Managing digital assets introduces operational challenges that do not always have a direct equivalent in traditional finance.
For digital asset custodians, centralized exchanges (CEXs), payment firms, and other financial institutions offering digital asset services, there is a need to secure control of their digital assets across potentially hundreds of blockchain networks, wallets and centralized liquidity venues.
In this blog, we explore these challenges, a supporting infrastructure provider model, and consequent operational implications.
The Operational Pain Points Firms Need to Solve
The blockchain ecosystem can create practical challenges for firms interacting with digital assets directly or on behalf of clients. These challenges may be familiar, caveated with nuance, or completely unfamiliar compared with traditional finance.
Some of these challenges are familiar in principle. Firms still need to control where assets are held, how they are moved, and have controls in place when things go wrong.
The nuance is that these familiar controls operate differently on blockchain infrastructure. Wallets and omnibus structures create new ownership and attribution questions, while transactions move through distinct network states and are generally irreversible once confirmed.
Other aspects are more unfamiliar compared with traditional finance. Blockchain networks operate 24/7/365, with no market close, meaning firms may need to monitor activity continuously and respond to unpredictable spikes in volume.
This creates an environment where internal and external systems can each hold a different view of the same asset or movement, all of which need to be controlled and evidenced.
Infrastructure Providers as an Operational System
To manage the complexity of digital assets, many firms embed digital asset infrastructure providers into their operating models.
These providers form the operational rails that enable firms to hold, govern, and move digital assets while abstracting much of the technical complexity involved in connecting across a fragmented digital asset landscape.
However, firms remain responsible for overseeing and evidencing the activity that flows through them, with providers addressing the technical aspects of digital asset operations rather than the wider operational requirements.
The New Dependency: Provider-Led Operating Models
Once embedded, the infrastructure provider becomes part of the firm’s day-to-day operations, acting as the command layer for their digital asset activities.
However, the provider is not the single source of truth which creates a need to understand exactly what the provider’s activity represents, and how it maps to internal systems and other external systems.
Ultimately, the firm still owns the responsibility for evidencing the full business process. The next two sections will explore some relevant case studies in more detail.
Case Study: Custody Operations
A financial institution may use an infrastructure provider to securely manage their digital asset holdings across assets such as BTC, ETH, and stablecoins like USDC.
While the provider can make custody operations more efficient, operating teams still need to understand their blockchain and wallet activity, while maintaining their own internal view of the same holdings.
Managing wallets introduces unfamiliar operational risks as funds held are cryptographically secured on public facing networks, with further complexities introduced if a firm is utilizing an omnibus structure to manage client attribution.
Although infrastructure providers reduce the technical burden of interacting with blockchains to secure custody of their digital assets, it does not remove the need for comprehensive operational oversight and control when client assets are at risk.
Case study: Stablecoin Settlement and Payment Operations
A payment, remittance, or treasury firm may use stablecoins at different stages of its process: converting fiat into stablecoin through an on-ramp, moving or settling value in stablecoin form, and converting it back into fiat through an off-ramp.
An infrastructure provider may be effective at controlling wallet-related activity, but funding may first move through a bank or payment rail as fiat before a stablecoin is minted, with a similar process occurring when a stablecoin is converted back to fiat for payment to a beneficiary.
The remnant operational gap is bringing the fiat, issuer, and blockchain legs together within one controlled process, not just the wallet-related operations.
Where Reconciliation Comes In
Reconciliation should be positioned as one of the downstream controls required to support provider-embedded digital asset operations. Its role is not just to compare records, but to help firms evidence that the activity flowing through providers and other external systems has been fully captured and correctly reflected across their own operating model.
This becomes important where provider activity does not perfectly align with internal records, other external records, or the underlying blockchain activity.
The aim is not just to match data, but to evidence that digital asset activity is complete, accurate, and explainable. This is where digital asset reconciliations become more nuanced with the uptake of infrastructure providers, as opposed to simply adapting traditional cash, securities, or payment type reconciliations.