Crypto's Future Rests on Prime Brokerages

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In a guest opinion piece, Dominic Lohberger, chief product officer at Sygnum, argues that the future of institutional crypto trading will be defined by the rise of prime brokerages and off-exchange custody solutions. As crypto exchanges have historically played multiple roles, the separation of custody from execution is now a baseline requirement for serious institutional investors. Leading traditional finance players are building crypto prime brokerages and custody platforms to enable this shift, which allows institutions to hold assets with regulated custodians while trading on exchanges without direct counterparty risk.

Why it matters

The opinion piece highlights a major transition underway in crypto markets, as institutional investors demand the same risk management practices found in traditional finance. The rise of prime brokerages and off-exchange custody solutions is seen as a lasting change that will shape the next era of digital asset trading, as crypto infrastructure adapts to the needs of large financial institutions.

The details

Lohberger argues that the crypto industry has historically suffered from conflated roles, with exchanges acting as trading venues, custodians and clearing houses. This model was a necessity in Bitcoin's early days but cannot survive institutional adoption at scale. The FTX collapse and other hacks have made counterparty risk a first-order operational concern for institutions. In response, the market is now offering two distinct approaches to removing exchange counterparty risk: off-exchange custody and prime brokerage. Off-exchange custody allows traders to hold assets with a third-party custodian while receiving a mirrored balance on the exchange, eliminating counterparty risk. Prime brokerage acts as an intermediary, offering unified onboarding, cross-venue net settlement and leverage, but shifts counterparty risk to the prime broker itself. The collateral economics have also changed, as institutional clients can now pledge short-dated US Treasurys as collateral to earn a net positive return.

• In the months ahead, more global systemically important banks will enter off-exchange crypto custody.
• Custodians may add more operational tooling, and prime brokers will strengthen their custody frameworks, blurring the distinction between the two models.

What they’re saying

What’s next

As both off-exchange custody and prime brokerage models mature, custodians may add more operational tooling and prime brokers will strengthen their custody frameworks, blurring the distinction between the two approaches.