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The $6.3 billion Binance hack could accelerate a shift in how investors value crypto companies, placing more emphasis on custody providers and the infrastructure needed to safely hold and protect digital assets.
Much of the evolution of cryptocurrencies this year has involved companies moving away from a reliance on trading volumes and transaction fees, and instead focusing on building infrastructure that connects digital assets with traditional finance. Last Thursday’s breach adds a new dimension, further focusing on cybersecurity, custody, compliance and balance sheet resiliency.
Importantly, the Binance breach was not an indictment of the cryptocurrency itself or a leader-led fraud incident like FTX in late 2022. Instead, Binance’s leadership moved quickly to contain the impact, protect customers, and commit the exchange’s own resources to cover losses.
On Tuesday, Binance CEO Richard Teng told CNBC’s “Squawk on the Street” that the company has replenished 98% of the $6.34 billion in affected assets and is still purchasing outstanding, less liquid assets.
Management’s response, alongside the industry’s other efforts to increase trust, helped prevent the security breach from escalating into a broader crisis of trust. For example, Tether, Circle, Ripple, and others acted quickly to freeze or restrict access to approximately $3 billion in stolen assets. Coinbase blocked transfers to the compromised wallets and provided direct assistance to Binance.
This hack could even help shape the next phase of crypto infrastructure trading. The new winners may not only be the companies with the most users, volume, or assets under custody, but also those that can demonstrate that they can protect those assets under extreme pressure.
Cyber security and protection
“Which companies have the resources to invest in cybersecurity and protect their customers’ funds? It can be much more difficult for smaller companies because once these cryptocurrency companies act as the infrastructure and provide the well for tokenization, they have to have compliance and controls in place so that similar hacks can be prevented or minimized from happening,” Owen Lau, senior analyst at ClearStreet, told CNBC. “Larger companies have more resources, and that could give them some advantages.”
The focus is on custody.
Institutional investors are increasingly adopting digital assets, but broader adoption depends on confidence that those assets can be held, accessed, and transferred securely. The Binance breach highlights the importance of its infrastructure, potentially increasing demand for specialized custodians and platforms with established asset protection capabilities.
Coinbase has been operating a custody business for institutional investors since 2018. Circle entered the custody business this year after receiving approval from the U.S. Office of the Comptroller of the Currency to operate as a trust bank. In recent years, Ripple and Kraken have also launched custody businesses.
Even small players
Still, smaller players are also competing in this space. Small-cap cryptocurrency exchange stocks gemini space station has been providing storage services since 2019. bitgo holdingsFounded in 2013, it is one of the earliest players in institutional cryptocurrency custody and infrastructure, with a reputation for security and service to major institutions.
Lau said the changes could also drive consolidation as companies look to buy capabilities, enhance infrastructure offerings and achieve the scale needed to compete.
A more significant structural change could be the separation of custody and enforcement, according to Morgan Stanley.
“Cryptocurrency exchanges have historically consolidated trading, custody, and settlement within vertically integrated platforms, concentrating operational risk. Repeated security breaches may prompt investors to move their assets to independent custody while continuing to trade on CEX,” Felix Stratman, an analyst at the firm, said in a note on Monday, referring to centralized crypto exchanges.
“This could benefit regulated custodians, including banks, while preserving the role of centralized exchanges as liquidity and enforcement venues, as institutional investors place greater emphasis on asset segregation, operational resiliency, and investor protection,” Stratman said.
