of Adam Popat, CEO of SettleMint, who observes that investor eligibility, jurisdictional restrictions, transfer limits, holding periods and approval rights cannot remain in legal documents or manual procedures that teams interpret outside the platform.

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“Ownership has to be equally clear,” he says. “The business owns the commercial case, compliance owns the policy, operations owns the process, technology owns the environment, and security owns the control standard.”

“Once that operating model is defined and the workflow is integrated into the institution’s existing infrastructure, the move from pilot to production becomes a delivery question rather than a governance problem.”

When introducing digital asset workflows into existing systems, reconciling on-chain activity with internal books and records, adapting legacy systems to 24/7 markets, meeting evolving regulatory requirements and managing new operational risks such as private key security and blockchain outages leads to friction across the workflow, explains Sabrina Wilson, chief operating officer at GFO-X, the first UK-regulated centrally cleared venue for digital asset derivatives.

“Many firms discover that operational workflows, data management, treasury processes and security require significantly more effort than the initial technology integration, making digital asset adoption as much an operating model transformation as a technology project,” she says.

Chris Cheverall, head of UK at CMC Markets, agrees that digital asset infrastructure cannot sit in isolation, noting that if client wallets and payment mechanisms are going to operate across both DeFi and traditional finance, they need to integrate properly with existing treasury, risk, settlement and reporting systems.

“We typically require multiple execution and liquidity venues to either satisfy best execution or provide execution resiliency and redundancy so that clients experience 100% uptime,” he says. “Blockchain can support transparent, near real-time settlement and secure post-trade asset control, while existing crypto native exchanges already bring together meaningful pools of liquidity.”

Why Off-Venue Settlement Matters

Off-venue settlement is essential to bringing institutional discipline to digital asset markets by allowing firms to access liquidity while keeping assets with a trusted custodian, reducing counterparty exposure and avoiding the need to pre-fund multiple trading venues, explains Aklah Sakallah, eToro’s senior director of finance operations.

Much of the friction institutions experience when introducing digital asset workflows into their existing systems comes down to crypto infrastructure smashing together elements that TradFi spent decades prising apart, suggests Rostro managing director of digital assets, Mark Foulger.

“Execution, custody and credit all sitting with the same venue - risk teams who lived through 2008 just don't want to touch that,” he says. “Then there is the boring stuff underneath: reconciling balances across 10 different exchange logins and wallets because there's no shared settlement layer, capital getting stuck in silos with no netting, banks still nervous about the whole sector.”

Markets stay stable because a venue collapsing isn't supposed to take your assets down with it, and that only holds if custody sits somewhere separate from execution, adds Foulger.

“Crypto skipped that step for years, and every big institutional blowup you can name comes back to exchange risk and asset custody being the same thing,” he says. “Off-venue settlement fixes that because assets sit with an independent custodian and only credit and entitlements move between venues. It is probably the thing institutions obsess over most these days, more than spreads or venue selection.”

Institutions have built controls, reconciliation and reporting around T+1/T+2 settlement, segregated custody and clearly delineated counterparty roles, many of which need to change or adapt for digital assets with their instant finality and 24/7 trading.

“The institutions moving fastest treat digital assets not as a new silo but as a new settlement layer for existing asset classes and choose regulated infrastructure that speaks the language their risk and operations teams already understand,” suggests Simon Barnby, CMO at Archax, who agrees that the segregation of execution, custody and credit is the market structure lesson of every major failure, from Lehman to FTX.

“Off-venue settlement restores that discipline,” he adds. “For most institutions, it isn’t a nice-to-have but the precondition their risk committees set before any capital is deployed.”

Governance and Controls Remain Central

Institutions expect digital asset infrastructure to incorporate the same governance, compliance and security controls that exist in traditional financial markets. At a minimum, this includes robust AML and sanctions screening, travel rule compliance and real-time transaction monitoring capable of identifying suspicious on-chain activity, wallet exposures and potential financial crime risks.

“Equally important are strong cyber and operational resilience controls - including secure custody and key management, multi-factor authentication, segregation of duties and incident response procedures,” says Wilson, who suggests the industry often spends too much time debating the technology and not enough time focusing on risk management and controls.

On oversight, these clients look for full audit trails, real-time reporting and API access into their own compliance and risk systems, says Barnby. “Independent attestations such as SOC 2 Type 2 and ISO 27001 have become table stakes alongside regulatory authorisation,” he adds.

The specific governance and control features clients expect to see built into the infrastructure depend on the user profile.

“The permission model therefore has to define who can create an asset, approve an issuance, change a compliance rule, initiate a transfer, complete a corporate action or intervene when something fails,” explains Popat. “The same accountability has to carry through to the audit record.”

A single infrastructure layer gives institutions one framework for connectivity, custody, permissions, compliance and reporting across multiple digital asset activities, concludes Sakallah. “This prevents every new service from introducing another vendor, data silo and set of operational controls.”