When investing in a solution, especially a solution that is pivotal to your business it is often important to step back and look at the big picture. Costs of IT systems and SaaS (software-as-a-service) solutions are usually based on some level of initial investment and license fees, as well as some incremental costs. All of these affect, sometimes to a great extent, the Total Cost of Ownership (TCO). In its simplest form, TCO is an asset’s purchase price plus operational costs. In all cases, TCO is higher than the initial investment, the operative question is – how much higher?
The same is true of digital asset custody solutions. Similar to other solutions, in many cases, clients understand the immediate implications of the solution they are interested in. Rarely do they understand all aspects of the Total Cost of Ownership.
We, at GK8, would like to arm you with the knowledge to make the best decision for your business. No hidden nor obfuscated costs here – just a clear pricing structure, without any surprises.
Have a look at the costs associated with digital asset custody and management solutions.
One of the first decisions an institution needs to make is whether to manage the digital assets themselves or outsource the management to a third party (a.k.a. sub-custody, custody-as-a-service, or managed-custody). Traditionally, some financial institutions felt that they were not properly equipped to handle their own digital asset custody. Moreover, digital asset sub-custody, an adaptation of the traditional sub-custody model, was originally required by some regulators. However, the latest regulations (by the OCC, BaFin, MiCA, and others) give institutions the green light to operate their own custody solutions.
While working with a custodian may seem enticing, because it transfers the onus of security onto another party, it comes with some downsides, such as limited services or exposure to custodian risk. Moreover, the events of the past year dramatically reinforce the need for institutions to control their own destiny and highlight the risk of allowing 3rd parties to custody an institution’s digital assets. Most importantly, about the total cost of ownership, managed custody solutions come at a significant cost premium.
At GK8, we believe that self-custody is the optimal solution for most institutions. We provide a dedicated environment per customer, which provides extra security and flexibility to meet privacy and regulatory requirements. Self-custody allows the institution, to control its own digital assets, without relying on any third party, and the costs of self-custody are significantly lower than the managed service alternative.
In the case of securing digital assets, and private keys, we recommend a hybrid solution: 1) An offline, cold vault for custody or low-frequency, high-risk transactions and 2) an online, warm MPC-based wallet, which is better suited for high-frequency, low-risk transactions. The combination gives institutions the best balance between security, agility, and automation.
In many cases, cold vaults require some sort of hardware, whether HSM or other hardware security technology to secure the private keys. Often, technology vendors will utilize a third-party HSM. The cost of these 3rd party HSMs can fluctuate greatly and significantly increase the price of the entire solution.
At GK8, we can offer our solution with or without HSM. While our HSM is FIPS 140-2 Level 3 compliant, as required in some jurisdictions; our SSM solution provides the same level of cyber security for your private keys, without compromise. Our innovation is at the cryptographic layer, therefore we are not hardware-dependent.
As mentioned in our previous article, some custody solutions are built for, or work only on a specific cloud service stack. If your organization utilizes another private or public cloud solution for your other applications, you may need to forgo some cost or operational efficiencies. Moreover, in some jurisdictions, it is mandatory that your private keys never leave the country. In these cases working with a specific cloud provider may not meet regulatory requirements.
At GK8, our solution can work on any cloud platform. We do not require any specific cloud security layer to help protect your private keys. Leaving you free to choose your preferred cloud provider. We just explained at length in a prior article, click here.
Institutions, especially traditional institutions, have their own business logic, processes, regulatory requirements, and more. As opposed to retail investors, in the case of institutions, custody is not a ‘one size fits all’ solution. To accommodate the aforementioned, all custody solutions need a semblance of customization.
Which tokens or cryptocurrencies do you intend to support? What services do you intend to deploy? How will the custody solution fit into your AML/KYC and reporting requirements? All these and many more will require the system to be adapted to your needs. If the vendor has already enabled the support of requirements, it may be a simple ‘plug and play’ activation. If not, it may require development on the part of the vendor.
For example, most vendors support the most popular cryptocurrencies, but not all of them do. GK8 supports over 1,000 cryptocurrencies, the largest coin diversity on the market. We are constantly adding support for new tokens and coins. Moreover, GK8 provides universal support for all core-native & EVM-compatible chains and ERC-20 tokens. Meaning that no development is required for these currencies and tokens.
Also, GK8’s integrations with Metamask Institutional, Bitbond, Algotrade, and a variety of others, along with our generic smart contract support, mean that you can trade, stake, tokenize and deploy DeFi all from the comfort of our custody platform, without ever exposing your private keys. No development, no downtime, and no added costs.
Insurance coverage for digital assets held in custody by an institution, which adds another layer of security and peace of mind, varies from vendor to vendor because risks and coverages are yet not standardized in this ever-evolving industry.
Insurance offered by custody technology vendors has traditionally been relatively limited. In most cases, clients have access to pooled insurance (split among all customers) of $30-40 Million. Together with our insurance partners, GK8 customers enjoy access to the highest limit of dedicated insurance per client available today. Customers have seamless access to up to $1B in insurance for assets stored in the cold vault and up to $125M for assets held in the MPC, the highest in the market today.
We wanted our clients to be able to procure exactly the insurance needed for their peace of mind, direct from the source. The insurers we work with extend a discount to our customers because they understand that the GK8 solution is unique.
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Of course, this is but the short list of the most prominent aspects of the total cost of ownership. We would be remiss if we didn’t point out that, as the industry evolves, so too does the payment structures and the prices. Our suggestion is to work with a vendor who is open to working with you to find the best and most cost-effective solution for you and your organization.
Click here to learn more about the GK8 solution.