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Large-scale crypto assets under management seek custodial refuge in exchanges not wallets




Large-scale cryptocurrency AuM seek custodial refuge in Exchanges not Wallets, finds report
Source: Unsplash

With the cryptocurrency industry riding a massive bullish wave as Bitcoin, after 15-long months, broke the $10,000 mark, the question of safety has once again surfaced. Large Assets under Management [AUM] or those accounting for in excess of $25 million in funds are opting for exchanges over hot and cold wallets for their protection.

This year has seen top exchanges like Binance and Bithumb being subjected to cyber-attacks while run-of-the-mill exchanges like Cryptopia and QuadrigaCX were also embroiled in a slew of controversies. However, the faith is still with exchanges over specialized products.

According to a recent study by the research wing of Binance, Binance Research detailing “Decentralisation and custodianship,” exchanges were the refuge for investors. The top four storing methods for these crypto-assets were cold wallets, hot wallets, exchanges, and various custody services.

Cryptocurrency exchanges have seen waves of growth this past year, and since they are obvious trading hotbeds, clients often veer towards them for storage. The report stated that the assets were also “partially,” stored in cold wallets via the use of “third party custody services.”

On one hand, Large clients i.e. investors with crypto-dedicated capital over $5 million picked their storage option as “cold wallets,” more frequently than the rest. On the other, hot wallets, citing the likes of Coinbase Wallet, and Trust Wallet was not picked up by the respondents, with only one-third of them picking the same.

The report added that the clients, in question, choose “exchanges,” over the rest due to their preponderance to trade “high turnover” digital assets and the underlying need to maintain the funds on the exchange, in order to escape the fee payment.

“One of the potential explanations is that market participants with high turnover buy/sell frequently digital assets and need to keep funds on exchange as the exchange platforms typically charge some additional fees to withdraw along with better liquidity of centralized exchanges.”

Decentralized exchange, being in their infancy, were also not the most favorite option among respondents, in addition to on-chain protocols. The report further stated that only 55 percent of the respondents have admitted to trading via a DEX. Three factors cited for the lack of DEX use was liquidity concerns, compliance concerns and non-intuitive user experience.

Providing key details on another trend in the cryptocurrency space, that of custodial borrowing and lending platforms, the report stated that 33 percent of the participants use the same. These investors have a more long-term perspective than the rest, added the report.

The non-custodial cryptocurrency borrowing and lending platforms are the least popular among the fray. The report stated that only 12 percent of the respondents used these products.

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