By Tsering Namgyal
Last week’s hacking incident at the world’s largest crypto exchange Binance has once brought into limelight the otherwise humdrum topic in finance: custody services. The safekeeping of digital assets is seen as a critical factor for the mass adoption of digital assets. Many established players such as Fidelity Digital Assets to the German Stock Exchange as well as new entrants (such as CoinDesk and Bakkt) are known to have plans to enter this space. We speak to Alexander Kech (formerly the head of securities and FX in Asia for Swift) and the chief executive of Onchain Custodian, a Singapore-based firm offering custody service for institutions investing in digital assets. The firm has already begun to onboard clients beginning last month.
Q: What does Onchain Custodian do? What problems does it solve?
A: Onchain Custodian is a digital asset custody service. Just as traditional custodians in the capital markets holding equities and fixed income investments on behalf of their asset management clients, we safekeep the investments in digital assets (cryptocurrency, utility tokens, and securities tokens in the future) of our institutional client and qualified investors. The type of clients we are currently onboarding are crypto exchanges, crypto funds, hedge funds, family offices and high net-worth individuals (HNWI), corporates raising capital through tokenization. Managing private keys giving access to these assets is not a trivial matter. Media is full of news about hacks at crypto exchanges or horror stories of investors losing millions because they misplaced their private keys. Onchain Custodian provides peace of mind to these investors by safekeeping their holdings with full transparency, thereby allowing them to focus on their core business.
Q. What led you to leave Swift to move into blockchain?
A: I came across blockchain and digital assets around 2013-14. I think I had a “light bulb moment” where I realized it was going to revolutionize the way business is done and I started learning about it. I started involving myself in projects around blockchain at SWIFT (ASX clearing and settlement system renewal, POC with SGX and custodian banks on proxy-voting, etc) while investing myself in cryptos as a learning exercise. When I was offered the opportunity to run a custody service, I jumped on it. Custody is my expertise and my area. Custody is very much needed in the digital asset space whereby it has become a critical piece of infrastructure that will ensure that the industry grows without hacks and that institutional money flows into the tokenization of the economy. I wanted to be part of it at the very beginning because it is the very beginning.
Q. Your views on the future of blockchain, both public and private?
A: I believe in the tokenization of the economy. Tokenisation will contribute to solving the problem of access to investment and money, you could call this as all part of “financial inclusion.” It will also create liquidity enabling easier transfer of ownership in various assets which are illiquid today. In 10 or 15 years, it will become mainstream to tokenize assets (real-estate, art, precious metal, company shares, bonds, etc) and distribute to investors more broadly than today. Tokenisation will also facilitate a more liquid secondary market trading peer-to-peer or on exchanges. In 10-15 years, it will be common to pay for goods using cryptocurrencies, state-sponsored (sovereign-backed) or otherwise. Very few will know that it is powered in the background by blockchains, private or public, like very few know exactly how the Internet works. The fact that the technology offers configuration choices, public versus private for example, is a good thing as different uses cases will require different protocols and solutions.
Q. What are some of the most exciting use cases?
A: Tokenisation and fragmented ownership of very illiquid assets such as real-estate, fine art of private investments are exciting. I will likely soon invest in a Picasso, for example, through a company that tokenized art. I will not have it in my living room, of course, but this company will allow me to diversify my investment portfolio in an asset that is generally inaccessible though usually lead to a steady return on investment. For the museum, as an example, issuing and distributing tokens on 30% of the piece of art, it provides them with the liquidity they might need to refurbish the roof while keeping the asset in the exhibition. Remittance and unbanked people empowerment is another great use case for blockchain and tokenization. Refugee programs are for example looking at blockchain and tokenization to identify uniquely refugees in camps and distribute financial support. This method can prevent many frauds and corruption issues existing today with conventional money. There are many other examples where blockchain coupled with tokenization of assets will enable innovation in financial products, payment methods, etc.