By Nirup Ramalingam, Co-Founder & CEO, BridgePort

Every institutional participant in crypto is currently doing something they would never accept in any other asset class: scattering capital across a dozen exchanges just to access liquidity.

This is not a niche operational complaint. In equities, bonds, and FX, execution and custody are separate functions. You trade through a broker. Your assets sit with a custodian. Settlement happens on a defined cycle, through defined infrastructure, with defined legal frameworks governing what happens when something goes wrong. The capital you use to trade is not the same capital you’ve posted as hostage to a venue.

In crypto, that separation largely doesn’t exist. Exchange-based trading still requires prefunding: assets sitting idle on exchange, exposed to counterparty risk, earning nothing, and doing nothing except satisfying the operational requirements of a market structure built for retail. For an institution running meaningful size, the math becomes punishing quickly. Capital that should be working is instead performing the function of a very expensive insurance policy against settlement friction.

The consequence is cost as well as a structural ceiling on how large this market can actually get. You cannot build institutional-scale liquidity on a model that requires participants to overcapitalize their exchange positions. The fragmentation compounds it further: each venue is a separate relationship, negotiated independently, with its own collateral requirements, its own custodial arrangements, and no common framework connecting them. Every new counterparty requires rebuilding the same legal and operational stack from scratch.

This pattern should look familiar. Before CLS, FX settlement worked the same way: bilateral, fragmented, requiring both legs of a trade to move simultaneously or exposing one party to intraday principal risk. The major banks didn’t lobby for a regulatory fix. They looked at a model that couldn’t scale and built shared infrastructure that could. CLS now processes trillions of dollars daily. It didn’t eliminate settlement risk. It made settlement predictable enough that institutions could operate at scale without pricing the friction into every trade.

Crypto hasn’t done that yet, and the gap is starting to show. The institutions moving fastest into this space are the ones that figured out how to decouple execution from custody, trading against centralized liquidity without leaving assets on exchange. Off-exchange settlement infrastructure makes this possible: positions net, margin moves between custodians, and exchange exposure collapses to the settlement window rather than the full duration of a trade. The capital efficiency difference is not incremental. It’s the difference between a model that works at institutional scale and one that doesn’t.

The conversation in this industry defaults too quickly to regulation. What token classification applies, what legislation is pending, what guidance the agencies will issue next. Those questions matter, but they are not the binding constraint on institutional participation right now. The binding constraint is operational. Institutions aren’t staying on the sidelines because the Howey test is unresolved. They’re staying on the sidelines because the infrastructure required to operate efficiently at scale doesn’t yet exist in standardized form.

The regulatory environment has improved substantially. The OCC has confirmed custody and stablecoin activities are permissible. The SEC and CFTC issued a joint taxonomy that both agencies recognize. Serious institutions have taken note and started building but building into a market that still requires prefunding as a baseline operating condition is building with one hand tied. At some point the industry has to reckon with the fact that the prefunding model is not a feature of crypto markets. It is a legacy constraint from an earlier era that was never designed for institutional capital, and it will not solve itself.

The firms that close that gap first will not be the ones waiting for Congress to act. They will be the ones that looked at the structural problem clearly and built around it.

Nirup Ramalingam is the CEO and Co-Founder of BridgePort, a middleware platform for off-exchange settlement in institutional crypto trading. He previously held senior roles at CME Group, overseeing global FX adoption at EBS, managing one of the largest OTC derivatives SEFs, and building crypto trading infrastructure. Earlier in his career, he held positions at NEX, ICAP, and RBS. Nirup holds a Bachelor of Commerce in Accounting and Finance from Macquarie University and a Chartered Accountancy qualification from the Institute of Chartered Accountants of Australia.