On May 27, Komainu, a regulated digital asset custody provider, introduced custody support for Lido Staked ETH (stETH), Ethereum’s most significant staking token that accounts for 27% of all staked Ether ETHUSD. The service is available for institutional investors in Dubai, United Arab Emirates, and Jersey, a self-governing British Islands territory. This initiative facilitated a compliant route for institutions to access Ethereum staking yields during a period of significant diversification into digital assets.

“Staking strategies are actively being explored by asset managers, custodians, family offices, and crypto-native investment firms,” Gilbert revealed to Cointelegraph. Meanwhile, US exchange-traded fund issuers await clear regulatory guidelines to launch Ethereum staking ETFs.

Despite Ethereum’s lackluster performance, Gilbert noted that institutions find liquid staking tokens like stETH appealing as they address issues related to capital lock-ups and intricate custody arrangements. Tokens like stETH offer immediate liquidity and are compatible with qualified custodians like Komainu, Fireblocks, and Copper.

Lido’s institutional adoption drive has picked up pace recently, with the launch of Lido v3, featuring modular smart contracts designed to help institutions comply with regulatory requirements. Gilbert emphasizes that custody solutions are vital for certain institutions, like asset managers and family offices, which operate under stringent compliance and risk management frameworks.

He contrasted this with crypto-native firms, which are more comfortable handling crypto assets directly and often bypass third-party custody solutions. Gilbert points out that staked Ether tokens like stETH are increasingly being used by both traditional and crypto-native institutions to reap Ethereum staking rewards without tying up capital for extended durations.

These tokens also offer liquidity benefits through decentralized finance (DeFi), centralized finance (CeFi), and over-the-counter (OTC) markets. As a result, the demand for staked Ethereum has surged significantly. Cointelegraph recently reported that the amount of Ether staked in the Beacon Chain hit a new record high.

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The Rise of Off-Exchange Settlements in Crypto

The collapse of FTX last year has prompted various players in the crypto space to explore safer trading and settlement methods. Off-exchange settlement, particularly in spot markets, has been identified as a viable solution for enhancing security and trust in crypto transactions. According to Lewis Fellas, head of hedge fund solutions at CoinShares, while off-exchange settlements are relatively straightforward for spot markets, extending this to derivatives trading presents more complexity.

OKX and CoinShares: Pioneering a New Trading Model

OKX’s collaboration with CoinShares and Komainu has led to the development of a collateral mirroring agreement, allowing clients to trade a full suite of OKX products on the derivatives platform. This system addresses the intricate aspects of margin financing and risk mitigation, particularly in scenarios where large positions might lead to significant value drops.

Expanding the Reach of Custody-Based Derivatives Trading

Beyond CoinShares, several other hedge funds, whose names were not disclosed by Fellas, will be utilizing this new system. The plan is to eventually extend this settlement system to other exchanges, broadening its impact and utility in the crypto trading world.

Komainu’s Role in Standardizing Legal Agreements

Komainu, a joint venture involving Japanese bank Nomura, CoinShares, and crypto storage firm Ledger, has been instrumental in addressing the complexities of derivatives and swaps trading. Sebastian Widmann, head of strategy at Komainu, emphasized the creation of a standardized legal agreement to facilitate adoption by various counterparties. This standardization is particularly crucial as more institutional players, who are used to segregated custody and exchange arrangements, enter the crypto market.

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