Menu #20: From Self-Custody to Banking Licences

Crypto Wallets
Becoming a Category of One
Web3 Dinner Club: 16th July
HMRC and DeFi
Brand Spice
Chef’s Note

This is The Menu: the UK Web3 operator’s weekly briefing.

What founders, investors, and builders are actually discussing behind closed doors.

The industry is starting to look less like a series of disconnected experiments and more like a system finding its shape.

In this issue:

Signal, served weekly.

The dinner club is proudly sponsored by Novel Labs.

A multi-award-winning London storytelling studio building the brands of the future in AI, blockchain, and emerging technologies.

Best known for the $100m expansion to the Bored Ape Yacht Club, The Mutant Cartel World.

If you’re a startup or scale-up building a brand and looking for real go-to-market impact from those who have repeatedly built unicorns and category kings as VCs and founders... ask for an intro at the table.

A non-custodial wallet is where things get real in Web3.

Unlike a bank or exchange, no third party is holding your assets on your behalf. Instead, you control the private keys yourself, meaning you are the custodian.

Wallets like MetaMask or Phantom don’t “hold” your crypto. They generate and store your private keys locally, giving you direct access to your assets on-chain.

This means:
You don’t need permission to transact
You can interact directly with DeFi, NFTs, and apps
You are fully in control of your funds

But that control comes with responsibility.

Lose your seed phrase, and there’s no recovery service.
No helpline. No reset button.

It’s the purest form of ownership in finance and the clearest example of the Web3 shift:

From trusting institutions to trusting code (and yourself).

Before you buy crypto, you need a wallet.

That sounds simple, but it is still one of the biggest points of confusion in Web3.

The reason is that “wallet” now means several different things depending on how you enter the space.

At its core, a crypto wallet is not where your assets live. Your assets exist on the blockchain. The wallet is the tool that lets you access, control, and interact with them.

In simple terms:

A crypto wallet is how you access, control, and prove ownership of your assets on-chain.

But that front door has evolved.

In the early days, wallets were clunky, technical, and unforgiving. You managed seed phrases manually, interfaces were basic, and one mistake could cost you everything. Today, the spectrum is much broader, with different wallets optimised for convenience, security, or control.

At the most familiar end, exchanges act like wallets for many users.

If you buy crypto on Coinbase, Binance, or Kraken and leave it there, the platform is effectively holding your assets for you. This is known as custodial storage. The exchange controls the private keys, and you access your balance through an account, much like online banking.

This model is easy, fast, and user-friendly. But it comes with trade-offs. You are trusting a third party with custody of your funds, and your access can be restricted, frozen, or lost if the platform fails.

Which leads the common phrase: Not your keys. Not your crypto.

Newer onboarding solutions are trying to bridge that gap. Wallets like Privy and other embedded or “email wallets” allow users to create wallets tied to an email address, often abstracting away seed phrases entirely. They feel closer to Web2 products, lowering friction and making onboarding smoother for mainstream users.

Then you have non-custodial wallets like MetaMask, Phantom, and Trust Wallet.

This is where Web3 starts to behave differently.

With a non-custodial wallet, you control the private keys. No exchange, no intermediary. You can send assets, connect to DeFi protocols, mint NFTs, and interact directly with smart contracts.

It is permissionless, composable, and powerful.

But it also comes with responsibility. If you lose your seed phrase, there is no recovery. If you sign a malicious transaction, there is no chargeback.

These are designed for security above all else. Your private keys are stored offline, isolated from internet-connected devices. This makes them significantly harder to compromise, which is why they are often used for long-term storage or larger holdings.

The trade-off is convenience. They are slower to use and less suited for frequent transactions or active trading.

An exchange account: is primarily designed for trading.
Custody is a feature, not the core product.

A custody service: on the other hand, is purpose-built to securely hold assets on behalf of individuals or institutions. These services often include insurance, compliance frameworks, and operational controls like multi-signature approvals.

The key distinction is intent:

One is built for access and liquidity,
The other for secure storage at scale.

That is the bigger picture.

Different wallets exist because different use cases demand different trade-offs.

Trading versus long-term holding.
Convenience versus sovereignty.
Speed versus security.
Individual use versus team control.

So before asking, “What token should I buy?”

A better first question is:
What wallet setup actually fits what I am trying to do?

Because in crypto, the wallet is not just storage.

It is identity, access, security, and ultimately, control.

Becoming a Category of One is a useful reminder for founders that being “better” is not always enough.

Better product, service, price and features?
All of that helps, but it rarely creates lasting separation on its own.
Can your company become clearly different in the mind of the customer?

For smaller companies, this matters even more.

You may not have the biggest budget, the largest team, the strongest brand recognition or the longest track record. But you can still create a category where your business is the obvious choice for a specific type of customer with a specific problem.

That is the value of this book.
It pushes founders to think beyond competing on the same terms as everyone else.

What do you stand for?
What do customers remember you for?
What experience do you create?
What makes people choose you when they have other options?

For Web3 founders, this feels especially relevant.

Too many companies sound the same.
The same language, promises, “revolutionary” claims and pitch deck adjectives.
A real category of one is not built by saying you are unique.
It is built by making the difference obvious.

W3DC:

Small companies do not win by looking like smaller versions of larger competitors.
They win by becoming sharper, clearer and harder to compare.

A curated, seated dinner for a small group of builders working in crypto, AI, and frontier tech.

One table. No pitches. No panels. No ego contests.

Just the kind of conversation that doesn't show up in your LinkedIn feed. The relationships that move capital, talent, and ideas in Web3 don't start at conferences.

They start at a handful of dinners with the same people, repeated over time.
Seats are limited by design.

Proudly sponsored by Novel Labs.

HMRC has published a response on the taxation of cryptoasset loans and liquidity pools.

This may sound dry. It is not.

What do you do when DeFi transactions do not fit neatly into existing tax rules?

When someone lends tokens, provides liquidity to a pool, wraps an asset, uses yield farming, or moves tokens through automated protocols, the current rules can sometimes treat technical movements as taxable disposals, even when the user has not really sold the asset in an economic sense.

That creates a problem.

The tax treatment can become more complicated than the transaction itself.

HMRC’s consultation looked at whether the rules should be changed so that certain cryptoasset loans and liquidity pool transactions better reflect their economic substance. The idea is to avoid creating unnecessary tax events where the user has not truly disposed of the asset economically.

One potential approach being considered is 'no gain, no loss' treatment.

In simple terms, this would mean some movements of cryptoassets into loans or liquidity pools could be treated as neutral for capital gains purposes at the point they happen, with tax applying later when the asset is actually economically disposed of.

Stakeholders broadly welcomed HMRC looking at the issue. They wanted rules that are easier to comply with, better reflect how these transactions actually work, and are flexible enough to adapt as new models emerge.

The difficult bit is scope.

Respondents raised questions around automated market makers, wrapped tokens, multi-chain transactions, collateral, yield farming, yield aggregators, tokenised real-world assets and proof-of-stake.

That shows the challenge.

Crypto does not stand still long enough for tax rules to feel comfortable.

The government response is cautious but constructive. It recognises that any reform needs to support innovation and compliance, while also protecting the integrity of the tax system and avoiding special treatment that makes crypto more or less favourable than other assets.

W3DC:

This is another sign of crypto moving from the edge into the rulebook.
The UK is not just asking whether crypto should be taxed.
It is asking how to tax it in a way that reflects what is actually happening.
That may sound like admin.
But if DeFi, tokenisation and on-chain finance are going to become usable at scale, tax clarity is part of the infrastructure.

A new report from Keyrock and Securitize looks at the future of tokenised assets, and it puts the scale of the opportunity in very big numbers.

The headline figure is hard to ignore:

$400 trillion.

That is the estimated size of the global asset market tokenisation is trying to address. But the more useful insight in the report isn't the size of the opportunity. It's the warning attached to it:

Putting an asset onchain is not enough.

Today, tokenised assets still represent less than 0.1% of the market they reference. The report's base case sees freely transferable tokenised assets growing from around $27bn today to $400bn by 2030, with the broader market of real-world assets tracked onchain reaching $5tn.

That's real growth. But it isn't automatic.

The report frames this as a two-phase problem. Phase one was about issuance: can we create tokenised treasuries, credit, equities, commodities and funds? The answer is clearly yes.

Phase two is distribution: can these assets actually move? Can they be traded, used as collateral, plugged into lending markets, priced accurately, and given liquidity that extends beyond the issuer?

That's where the real work begins.

The report scores five tokenised asset classes across six factors: standardisation, underlying liquidity, valuation frequency, redemption speed, regulatory clarity and onchain demand. Treasuries lead, followed by equities and commodities, while alternative funds and private credit trail behind.

That tracks. Treasuries are standardised, liquid, and simple to value. Private credit is messier. Alternative funds are messier still.

The assets most likely to scale first won't be the most exciting ones. They'll be the ones with the clearest structure, the deepest markets, and the strongest infrastructure already in place.

Tokenised treasuries are already proving this. The report notes they've grown to roughly $11bn and have outpaced DeFi's benchmark stablecoin lending rate on 64% of days since mid-2024. By Q1 2026, that figure jumped to 98% of days, with lower volatility than DeFi lending rates.

That matters because tokenised treasuries aren't just a passive yield product. They can function as collateral. They can sit inside lending markets. They can connect stablecoin capital to real-world yield, making onchain finance feel less like speculation and more like infrastructure.

But the report also flags a structural problem worth sitting with.

Real-world assets often settle slowly, sometimes on monthly or quarterly redemption cycles. Crypto users, by contrast, expect instant liquidity. That mismatch between traditional settlement timelines and onchain expectations remains one of the biggest unsolved problems in the space.

Put simply: the token can move instantly. The asset behind it often can't.

Closing that gap is where liquidity infrastructure, market makers, vaults, pricing and compliance become essential, not optional.

W3DC take:

The $400tn figure earns headlines. But the real story is smaller and more practical.

Tokenisation is shifting from "can we issue it?" to "can we make it useful?"

A tokenised asset that can't trade, settle, be priced, be borrowed against, or move between venues isn't yet a full financial instrument. It's a digital record of ownership.

The next phase of tokenisation isn't just about putting assets on-chain. It's about building the rails that make those assets actually work.

For years, crypto positioned itself as an alternative to banks.

Now, some of its largest companies are trying to become them.

Kraken is reportedly pursuing a full banking licence in Europe, with Lithuania emerging as the likely jurisdiction. If approved, it would follow a path similar to Revolut, which secured a specialised European banking licence from the Bank of Lithuania in 2018.

This is more than a licensing story. It signals a structural shift.

The next phase of crypto may look less like a parallel system and more like a regulated financial institution, combining exchange access, payments, deposits, lending, custody and digital assets under one roof.

First, control.

Crypto businesses have long depended on traditional banking partners for payments and settlement. That dependency creates platform risk. Access can be restricted, delayed, or removed entirely. A banking licence reduces that reliance and brings core financial rails in-house.

Second, legitimacy.

Operating within a recognised regulatory framework answers a persistent question from traditional finance: who is supervising this? A licence signals oversight, governance, and a level of institutional credibility that crypto-native structures alone have struggled to provide.

Third, expansion.

Trading fees are not a long-term moat. The larger opportunity sits in payments, custody, lending, yield products, treasury services, stablecoin infrastructure and, ultimately, owning the customer relationship.

Kraken is not alone in this direction.

Circle recently received final OCC approval to establish Circle National Trust, a U.S. national trust bank designed to support digital asset custody and strengthen the infrastructure around USDC.

The OCC has also conditionally approved national trust bank charters for several digital asset firms, including Ripple, Paxos, BitGo and Fidelity Digital Assets. Crypto.com has received similar conditional approval.

A clear pattern is emerging.

Crypto companies are no longer just asking users to trust code. They are asking regulators to trust their controls.

That shift may frustrate purists. But it is likely where mass adoption was always heading.

Most users do not want to manage wallets, safeguard seed phrases, assess custody risk or think about settlement layers. They want financial services that work reliably and intuitively.

And that is why the line between banks and crypto firms is starting to blur.

Banks are moving toward tokenisation, custody and stablecoins.

Crypto companies are moving toward licences, charters and regulated structures.

W3DC:

The winners of the next phase are unlikely to be those that avoid regulation. They will be the ones that combine innovation with trust.

Crypto set out to build new rails. Now it is asking for permission to operate more of the station.

Until next time