[Interview] A look inside the cryptocurrency custody business from DXM
Korea’s cryptocurrency custody market is growing. Crypto exchange Bithumb launched a custody service for corporate clients through its affiliate Vaultrust. Shinhan Bank, KB Kookmin Bank and NongHyup Bank also consider offering custody service. DXM, an affiliate of Dunamu, made its foray into the custody business Upbit Safe last September. Streami, operator of crypto exchange Gopax, launched a custody service called DASK back in 2018 but its use is limited to public institutions. DASK is designed to store cryptocurrencies once held by criminals. Upbit Safe is providing the service to different institutions including foundations. The following are questions and answers with Yoo Jou-yong, Chief Strategy Officer at DXM. JoinD met Yoo at the DXM office in Gangnam District on Sept. 23. He reiterated that the focus of the custody business is to collect assets. The ability to bring assets and human networking determines the success of the business. When asked if the technological state such as security matters more, Yoo said: “Since [technology] is a sure thing to deliver, it doesn’t have much of an appeal to draw more clients.” The coins available at the Upbit Safe include Bitcoin, ethereum, stablecoin and others. “We haven’t revealed the size of the assets under management,” Yoo said. “We manage hundreds of billion won worth of assets.” Of these, the assets from Upbit, a cryptocurrency exchange operated by Dunamu, are small in size. “[Upbit] is not required to entrust its assets to Upbit Safe even if it is an affiliate,” he said. “The exchanges can stand out when they have sizable assets directly under their management,” Yoo continued. “Strictly speaking, we prefer to bring assets from other entities since crypto exchanges have their own share.” He added that other custody service providers would hold a similar stance. Yoo cited the ability to deploy assets as another factor considered as the key to success. Not all cryptocurrencies are made available for custody business due to blurry regulations. Still, if regulatory conditions improve, cryptocurrencies can be managed in different ways. The service providers could come up with loans, derivatives and other financial products based on the cryptocurrency. From this perspective, established financial institutions should be considered as partners for custody service operators, rather than competitors. “Their public recognition doesn’t mean much to Institutional investors who hold a great amount of cryptocurrency,” he said, given that they would lean towards entities like Upbit Safe with the experience of managing crypto asset over mainstream financiers new to the business. In this regard, Yoo projected that the financiers will likely join partnerships with custody companies as it is the case for DXM. Upbit Safe doesn’t charge fees. By fees, it means a certain ratio that the company would get for storing say, 100 bitcoins. Most of its profits come from one-time gains when a client first entrusts assets. “It is hard to raise money even if we offer the custody service for free,” he said, explaining why the service is largely fee-free. Still, he left open the possibility of charging fees if an upcoming regulation requires cryptocurrency businesses to store a part of their assets to a custody service.