The Rising Demand of Institutional Players

The crypto market has been an emotional place over the past year. The fight between greed and fear was clear, and sadly the latter has won so far. However, there are signs that institutional investors are coming back to the scene, which is what many of us want- big money entering crypto.

A natural question to ask is if the current infrastructure is ready to accommodate the needs of these players? 

Institutional investors are used to regulations, which make them feel as if their money is more secure. So, let’s take a look at what one of the leading crypto institutions is doing to increase transparency and security in the industry to put these institutional players more at ease.

Coinbase Custody as a Filter for Projects

Coinbase has been the market leader for quite some time. Their product directly targeted at institutional investors is Coinbase Custody – a secure storage solution for crypto assets.

What separates it from other such initiatives, is that it operates as a bank, obtaining a license under New York State Banking Law. It’s a business model financial institutions are well aware of. The familiarity of the model and their necessary compliance with regulations increases trust among investors.

Every time a new crypto asset is added to Coinbase Custody, it hits the headlines. The reason for that is not every crypto token or coin is accepted onto the platform. Indeed there is a process of strict evaluation of each asset, before it is added. Coinbase has shared that there are two main drivers when making a decision to add an asset:
  • The most important factor is client demand. Now let’s think about that for a minute. The main clients of Coinbase Custody are big-money players. They have their own due diligence teams, which thoroughly research every decision the financial institution takes. If these players have decided they want a certain coin, it means it is good enough for them to put money in it. As such, not every crypto asset is suitable.
  • The second factor is the asset needs to pass the robust internal evaluation process of Coinbase Custody.

So, if an asset is accepted in the system, this means it has passed two due diligence processes- that of the big money players, and that of Coinbase. It’s, therefore, no surprise that projects that are accepted into Coinbase’s custody service would hit the headlines.

Matic Network’s MATIC token is the latest asset to be added to Coinbase Custody. Let’s see what might have attracted institutions’ attention to the project.

Matic is a blockchain-agnostic layer 2 solution which aims to resolve the scaling problem with a focus on Decentralized Finance (DeFi) and gaming applications in particular.

One use case of such a system is to be used as a scalable infrastructure for in-platform marketplaces. That’s the value that Decentraland (a blockchain-based VR universe leading the decentralized gaming movement) has seen in this project. 

Here’s a perspective about the importance of this development. Dota 2 is a free game, which has been the most profitable endeavour of Valve. It sounds counterintuitive at first, but the game makes its money via in-game transactions.

People want their heroes to look their best, so that’s what they spend their money on. If Dota 2 did not have a scalable payment infrastructure, it would probably have never become the best asset that Valve has.

The problem with this setup, is that while you own the items, Valve owns your account. If you lose the account, or Valve decides to shut down your account for any reason, you lose the items and your money has been wasted. 

Recently, Matic announced its partnership with WhiteBit. This can be another turning point for investors, as they always seek to optimize their costs. WhiteBit is a European centralized exchange that offers crypto-to-crypto and crypto-to-fiat transactions with 0,1% trading fee.

Additionally, it holds two European licenses, which allows the exchange to meet the necessary KYC and AML requirements. 

In retrospect, we have Coinbase Custody which acts as a filter to the quality projects. Then, they add Matic- a layer 2 solution, which tackles the problem of scalability, with a focus on decentralized finance applications.

Coincidentally, at the time the project was introduced to Coinbase Custody, Matic announces its partnership with WhiteBit- a licensed European exchange with low fees. Remember, investors are looking for legitimate and relatively safe ways to invest into markets…

The Way is Being Paved

As confidence in crypto and blockchain grows, investors are becoming increasingly attracted to the space. Over time, we will see even more firms targeting institutional investors, while trying to accommodate for their needs.

Once we start seeing competition in this sector increasing, this will be a strong signal for an influx of institutional investors entering the space. So far, Coinbase Custody is one of the leading firms that are paving the way. 

However, we will need more than that, and as blockchain technology develops, we will undoubtedly see the number of firms that use it continue to grow.

The due diligence teams of the Financial Institutions will see this growth in blockchain adoption, and they will report it to their managers. Slowly but surely, we will see mainstream investors’ attention shift towards blockchain.

However, so far that seems to be further down the line. Once we see pension funds investing in blockchain companies, that’s when we know the technology has reached the mainstream market.

Disclaimer: I do not have any vested interest in any of the mentioned projects. The views and opinions expressed are those of the author and is not investment advice. Do your research.

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