Regulators were opaque, balance sheet rules were tight and reputational risk loomed large. Trading desks and lending operations may have tempted a few adventurous players, but most kept their distance.
But now, with regulatory clarity slowly emerging and tokenization gaining momentum, some of the world’s biggest financial institutions are circling the narrower, bank-friendly lane of custody.
On Tuesday (Aug. 19), Wyoming became the first public entity in the United States to issue a blockchain-based stable token. The state stablecoin will have its reserves managed through Franklin Advisers.
Franklin Templeton is hardly the only bank to be dipping its toes into crypto custody. BNY and Goldman Sachs are reportedly eyeing managing stablecoin reserves of their own. Citigroup announced Thursday (Aug. 14) that it is exploring similar crypto custody solutions related to stablecoins. Last month, Deutsche Bank also shared its own full-service digital asset custody plans, slated for 2026.
Meanwhile, JPMorgan executives shared during a July earnings call that the bank has placed stablecoin infrastructure, which may include custody and deposit services, at the center of its long-term strategy for cross-border payments and corporate treasury modernization.
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These moves suggest a coordinated institutional effort to turn custody into the on-ramp for banks seeking relevance in digital assets.
Read also: Fed Drops ‘Reputational Risk’ Rule, Paving Way for Banks to Enter Crypto
Custody as the Crypto Gateway for Financial Institutions
Custody, or safeguarding client assets and providing recordkeeping, has always been a foundational service in finance. It is also a highly regulated and trust-dependent business that aligns naturally with the compliance-heavy DNA of banks. When it comes to digital assets, custody means not just keeping private keys safe, but also managing reserves, enabling settlement and servicing tokenized assets.
Stablecoins are at the center of the opportunity. The two largest issuers, Tether and Circle, manage more than $100 billion in combined reserves, largely in cash and U.S. Treasurys. Those reserves are spread across a mix of trust banks and smaller custodians. The GENIUS Act, signed into law last month, establishes clearer rules for issuing and backing stablecoins. It could result in a flight to quality as issuers eye Federal Deposit Insurance Corp.-backed institutions. That prospect has drawn attention from the biggest banking players.
“Everybody’s jumping into stablecoins right now,” Brett McLain, head of payments and blockchain at Kraken, told PYMNTS in June. “All the big banks…”
Still, custody is not a monolithic business. On the institutional side, banks are targeting stablecoin issuers, asset managers launching tokenized funds, and corporates exploring blockchain-based settlement. For these clients, regulated custody is often a compliance requirement.
The competition pits traditional banks against crypto-native firms that saw the opportunity and built early custody infrastructure, attracting hedge funds, venture firms and crypto asset managers as clients.
See also: FIS Eyes Tokenized Deposits and Stablecoins to Move Money Faster
Custody Means Different Things in Different Contexts
Retail custody is a different matter. Crypto-native firms already dominate the space by offering millions of individuals simple wallets and interfaces. Banks are unlikely to compete directly there, instead focusing on B2B services where the economics and regulatory alignment are clearer.
Risks also remain. Managing private keys and blockchain infrastructure is a new operational challenge for banks accustomed to centralized systems. Cybersecurity breaches could carry reputational costs, and as custody becomes more common, fee compression may erode margins.
Banks, however, bring scale, global trust and long-standing regulatory relationships. For institutional investors and corporate clients looking to experiment with tokenized securities or blockchain settlement, that brand recognition could prove decisive.
Ultimately, custody may prove less about immediate revenue and more about positioning. Banks entering the custody race are planting flags in a future financial architecture where tokenized assets and stablecoins become mainstream.
If stablecoins evolve into a parallel payments system, controlling custody of reserves is akin to controlling the vaults of a new global currency. If tokenization turns equities, bonds and private credit into blockchain-based instruments, custody becomes the toll booth for trillions of dollars in transactions.
Banks don’t want to repeat the FinTech era, when startups captured payments, lending and retail trading flows while incumbents played catch-up. Custody gives them a chance to shape the rails early.
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