Zodia's Uncertain Future as Standard Chartered Embraces TradFi Crypto Custody

Standard Chartered Bank has made a significant move into the crypto space by securing a partnership with 21Shares, a leading provider of exchange-traded crypto products, to offer digital asset custody services. This collaboration marks a strategic shift for the bank, which previously relied on Zodia Custody-a crypto-native subsidiary it co-founded in 2020-raising questions about whether Zodia will retain its role or be phased out according to reports. The partnership underscores the growing integration of traditional finance (TradFi) into the crypto ecosystem, a trend accelerated by major institutions like US Bancorp and Citi, which have recently expanded their digital asset offerings according to data.

21Shares' decision to work with Standard Chartered, rather than Zodia, highlights the competitive pressures facing crypto-native custodians. Mandy Chiu, 21Shares' global head of product development, emphasized the bank's reputation in cross-border banking and risk management as a key advantage. Standard Chartered's new custody service, based in Luxembourg, aligns with its broader strategy to offer institutional-grade infrastructure for digital assets.

The bank also launched a crypto trading service in mid-July, enabling institutions to trade major cryptocurrencies according to reports.

However, Standard Chartered's foray into crypto is shadowed by ongoing legal challenges. A Singapore court recently cleared the way for a $2.7 billion lawsuit against the bank over its alleged role in the 1MDB fraud scandal, which involved the misappropriation of $4.5 billion from Malaysia's sovereign wealth fund. The bank has denied the allegations and plans to appeal the decision according to reports. Separately, Moody's downgraded the bank's credit outlook from "positive" to "stable," citing operational risks tied to its global footprint and exposure to market volatility. These developments could impact Standard Chartered's credibility as it seeks to attract institutional clients to its crypto services.

The shift toward TradFi custody solutions reflects broader industry dynamics. Traditional banks are leveraging their regulatory expertise and reputational capital to compete with crypto-native firms. For example, Citi recently partnered with Coinbase to expand digital asset payment solutions for institutional clients, focusing on fiat on/off-ramps and payment orchestration according to reports. Such collaborations aim to bridge the gap between traditional and crypto finance, offering clients the benefits of both ecosystems.

21Shares' partnership with Standard Chartered also occurs against a backdrop of evolving regulatory frameworks. Japan's Financial Services Agency (FSA) plans to mandate liability reserves for crypto exchanges, requiring user assets to be segregated and protected in case of bankruptcy. These measures aim to bolster investor confidence, a critical factor as crypto adoption grows among institutional investors.

While the future of Zodia Custody remains unclear, Standard Chartered's involvement in crypto custody signals a pivotal moment in the industry's evolution. As traditional banks deepen their engagement with digital assets, they bring both credibility and scrutiny, shaping the trajectory of a market still grappling with regulatory and operational challenges. The outcome of this transition will likely influence how crypto-native and traditional players coexist in the years ahead.