Global Custody Pro - 14 May 2025

B3, Coinbase, and Bakkt earnings, how will AI impact custody?

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Global Custody Pro
May 13, 2025 • Reading Time: 8 minutes

📰 Welcome to the Newsletter

Welcome to Global Custody Pro! I'm Brennan McDonald, Managing Editor. I write about the global custody industry after 12+ years in financial services, including working at a global custodian. The audio version of this newsletter is read by an AI voice. Have feedback? Just reply to this email or connect with us on LinkedIn.

Table of Contents

📠 Editor’s Comment

Over the last few months, I’ve been spending a lot of time experimenting with AI tools. For the global custody industry, the opportunity from AI is substantial. Given the high level of regulation and the number of jurisdictions in which custody banks operate, the ability to get across complex details fast and work towards agentic AI tools delivering efficiencies well above those possible with 2010s-style “robotic processing automation” tools provides a strong incentive for the operating model of a global custody bank to push more processes to the machine however it can.

There is certainly a need for safeguards, security, testing, and controls; yet, the enormous amount of complex processes and tacit knowledge that keeps trillions of assets safe and serviced is ripe for disruption. At some point, there will be challengers who target profitable niches or specific markets and are able to deliver outcomes for customers better, faster, and cheaper.

There is a major challenge, though: enormous investment is already required every year just to keep the lights on for global custody platforms. When you add in regulatory change requirements and substantial projects coming down the pipeline – like upgrades of infrastructures and T+1 for the rest of the world – who will make the necessary investments first? Is there a possible first-mover advantage in rebuilding a global custodian’s technology stack using “zero-based thinking”?

The more leverage an AI tool gives a business person, the more pressure there is on outsourced service providers to deliver even more value at a lower cost. Why? Because the economics of doing things internally versus outsourcing will shift as AI costs adjust. Already, inside forward-thinking regulated firms, developers are permitted to use some AI tools to speed up the development process.

I’m thinking that a lot of the offshored business processing centres and services the industry relies on will come under enormous pressure, or even face complete disruption. Will regulators continue to permit the offshoring of core functions of regulated entities if they know that for a certain investment, those functions could be replaced in a few years with AI?

One of the biggest risks in the years ahead is that all the technology projects that should have been done but weren’t, or industry coordination challenges that should have been solved but haven’t, will bubble up to the surface. To actually gain all the benefits from new technology, the problems that have been papered over with legacy technology and manual processing have to be solved.

🌏 Global Custody News

B3 Reports 7.7% Revenue Growth in Q1 2025 Results

  • Driving the news: B3 S.A. Brasil, Bolsa, Balcão announced its first quarter 2025 (1Q25) results, reporting total revenues of R$2,657.2 million, a 7.7% increase compared to the first quarter of 2024 (1Q24) and in line with the fourth quarter of 2024 (4Q24). Recurring EBITDA reached R$1,660.2 million, up 5.5% versus 1Q24, and recurring net income was R$1,128.6 million, consistent with 1Q24.  

  • The company attributes this performance to its strategy of strengthening its core business and expanding into adjacent areas, highlighting growth potential through revenue diversification and advancements in new growth avenues. B3 also introduced a new revenue segmentation this quarter, aligning with its current stage and growth strategy.  

  • B3 announced several initiatives, including the launch of Weekly Ibovespa Options, a reduction in the size of Monthly Ibovespa Options to attract new investors, and enabling the trading of indices options on expiration days to improve operational efficiency. The company also launched DI and IPCA Ultra Quality Debentures indices.

More from the editor on AI:

Most AI Critics Are Wrong About Slop

Artificial intelligence will make everything better, faster, and cheaper

www.brennanmcdonald.com/p/most-ai-critics-are-wrong-about-slop

🚀 Digital Asset News

Coinbase Reports $2.0B Q1 Revenue, $212B Assets Under Custody

  • Why it matters: Coinbase Global, Inc. reported strong Q1 2025 financial results, generating $2.0 billion in total revenue, $66 million in net income, and $930 million in Adjusted EBITDA. Total transaction revenue for the quarter was $1.3 billion, while subscription and services revenue reached nearly $700 million. The firm will also be included in the S&P 500 index.  

  • The big picture: Subscription and services revenue saw a 9% quarter-over-quarter increase to $698 million, primarily driven by growth in stablecoin revenue, as USDC market capitalisation hit an all-time high of over $60 billion. Average assets under custody grew to $212 billion in Q1. The company also highlighted significant legal and policy progress, including the dismissal of an SEC lawsuit and a US executive order directing the establishment of a Strategic Bitcoin Reserve.  

  • Go deeper: For Q2 2025, Coinbase anticipates subscription and services revenue to be between $600 million and $680 million. Transaction revenue for April 2025 was approximately $240 million. The company also announced an agreement to acquire Deribit, a crypto options exchange, for approximately $2.9 billion, a deal expected to close by year-end subject to regulatory approvals.  

Bakkt Pivots to Crypto Infrastructure, Inks DTR Stablecoin Deal

  • Driving the news: Bakkt reported Q1 2025 results, detailing its strategic transformation into a "pure play crypto infrastructure company," highlighted by the divestiture of its custody business to Intercontinental Exchange (expected to close around May 15, 2025) and a cooperation agreement with Distributed Technologies Research (DTR) to integrate stablecoin and AI payment infrastructure. Total transaction volume reached $1.06 billion for the quarter.

  • The shift aims to leverage Bakkt's regulated platform and DTR's technology to provide an "essential infrastructure layer for the future of finance," focusing on enabling businesses and consumers to interact with digital payments and programmable money, including facilitating the seamless movement of money by "bridging national payment rails and currencies with stablecoins."

  • Bakkt expects to finalise a commercial agreement with DTR by Q3 2025, with product launches for early access partners, including "Bakkt Checkout" and "Bakkt Agent," anticipated by Q3 2025, contingent on securing API-enabled fiat rails in the US. The company is also exploring strategic alternatives for its loyalty business.

LCH SA launches DigitalAssetClear for Bitcoin derivatives

  • Driving the news: LCH SA has launched LCH DigitalAssetClear, providing central clearing for cash-settled Bitcoin index futures and options contracts traded on GFO-X, a UK FCA-regulated digital asset derivatives trading venue. ABN AMRO Clearing Bank, Nomura International Plc, and Standard Chartered Bank are the first clearing members.

  • The service provides market participants access to clearing for digital asset derivatives within a "secure, segregated, highly regulated" environment, a development Arnab Sen, CEO of GFO-X, stated "brings much needed enhanced risk mitigation to digital asset derivatives."

  • LCH SA views the launch as demonstrating its "commitment to bringing the benefits of clearing to this growing asset class," with Arnab Sen, CEO of GFO-X, adding, "We believe the digital asset derivatives market, in particular options, will grow exponentially but requires regulated and counterparty risk mitigation solutions to achieve scale."

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