Crypto Custody Services Face Tangled Web of Challenges as They Safeguard $2.7 Trillion in Assets

These services must secure blockchain-based tokens while navigating risks like hacks and complex features like staking and protocol voting.

U.S. crypto custody services, tasked with safeguarding $2.7 trillion in digital assets, face a tangled web of challenges as they try to secure blockchain-based tokens and navigate risks like hacks and complex features such as staking and protocol voting.

This contrasts sharply with U.S. Securities and Exchange Commission (SEC) regulations, which are deeply rooted in traditional finance and often clash with crypto’s realities.

Now, venture capital powerhouse Andreessen Horowitz (a16z) has submitted a detailed response to the SEC’s request for information on investment custody, urging the SEC to revamp custody rules to accommodate crypto.

The proposal, dated April 17, 2025, sees a16z advocating for a principles-based framework for Registered Investment Advisers (RIAs).

The firm’s submission follows a 2009 update to the Investment Advisers Act of 1940, which, in light of the nascent crypto industry, now requires further adjustment.

The Problem with Current Rules

Current custody rules, last updated in 2009, were built for stocks and bonds, not for the unique properties of digital assets.

These rules mandate that RIAs use third-party custodians, but, critically, only a few custodians can support the full range of crypto features. This leaves RIAs in a bind.

For instance, to comply fully with the rules, they’d need to limit their clients’ access to features like staking or governance over the tokens, despite these features being crucial for maximizing client returns.

However, if they prioritize client interests by accessing such token rights, they might find themselves in violation of the SEC regulations.

This predicament is forcing RIAs to make "nearly impossible choices," as a 2023 Bitwise survey discovered. Among 68% of RIAs who struggle with limited custodial options, many are being forced to abandon preferred investment strategies or types of crypto assets due to custodial constraints.

“We’re excited to see the SEC take steps towards offering guidance for crypto,” said Scott Walker, a16z’s Chief Compliance Officer in a post on X on Monday.

“Advisory clients deserve for their assets to be safeguarded, so we welcome this advice and analysis from the Commission. We also agree that there’s a pressing need for the SEC to update its rules to reflect the industry’s development.”

A16Z’s Proposal: Five Principles

In its proposal, a16z highlights five principles that the SEC should consider when updating the rules.

The first centers on focusing on protections provided rather than the custodian’s status. State trusts or even unregistered firms could be qualified if they pass attestations, segregate assets, and maintain control over private keys.

Second, a16z argues that custodians must be capable of blocking unauthorized transfers and maintaining clear ownership records. This ensures that clients’ assets are safeguarded and any attempts at theft or illicit activity are thwarted.

Third, RIAs should be able to freely exercise the full range of rights granted by crypto tokens—like staking, which unlocks trillions in value—without regulatory blowback. This aligns the legal framework with the economic realities of the crypto industry.

Fourth, a16z calls for flexibility in best execution, a key fiduciary duty. For instance, moving assets to secure trading venues shouldn’t violate custody rules if done in the best interest of the client and with due diligence.

Fifth, the proposal suggests permitting self-custody as a fallback option, subject to the same stringent standards and attestations required of third-party custodians. This provides an additional layer of flexibility for RIAs in specific situations.

Together, these ideas aim to ease the burden on RIAs, who manage an estimated $134 trillion in assets.

The letter concludes by reiterating the firm’s belief that,

“…the commission should provide new guidance to facilitate custody arrangements for crypto assets, even if only as a temporary measure until it issues new rules. In the absence of such guidance, the SEC staff may continue to be confronted with requests for no-action relief to perform standard functions of an investment adviser, such as facilitating the transfer of crypto assets to a trading venue in order to execute trades or to collect dividends or other distributions due to the investment adviser’s advisory clients.”

A16z isn’t pushing for a free-for-all. Its framework demands audits, disclosures, and disaster recovery to protect clients. It builds on recent SEC moves, like Staff Accounting Bulletin No. 122 in 2024, which eased bank custody of Bitcoin, and a March 2025 ruling letting banks offer crypto services without prior approval. A16z wants RIAs to get similar leeway.

This submission from the firm follows comments by Mark Uyeda just a day prior, regarding RIA registration.

The then-acting SEC chair suggested the likelihood of