Nasdaq is taking its first step into crypto services with an emphasis on security, with regulated products aimed at bitcoin and institutional investors.
“We feel like it’s the foundation of any other service we’re building,” said Ira Auerbach, Nasdaq’s new head of digital assets. “Being able to hold our clients’ money in a safe, secure, scalable and accessible way is a key starting point for everything we do going forward,” added the former head of Gemini Exchange’s crypto prime brokerage.
Crypto holdings are central not only to Nasdaq’s digital asset ambitions, but to the industry as a whole. Clients are expected to place a great deal of trust in their custodians, which every investor is hesitant to betray. This precaution has led to the phrase “not your keys, not your crypto,” meaning that private keys—similar to passwords for accounts held by crypto funds—are not in the hands of intermediaries. Since institutions cannot afford to build their own infrastructure to hold their assets, they must choose a partner that is ready to handle institutional-sized cryptocurrency accounts.
When asked why clients choose a traditional financial player over a crypto-native firm to hold their digital assets, Nasdaq responds that it is uniquely positioned because it knows what institutional clients need to use a financial product.
“We have a long history of working with these institutions, we know their pain points, we have products developed internally to address these pain points,” Auerbach said. “We think we can make institutions more comfortable and bring about broader ecosystem acceptance.”
In parallel with the protection service, Nasdaq is expanding its anti-financial crime technology to eliminate money laundering, fraud and market abuse in digital assets. Nasdaq’s advantage is the company’s ability to analyze potentially fraudulent behavior in both traditional markets and digital assets, said Valerie Bannert-Turner, senior vice president of anti-financial crime technology at Nasdaq.
“The criminals don’t just work in chains,” Bannert-Turner said. What we’re trying to do is look at the risk and try to identify players who are doing scams or rigging the markets and it’s not limited to chains or chains. Let’s see.”
Banner-Turner says Nasdaq’s expertise from its anti-crime business is translating to the crypto world, even if the underlying technology sometimes looks different. “The actual fraud is no different than it used to be,” Banner-Turner said. “Money laundering is still money laundering, but it’s done a little differently because you have to find strategies to do it.”
Nasdaq sells its anti-financial crime technology as a service to clients like crypto exchanges. The new security product is a separate effort, but it will also have crypto-specific anti-financial crime technology built in. One of those protections includes filtering lists of where digital assets come from and where they are sent. Typically, users can send cryptocurrency to any address without the recipient’s consent, similarly, anyone who knows where you live can send mail without your consent. This wallet risks spamming, or a practice called “dusting,” which became popular when addresses linked to crypto mixer Tornado Cash were approved by the US Treasury. Individuals who used Tornado Cash began sending small amounts of cryptocurrency to the wallet addresses of celebrities like Jimmy Fallon to protest the fines. Nasdaq’s screening tool, for example, will flag incoming funds from an approved wallet.
Nasdaq’s foray into digital assets has other players including Blackrock and Fidelity building crypto support. In August, BlackRock partnered with Coinbase to offer a private trust offering bitcoin exposure to institutional clients. Earlier this month, EDX Markets – sponsored by Charles Schwab
“The big companies are just getting started, a lot of them are still looking, but a lot of them are really working to get into the space,” Banner-Turner said. We have yet to see full institutional engagement in any form.