Custody to Capital Efficiency: Institutional Liquidity Flywheel 2025

Introduction

The crypto markets of 2025 have evolved into a dynamic ecosystem where institutional participation is accelerating rapidly. A “liquidity flywheel” is in motion, as better infrastructure and instruments attract more capital, liquidity deepens, which in turn draws in even more participation. Key drivers of this flywheel include robust custody solutions, widespread use of stablecoin rails and innovative prime brokerage services that enhance capital efficiency. This article, explores how these elements interconnect to transform centralised spot markets. We’ll also touch on the influence of futures and ETFs on market makers’ behaviour.

Institutional Custody 2.0: Fast Access & Unified Liquidity

Institutional crypto custody in 2025 extends far beyond cold storage of assets, it has become an enabler of real-time market access, margin efficiency and cross-platform liquidity. Modern custodians leverage technologies like multi-party computation (MPC) and specialised settlement networks to let institutions trade on exchanges without moving assets out of custody. For example, Copper’s ClearLoop network allows clients to trade on connected exchanges while assets remain in secure custody, minimising counterparty risk and enhancing operational efficiency. In August 2025, an integration between Copper and the exchange BitMart made this a reality: BitMart’s institutional users can now execute trades instantly on the exchange, with real-time off-exchange settlement via ClearLoop. This means no more waiting for deposits/withdrawals, assets are delegated to the trading venue on demand, and trades settle almost immediately, all while funds stay in the custodian’s protected environment.

One major benefit of such arrangements is capital efficiency across venues. Instead of siloing collateral on each exchange, a firm can maintain a single pool of assets with a custodian and deploy it to multiple trading platforms as needed. Copper’s ClearLoop, for instance, enables clients to manage collateral and settle trades in near real-time across multiple exchanges while mitigating counterparty risk and increasing capital efficiency. This effectively creates a unified liquidity pool: a Bitcoin or USDC balance held with the custodian can backstop trades on Exchange A in one moment and on Exchange B the next, without the delays of on-chain transfers. The result is improved margin efficiency, traders aren’t forced to over-fund accounts on dozens of fragmented venues. In industry terms, this is often called “prime access” or prime brokerage access: institutions get a one-stop connection to many markets.

Major trading firms and crypto prime brokers have doubled down on this approach. From a market maker’s perspective, these custody and prime solutions address the long-standing problem of liquidity fragmentation. The crypto market remains highly fragmented, with liquidity spread across dozens of significant venues, a single asset like BTC trades on countless exchanges globally. In the past, a trader had to maintain accounts (and capital) on each major venue to arbitrage price differences, an expensive and operationally heavy endeavour. Today, an institutional trader can access many venues through one interface and custodian, leveraging smart order routing and unified settlement. Prime brokers and custodians essentially act as bridges, so the trader experiences the market more like a consolidated pool of liquidity rather than isolated silos. This not only improves efficiency but also reduces counterparty risk, assets are held by a regulated custodian and only delegated to exchanges for the duration of a trade, protecting the trader if an exchange suffers a hack or insolvency. Indeed, off-exchange custody insulates clients from becoming unsecured creditors of exchanges, a lesson painfully learned from events like the FTX collapse in 2022 (where commingled exchange funds went missing). In 2025, with bank-grade custodial frameworks emerging, institutions can deploy funds at scale with greater confidence in asset safety, a foundational element of the liquidity flywheel.

Stablecoin Rails Fueling Emerging Market Liquidity

If custody networks oil the gears of institutional trading, stablecoins are the high-speed rails moving value across the crypto markets. Stablecoins such as USDC and USDT, as well as local fiat-pegged tokens, have become essential for efficient settlement and global accessibility. This is especially evident in emerging markets where stablecoins bridge gaps left by volatile local currencies and underdeveloped banking systems. T+0 settlement (same-day or instant finality) is now the norm in crypto, thanks in large part to stablecoins: a dollar stablecoin transfer typically settles within minutes on-chain, as opposed to the multi-day T+2 cycles of traditional finance. For market makers and investors, this means capital can be redeployed quickly. Proceeds from a trade can be reused almost immediately for the next opportunity, greatly increasing the velocity of money in the system.

Importantly, stablecoins have unlocked cross-border participation in crypto like never before. In regions facing currency instability or hard capital controls, dollar-pegged stablecoins serve as a lifeline to global markets. 

Africa is a prime example, roughly 70% of African countries face foreign exchange shortages, making it hard for businesses to obtain USD for trade. According to Chris Maurice, CEO of Yellow Card (a major African crypto exchange), stablecoins provide an opportunity for these businesses to continue to operate, grow and strengthen the local economy despite bank FX limits. In Nigeria, which has become ground zero for crypto activity in Sub-Saharan Africa, stablecoin transactions have exploded. By Q1 2024, stablecoin volume in Nigeria neared $3 billion, making stablecoins the largest portion of sub-$1M retail-sized transactions in the country. As the Nigerian naira depreciated sharply in 2023–2024, Nigerians flocked to USD-pegged stablecoins to preserve value and facilitate trade. Chainalysis reports that Nigeria accounts for about 40% of all stablecoin inflows in the African region – the highest by far – underscoring how dominant this trend is. Many Nigerians now rely on stablecoins for remittances, finding them much faster and more affordable than traditional money transfers. In fact, sending a $200 remittance from Africa via stablecoins is roughly 60% cheaper on average than using fiat remittance channels. This cost and speed advantage is fueling a virtuous cycle: as more people use stablecoins for everyday needs, more liquidity flows into local crypto markets, which attracts service providers to build better on/off ramps, further boosting adoption.

Latin America is seeing a similar stablecoin boom, effectively weaving emerging economies into the global crypto liquidity pool. Brazil, for instance, has embraced stablecoins as a tool for both investment and cross-border payments. On Brazilian exchanges, USD stablecoins are offered as an easy way for customers to get dollar exposure as a hedge. The impact is striking – stablecoins now account for roughly 70% of the indirect flow from Brazil’s local exchanges to international exchanges. In other words, when Brazilian traders move funds out to global platforms, seven out of ten reais are first converted into stablecoins like USDT or USDC. This trend prompted companies like Circle (issuer of USDC) to expand in Brazil; in 2024 Circle launched full support for Brazilian users, citing demand for near-instant, low-cost, 24/7 access to USDC amid a generally crypto-friendly regulatory shift. Across the border in Argentina, where chronic inflation exceeds 100%, the preference for digital dollars is even more extreme – an estimated 85% of crypto purchases in Argentina were in dollar-backed stablecoins (as of early 2025), as both individuals and businesses scramble to escape a collapsing peso. This heavy adoption of stablecoins in LatAm has pushed regional crypto exchanges to integrate local currency stablecoins too. For example, Mexico saw the launch of a peso-backed stablecoin (MXN₮) aimed at streamlining remittances and payments, allowing Mexicans to send digital pesos abroad and convert to USD or crypto seamlessly.

Stablecoin rails: The infrastructure connecting stablecoins with local banking systems and payment networks – are a focal point in emerging markets. In Mexico, exchange giant Bitso reportedly processed $43 billion in U.S.–Mexico remittances via crypto in 2024, a volume that represents roughly 10% of the entire U.S.-to-Mexico remittance corridor. This was achieved by leveraging stablecoins as the intermediate currency, highlighting how mainstream the technology has become for large payment flows. Such rails drastically shorten settlement times for cross-border transactions (from days to minutes) and cut costs to a fraction of traditional wire fees. They also operate 24/7, which is crucial for global markets that no longer sleep. For a market maker providing liquidity between, say, Mexican pesos and Bitcoin, stablecoins offer a fast way to hedge or convert proceeds. Instead of waiting for a bank transfer of pesos (which might only clear on business days), an MM can convert MXN to a peso stablecoin and swap it for USDC or BTC almost instantly, effectively achieving T+0 finality. This speed allows arbitrage capital to flow to where it’s needed, tightening spreads between regions. It’s no surprise, then, that stablecoins have grown from 30% to 46% of all crypto purchases in LatAm between 2023 and mid-2025. They have become the de facto medium of exchange and unit of account for many crypto market participants. In summary, by enhancing settlement speed, reducing friction and enabling global reach, stablecoins have become an integral piece of the liquidity flywheel, especially in connecting emerging market liquidity into the broader crypto ecosystem.

ETFs, Futures and Prime Brokers: New Dynamics for Market Makers

While spot markets form the core of crypto trading, the broader liquidity landscape in 2025 is influenced by futures, ETFs, and advanced prime brokerage services – all of which shape how market makers manage inventory and risk. The introduction of spot crypto ETFs (Exchange-Traded Funds) is one of the biggest developments of 2024 that carries into 2025. In a watershed moment, the U.S. SEC green-lit a series of rule changes in early 2024 to allow regulated exchanges to list spot Bitcoin and Ether ETPs (exchange-traded products). By January 2024, multiple Bitcoin spot ETFs had been approved, followed by Ethereum ETFs by mid-year. Almost immediately, investor inflows surged – by late 2024, crypto ETPs reached roughly $100 billion in combined market capitalization. For context, this placed crypto ETFs among the larger commodity and alternative asset ETFs in size. Such ETF flows signify substantial new demand for the underlying assets. Every creation of new ETF shares requires purchasing spot crypto (or equivalent futures) to back those shares, and every redemption frees up underlying crypto to be sold.

Market makers play a central role in this process as authorised participants (APs) or liquidity providers arbitrage between the ETF and the underlying market. When a Bitcoin ETF trades at a premium to the Bitcoin price on exchanges, market makers can buy Bitcoin in the spot market (driving spot demand) and exchange it for new ETF shares (which they sell for a profit). Conversely, if the ETF trades at a discount, it can buy back shares and redeem them for the underlying Bitcoin (reducing supply in spot markets). These activities align ETF prices with the net asset value. However, in practice, arbitrage of crypto ETFs has been more complex than traditional ETFs. The Fed noted that crypto ETFs in 2024 exhibited a relatively higher NAV premium (deviation of ETF price from underlying value) compared to conventional asset ETFs, due to frictions in arbitrage – crypto markets (where Bitcoin and Ether trade) and equities markets (where the ETF trades) are not seamlessly connected. This segmentation can be attributed to factors like exchange hours (stock ETFs trade during equity market hours, while crypto trades 24/7), regulatory hurdles and the logistical challenge of moving large amounts of crypto quickly. For market makers, these inefficiencies actually present an opportunity and a challenge: on one hand, wider spreads between ETF and NAV mean potential arbitrage profits; on the other hand, the difficulty of moving assets or accessing liquidity across different market infrastructures requires them to hold larger inventories and robust financing to capitalise on those moments.

This is where crypto-prime offerings have a growing influence. Crypto prime brokers and exchange “prime” services provide the tools for market makers to respond to ETF and futures flows effectively. For example, a market maker facing a wave of buy orders on a newly launched Ether ETF might need to buy millions in ETH on short notice. Using a prime broker, the MM could draw on a line of credit to purchase ETH on various exchanges without pre-funding each trade with cash upfront. This is akin to the credit and rehypothecation facilities in traditional prime brokerage – collateral (perhaps the ETF shares or other assets) can be quickly pledged to borrow crypto or stablecoins needed for the trade. Modern prime brokers often allow cross-portfolio margining where different assets offset each other’s risk, meaning a diverse inventory can be used more efficiently rather than sitting idle.

Futures markets also play a supportive role in liquidity and risk management. While this piece focuses on spot, market makers constantly toggle between spot and futures to hedge or speculate. The deep liquidity in Bitcoin and Ether futures (both on crypto exchanges and regulated venues like the CME) allows MMs to offload directional risk. For instance, if a market maker just sold a large amount of BTC on spot (perhaps to fill an OTC client order), they might immediately buy BTC futures to neutralise price risk until they can acquire the spot BTC more gradually. Futures can also lead price discovery – in fast-moving markets, futures often move first and spot follows, providing signals to liquidity providers on where the market is heading. Additionally, the advent of crypto ETFs has tightened the link between traditional futures (like CME futures, which many ETFs use for liquidity) and spot markets. Significant ETF inflows or outflows can influence futures pricing (through hedging activities) and vice versa, which market makers monitor closely.

One notable dynamic in 2025 is the blurring line between OTC and exchange execution thanks to prime services. Traditionally, OTC desks handle large one-off trades off the order books, providing a firm quote and later settling the trade, whereas on-exchange market making deals with continuous small trades on public order books. Now, with advanced execution algorithms and prime brokers, an institution can achieve “best execution” by either sweeping multiple exchanges or by tapping an OTC block trade, all orchestrated via a single prime interface. The choice often comes down to size and urgency: an OTC desk can guarantee a large trade at a single price (no slippage) but will charge a premium for that service (wider spread). Meanwhile, a prime broker’s smart order router might slice a large order into many small pieces across venues to minimise impact, achieving a better average price but with some execution risk. Market makers, especially those integrated with primes, can operate in both modes, sometimes taking the other side of client trades as an OTC principal, other times acting as pure brokers routing flow. Notably, the role of custody in OTC trades has grown: instead of full pre-payment or trust-based settling, we see the use of third-party custodians for OTC settlement. An OTC desk might allow a client to post only partial collateral with a neutral custodian when a trade is struck, reducing credit risk for both parties and improving capital efficiency (the client doesn’t need to fully fund a huge trade in advance). This mirrors the tri-party arrangements in traditional markets and is another example of how custody and credit interlink to support liquidity.

Overall, the interplay of ETFs, futures and prime brokerage means market makers in 2025 must be adept in inventory management and risk transfer. They keep a close eye on ETF creation/redemption data, futures basis, and global funding rates. When ETF inflows spike, a market maker might ramp up inventory of the underlying asset (e.g., Bitcoin) to facilitate creation, using stablecoin credit lines to buy quickly. If outflows occur, they may temporarily hold more ETF shares or short futures to manage the unloading of the underlying asset. Throughout all this, stablecoins often serve as the settlement currency of choice – for instance, an authorised participant for a European crypto ETF might use USDC to settle with the fund’s custodian, since it’s faster than international bank wires and aligns with 24/7 crypto trading. The ability to move in and out of positions at any time (thanks to continuous markets and instant settlement) creates a more fluid environment than traditional markets, but it requires the scaffolding of custody, credit and connectivity to truly capitalize on it. When all parts function well, liquidity begets more liquidity: tighter spreads attract more volume, which further tightens spreads – the classic liquidity flywheel in action.

Custody, Stablecoins & Credit: The Liquidity Flywheel in Motion

Tieing all these strands together, we can see how institutional custody, stablecoin rails, and credit interlock to amplify market liquidity. Custody solutions provide the trust and safety net that encourages institutions to deploy large capital in the first place (no one will commit billions to crypto markets without secure storage and risk controls). But beyond security, custody tech now enables speed – immediate availability of funds across platforms – which is a catalyst for efficient markets. This fast-mover advantage is exemplified by T+0 settlement: a trade executed now can be settled moments later in stablecoins, freeing that capital to rotate into the next trade. In effect, the same dollar can support a cascade of transactions in a single day, unlike in traditional settings, where it might be tied up in clearing for 48 hours.

Stablecoins, on the other hand, are the universal liquidity piece connecting disparate participants and regions. They serve as the common denominator in trading pairs and as the preferred collateral for many loans and margin positions. Because a U.S. institution, a European exchange, or a Nigerian trader can all equally accept USDC/USDT, stablecoins break down barriers – everyone is transacting in a currency that holds global value and moves at internet speed. This universality and quick turnover reduce friction in cross-border participation: a market maker in London can just as easily make markets in a BRL or NGN crypto pair if flows are coming in stablecoins, since currency conversion is no longer the bottleneck. We’ve effectively created a parallel financial rail where liquidity can flow into, say, Bitcoin from all corners of the globe without passing through slow correspondent banking channels. Real-world data supports this: stablecoin-based remittances and payments are soaring because they undercut traditional forex spreads and fees. As a result, more businesses and investors join the crypto economy for its superior efficiency, further enlarging the liquidity pool.

Credit and rehypothecation via crypto primes add the final accelerant to this flywheel. When a single piece of collateral (be it cash, Bitcoin, or even an ETF share) can be used to back multiple trades or loans in a controlled manner, it multiplies the effective liquidity in the system. For example, an institution might deposit $10 million in a prime broker account – that prime can then extend leverage or lending against that collateral, allowing the client to perhaps take $20M of positions spread across different exchanges. Meanwhile, the prime might even rehypothecate idle assets (with permission) to earn yield or facilitate other clients’ trades (analogous to how investment banks lend out securities in traditional markets). As long as risk is managed, this credit extension means less capital can support more trading activity, which boosts volumes and tightens markets. It’s a delicate balance – too much leverage can also unwind disastrously – but in moderate amounts, it’s the lubricant that keeps the market fluid. The crypto industry in 2025 is gradually implementing more traditional risk management practices (daily margining, robust liquidation mechanisms, etc.) to ensure this remains sustainable.

The “institutional liquidity flywheel” thus refers to this self-reinforcing cycle: Better infrastructure (custody and prime services) and stablecoin accessibility reduce operational and financial frictions. Lower friction and higher confidence bring in more participants and capital (from global hedge funds to local traders in emerging markets). This increased participation begets deeper liquidity – order books on exchanges get thicker, OTC desks find it easier to net buyers and sellers, and arbitrage keeps prices more in line across the world. Deeper liquidity, in turn, makes markets more attractive and efficient (narrow spreads, high volume), drawing in even more institutional money that previously sat on the sidelines. In emerging markets, for example, the presence of reliable stablecoin rails and local custody options transforms crypto trading from a niche or speculative venture into a practical tool for treasury management and international commerce, inviting companies to join the fray and further enlarge liquidity.

It’s worth noting that this flywheel can spin in reverse if trust is broken – for example, a major custody failure or a stablecoin collapse would cause participants to pull back liquidity. That’s why regulators and industry players are keenly focused on governance and safeguards in 2025. We see increasing regulatory frameworks for stablecoins (the U.S. GENIUS Act in 2025 set standards for issuers’ reserves) and higher standards for custodians (some now obtaining trust charters or insurance to bolster confidence). These measures aim to ensure that the foundation of the flywheel remains solid. After all, liquidity is ultimately a measure of confidence, confidence that markets will stay operational, that counterparties will honour obligations, and that assets will retain value and redeemability.

In conclusion, the centralised spot crypto markets in 2025 are more interconnected and capital-efficient than ever. Institutional custody solutions have eliminated much of the historical trade-off between security and agility, giving traders the best of both. Stablecoin rails have turned crypto into a real-time settlement network that spans from Wall Street to Lagos, enabling truly global liquidity pools. ETFs and futures have invited a new class of investors and hedgers, which market makers accommodate using prime brokerages and sophisticated risk strategies. The interplay of custody, stablecoins and credit creates a powerful feedback loop – a liquidity flywheel – that is accelerating the maturation of crypto markets. For institutional investors, crypto-native funds, regulators and analysts alike, understanding this new liquidity paradigm is key to navigating and fostering the next phase of digital asset markets. The crypto market maker of 2025 stands at the centre of this whirlwind, leveraging custody, railways of stable value and smart credit to ensure that capital is always in the right place at the right time, as the market marches toward greater efficiency and inclusivity.

Further Readings

• Copper.co Press Release – BitMart and Copper Complete Integration for Off-Exchange Settlement copper.co

• Aplo (blog.aplo.io) – Crypto Prime Brokers vs Market Makers & OTC Desks blog.aplo.io

• Chainalysis – Latin America Crypto Adoption 2024 (Stablecoins in Brazil) chainalysis.com; Sub-Saharan Africa Adoption 2024 (Stablecoins in Nigeria) chainalysis.com

• Mexico Business News – Stablecoins Account for 36% of Mexico’s Crypto Buys in 1H25 mexicobusiness.news

• Mural Pay – Stablecoin Growth in Mexico (Remittances $43B) muralpay.com
• Federal Reserve FEDS Note (Mar 28, 2025) – Crypto ETPs: Liquidity and NAV Premium