What Is Digital Asset Custodian Monitoring (DACM)?

Safeguarding the Future: Introducing Thomas Murray’s Digital Asset Custodian Monitoring (DACM)

With the tokenised asset market projected to reach US$30 trillion by 2034, institutions and investors are increasingly allocating capital to digital assets like cryptocurrencies, stablecoins, tokenised securities, and blockchain-native assets. This surge in adoption demands credible, institutional-grade custodians to safeguard these assets, given that digital assets introduce unique risks that requires specialised oversight. These include the management of private keys, increased chances of hacking, fraud, operational failures, and an evolving regulatory landscape. Enter Digital Asset Custodian Monitoring (DACM), a critical tool to ensure custodians meet the highest standards in security, compliance, and operational excellence.

What is Digital Asset Custody?

Digital asset custody involves the secure storage and management of private keys as well as the servicing of blockchain-based assets. While analogous to traditional assets, digital assets rely on cryptographic keys - unique secret codes that lock and unlock data, authorise the access and transfers of assets and are instrumental to ownership verification. Custodians must protect these keys, integrate with blockchain networks, and maintain robust cybersecurity practices while navigating a complex and rapidly changing technological and regulatory landscape. These unique challenges demand specialised infrastructure and expertise beyond traditional custody models and knowledge.

What is Digital Asset Custodian Monitoring?

Digital Asset Custodian Monitoring (DACM) is the ongoing oversight of custodians to ensure they safeguard and service your digital assets with the highest levels of security and compliance in mind. DACM provides:

Transparency into custodians’ approaches to asset protection
Cybersecurity
Regulatory alignment
Operational efficiency, mitigating risks specific to digital assets
A full understanding of its service capabilities.

Why do Digital Asset Custodians Require Specialised Monitoring?

Digital assets present distinct challenges that necessitate tailored monitoring. These challenges include:

Unique Risk Profile
Digital assets and blockchains face unique risks, relating to key management and DeFi ecosystem vulnerabilities. Also, they reintroduce issues concerning settlement and counterparty risk, exacerbated by the absence of established Financial Market Infrastructure that today mitigates these within the world of traditional finance. Furthermore, Cybersecurity threats can lead to catastrophic losses and indeed ecosystem failures. DACM ensures custodians maintain robust security protocols and comply with evolving regulations, reducing these risks.
Rapidly Evolving Technology
The digital asset space is marked by constant innovation, from new key management techniques, blockchain protocols to quantum-resistant cryptography. Custodians’ technological maturities vary, leaving some vulnerable to emerging threats like smart contract exploits. DACM continuously evaluates custodians’ infrastructure to ensure resilience against new risks.
Fragmented Regulatory Landscape
Digital asset regulations differ widely across jurisdictions, creating complex compliance challenges. From stringent rules in some countries to global initiatives such as the Financial Action Task Force's (FATF) guidance on Virtual Asset Service Providers (VASPs), custodians must continually navigate and adapt to a shifting landscape. DACM ensures compliance with current standards and alignment with emerging regulatory developments and best practises.
Operational Complexities
Managing digital assets involves unique operational challenges, such as handling blockchain forks, token airdrops, staking, and network-specific events and governance. These require specialised systems to prevent financial loss or asset mismanagement. Additionally, custodians must navigate the complexities of geographically distributed cryptographic key storage, and monitor transactions and flows for KYC/AML compliance purposes. DACM monitors custodians’ abilities to manage all these complexities and challenges efficiently.

The Role of DACM in Enhancing Security

Effective DACM ensures custodians are equipped to handle the technological, regulatory, and operational challenges that come with the safeguarding of digital assets. By continuously assessing security protocols, compliance measures, and operational capabilities, DACM helps investors maintain confidence in their custodians. This proactive oversight mitigates risks, ensuring assets remain secure amid rapid market evolution.

Thomas Murray’s DACM Solution

Thomas Murray’s advanced DACM framework empowers institutions and investors with real-time, AI-driven insights into custodial risks. Our solution is tailored to the unique characteristics of digital assets to enhance transparency, strengthen compliance, and build trust. By addressing the growing demand for robust risk monitoring, we help you protect your investments in this dynamic market.