Wallet-as-a-Service (WaaS) and custody services are both core digital asset solutions offered by providers like Fireblocks, BitGo, and Bakkt, but they serve different functions in the crypto ecosystem. Below is a breakdown of what each service offers and how they differ.
What is Wallet-as-a-Service?
Wallet-as-a-Service (WaaS) is a cloud-based digital asset wallet infrastructure that enables businesses to integrate secure, scalable, and customizable wallets into their applications without building the infrastructure from scratch.
Key Features of WaaS:
- Non-Custodial or Semi-Custodial Options – Clients can have full control over their private keys, or the provider can implement shared control.
- Multi-Party Computation (MPC) or Hardware Security Modules (HSMs) – Security features that protect private keys from being a single point of failure.
- API-Based Wallet Integration – Businesses can integrate wallet functionalities via APIs, allowing them to offer wallet services to end-users (e.g., crypto exchanges, fintech apps).
- Multi-Asset Support – Supports various cryptocurrencies, NFTs, and digital assets.
- Automated Transaction Management – Allows companies to program rules for transfers, approvals, and security policies.
Who Uses WaaS?
- Crypto exchanges, fintechs, and neobanks that want to offer crypto wallets to customers.
- Gaming and NFT platforms needing integrated wallets for seamless user transactions.
- Enterprise and DeFi applications seeking to manage digital assets programmatically.
What Are The Benefits Of WaaS?
The three primary benefits of opting for Wallet-as-a-Service (WaaS) are;
1. Cost Reduction and Rapid Market Entry
For businesses wanting to integrate digital wallet functionalities into their platforms, developing a proprietary digital wallet infrastructure requires substantial investment and time. WaaS providers offer ready-made solutions, enabling businesses to launch wallet services swiftly and cost-effectively, thereby reducing time-to-market.
2. Scalability
WaaS platforms are designed to handle varying transaction volumes, allowing businesses to scale operations seamlessly without significant infrastructure changes.
3. Enhanced Security and Compliance
WaaS providers implement advanced security measures, such as encryption and multi-factor authentication, to protect digital assets. They also ensure compliance with relevant financial regulations, reducing legal risks for businesses.
Example: Fireblocks’ WaaS
Fireblocks’ WaaS allows businesses to offer white-label crypto wallets embedded in their applications, while Fireblocks secures the underlying infrastructure using its MPC technology.
What is Crypto Custody?
Custody services involve holding and safeguarding digital assets on behalf of clients. These services are often regulated and designed for institutional clients like hedge funds, exchanges, and enterprises. At the same time, all crypto custody offerings are by no means the same as each other (check Bitgo vs Bakkt) – with a wide range of different fee and security models available.
Key Features of Custody Services:
- Full Custodianship – The service provider holds private keys and is fully responsible for asset security.
- Regulatory Compliance – Often regulated by financial authorities (e.g., BitGo is a qualified custodian under U.S. law).
- Cold Storage & Insurance – Assets are typically stored in offline (cold) wallets, with additional insurance protection.
- Institutional-Grade Security – Advanced security protocols ensure protection from hacks and insider threats.
- Multi-Signature Transactions – Requires multiple approvals to process large transactions.
Who Uses Custody Services?
- Institutional investors, hedge funds, and family offices that don’t want to manage their own keys.
- Crypto exchanges needing secure storage for customer deposits.
- Corporate treasuries and asset managers handling large crypto holdings.
Example: BitGo Custody
BitGo’s custody service provides cold storage and regulatory compliance, ensuring that institutional clients’ assets are safe and insured.
Key Differences: WaaS vs. Custody
| Feature | Wallet-as-a-Service (WaaS) | Custody Services |
|---|---|---|
| Ownership of Private Keys | Clients may retain control (non-custodial or shared control) | Custodian holds the keys (full custody) |
| Regulatory Compliance | Less regulated (depends on the provider) | Often requires regulatory approval (e.g., BitGo Trust Company) |
| Use Case | Businesses integrating wallets for end-users | Institutions needing secure asset storage |
| Storage | Online, API-integrated wallets (hot wallets with security layers) | Typically cold storage with insurance |
| Security Model | MPC, HSM, programmable security policies | Multi-signature, physical security layers |
| User Control | Businesses and end-users have operational control | Custodian controls transactions |
Why the Distinction Matters
If a business wants to provide crypto wallets to customers they use Wallet-as-a-Service. If an institution wants secure, regulated asset storage, they use Custody Services. Some WaaS providers offer both, a hybrid model where Fireblocks, BitGo, or Bakkt provide can provide WaaS with optional custodial storage.
Example Scenario:
Crypto Exchanges typically need custody for compliance plus WaaS for users to deposit and withdraw funds.
What Are The Risks Of Wallet-as-a-Service?
Utilizing Wallet-as-a-Service (WaaS) providers offers convenience and scalability for businesses integrating digital wallet functionalities. At the same time, it does not guarantee asset security and the following risks should be carefully considered:
1. Security Breaches
WaaS providers can be targets for cyberattacks, potentially leading to data breaches that compromise user information and asset. Crypto exchange’s wallets are routinely hacked, and merely outsourcing this aspect of the exchange’s business does not guarantee the security of user’s funds.
2. Compliance and Regulatory Risks
Engaging with WaaS providers necessitates adherence to various financial regulations, such as Anti-Money Laundering (AML) laws and data protection statutes like GDPR and CCPA. While this is probably fine for most users, there are many crypto holders who want to remain anonymous and this may not be possible within the WaaS infrastructure. For example, providers may collect and share transaction data with third parties, raising privacy issues. Users should be aware of how their financial activities might be tracked or analyzed.
4. Provider Stability
The financial stability of a WaaS provider is crucial. If a provider faces financial difficulties or goes bankrupt, access to funds and services could be disrupted, potentially leading to financial losses.
Conclusion
Choosing between WaaS and custody services depends on the level of control, security, and compliance your business needs—understanding the difference is key to safeguarding digital assets in an evolving crypto landscape.
