The Custody Wake-Up Call of 2025

Another year, another billion-dollar hack.

In early 2025, Bybit, one of the largest cryptocurrency exchanges, suffered a $1.5 billion security breach, shaking confidence in crypto storage solutions. For institutional investors, this event reignited concerns over regulatory liability, operational risk, and investor trust. For retail investors, it was another stark reminder that self-custody is only as strong as the security measures behind it.

As digital assets continue to integrate into global financial systems, one reality has become clear: choosing the right custody solution is no longer an afterthought—it is a necessity.

Crypto Custody: Why Security is No Longer a Choice

Unlike traditional financial assets, crypto is bearer-based—whoever controls the private keys controls the funds. This creates an entirely different security paradigm from centralized finance, where a forgotten password or a misplaced credit card does not result in losses.

For years, custody strategies have varied dramatically between institutions and retail investors:

• Retail investors prioritize convenience, often storing assets in exchange wallets, mobile apps, or hardware wallets.

• Institutional investors require regulated, insured, and highly secure solutions that meet compliance standards and operational requirements.

Both approaches have trade-offs, but with the growing cyber threats and tightening regulatory scrutiny, one thing is clear—the crypto custody landscape is evolving fast.

Institutional vs. Retail Custody: The Fundamental Differences

The key distinction between institutional and retail custody lies in how each balances security, access, and compliance.

Institutional Custody: Designed for Scale and Compliance

Institutional crypto custody solutions go beyond simple storage. They are built to address operational, legal, and financial risks at scale. Institutions require:

✓ Regulated custodians with SOC 2, ISO 27001 data security certification, AML/KYC compliance
✓ Multi-Party Computation (MPC) and air-gapped cold storage
✓ Insurance-backed asset protection against fraud, cyberattacks, and operational failures

Beyond security, institutional investors must also account for liquidity needs. Unlike retail investors, who can lock funds in cold storage, fund managers require structured workflows that balance security with trade execution efficiency.

Retail Custody: Balancing Control and Risk

Retail investors often manage their own assets using:

• Hardware wallets (e.g., Ledger, Trezor)

• Software wallets (e.g., MetaMask, Trust Wallet)

• Exchange-based custody (e.g., Binance, Kraken, Coinbase)

While self-custody provides full control, it also increases personal responsibility. A single mistake—such as losing a seed phrase, falling victim to phishing, or trusting an insecure exchange—can lead to permanent loss.

Security in Institutional Custody: What Sets It Apart?

Security in institutional custody extends beyond encryption and firewalls—it is about ensuring that assets remain protected even if a system is compromised.

1. Multi-Party Computation (MPC) and Hardware Security Modules (HSMs)

• MPC technology splits private keys across multiple parties, ensuring that no single point of failure exists.

• HSMs add an extra layer of protection, making it mathematically impossible for a single entity to unilaterally access funds.

2. Geographically Distributed Cold Storage

• Unlike retail cold wallets, which individuals store personally, institutional custodians distribute encrypted key fragments across multiple jurisdictions.

• This reduces the risk of a single-location breach.

3. Compliance-Driven Access Controls

• Institutions require role-based access control (RBAC), transaction signing policies, and real-time monitoring to mitigate insider risks.

ChainUp Custody integrates all three layers—MPC, geographically distributed storage, and compliance-driven access controls—to deliver enterprise-grade security.

The Cost of Institutional vs. Retail Custody: What Are You Paying For?

While retail solutions may seem cost-effective, they come with hidden risks—including loss of funds due to hacking or poor security management.

For institutional players, the cost of security failure far outweighs the cost of custody services.

Regulation and Compliance: The Critical Divide

Institutional Custody: Heavily Regulated and Audited

Institutions must adhere to strict regulatory frameworks, including:

• AML/KYC compliance to prevent illicit activity

• Regular custodian data security audits (SOC 2, ISO 27001)

• Regulatory approvals from SEC, CFTC, and global financial bodies

Without compliance, institutions risk regulatory penalties and loss of investor trust.

Retail Custody: Limited Oversight, Higher Personal Risk

For retail investors, there are no compliance requirements—but also no legal protections, no insurance, and no recourse if assets are stolen or lost.

With regulators cracking down on self-custody risks, can retail investors afford to ignore compliance concerns?

Conclusion: The Future of Crypto Custody in 2025

The Bybit hack was a wake-up call—security vulnerabilities can affect anyone, at any scale.

✓ Institutions need fully compliant, insured custody solutions to manage large-scale risk.
✓ Retail investors must reevaluate whether self-custody is truly enough.

At the intersection of security, compliance, and operational efficiency, enterprise-grade custody solutions like ChainUp Custody are setting the new standard.

Secure Your Institutional Assets with ChainUp Custody

✓ MPC-based security eliminating single points of failure
✓  Regulatory compliance (SOC 2, ISO 27001, AML/KYC)
✓  Insurance-backed protection for institutional investors

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