The blue fox: DeFi’s rise and the birth of Metamask Institutional

MetaMask is arguably one of the most well-known self-custodial Ethereum software wallets in the cryptocurrency ecosystem, with its signature Orange Fox avatar plug-in acting as a portal to the world of Ether (ETH)-based tokens, decentralized applications (DApps) and decentralized finance (DeFi).

The retail browser plug-in wallet surpassed 30 million users worldwide in 2022 and has slowly turned its attention to serving a growing number of institutional users that have looked to gain exposure and manage assets in the growing DeFi space.

Cointelegraph caught up with Elizabeth Mathew, head of growth and partnerships at MetaMask Institutional (MMI), at the firm’s stand during Token2049 in Singapore. The backdrop of a Blue Fox was a noticeable change, with the color scheme in contrast to the familiar orange of the MetaMask logo that most users are accustomed to.

MetaMask Institutional (MMI) has been in existence since October 2021 at a time when institutions began allocating significant amounts of capital to DeFi marketplaces through the conventional MetaMask retail wallet.

The service was born out of the need to serve specific requests from institutional users. Custodial access was a primary consideration in order to give a wider range of operational controls over a wallet. This included suitable segmentations of roles and responsibilities for a wallet belonging to an entity.

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The second consideration was compliant access to DeFi, which, by nature, is controlled by smart contracts and liquidity pools and no real human-controlled element or custodian, as Mathew explained:

“A very unique challenge is that you don’t know who your counterparty is in DeFi, but we have inbuilt tools within MMI that gives you the ability to screen a DeFi pool pre and post trade.”

The need for a specific institutional offering was in part necessitated by engagements with institutional users that had been using the retail platform to manage millions of dollars of digital assets:

“It was shocking, the kind of risk management we saw from institutions. They had millions of dollars of assets kept within their browser plugins, or retail MetaMask browser with a hardware wallet and a spreadsheet. That was really how the earliest crypto funds were getting involved in the space.”

Mathew stressed that this was not fit for purpose for organizations involved in trading and DeFi as well as organizations that were exploring Web3 through various non-trading related activities. This broadened the scope of MetaMask’s consideration of how to plug any organization into Web3 and not solely traders or fund management firms.

Intentional design

The development of MetaMask Institutional was more than a year in the making, with Mathew describing the team as being intentional in its design to not become an asset custodian.

The result was MMI aggregating across a handful of reputable custodial stacks given that different parts of an institution’s portfolio would require different techniques and custodial technologies:

“Different organizations have very different needs, in terms of how they interact with Web3. Some may be high frequency trading-style operations that require low latency and programmatic access. And then another organization might be interested in engaging with their fan base using an app suite which is very different.”

Mathew highlighted MMI’s efforts to not be vertically integrated at the custodian layer but instead aggregated horizontally through service providers that specialize in the governance layer and custodial settlement layers. MetaMask Institutional now has 11 custodial partners, with five based in Asia, a region where MetaMask is seeing increased involvement.

Altogether, the 11 custodial partners already serve more than 1,800 organizations from a variety of industries, a point which Mathew believes will play a pivotal role in onboarding companies and service providers into Web3:

“When they want access to Web3, they’ll essentially turn to their facility and say, ‘turn on my Web3 access.’ Everyone’s not ready for it yet, but we’re certainly having conversations with institutions that are thinking about this more long term than some of the short term speculative opportunities.”

Who is using MetaMask Institutional

Having been around for just over a year, Mathew revealed that 250 organizations had signed up and were active on MetaMask Institutional, while the 1,800 organizations that make use of MMI custodial service providers could potentially be onboarded.

Access to DeFi markets remains a primary driver of the user base, while a little less than half of the users are companies looking to have operational controls over token portfolios or token investments in specific projects:

“Our earliest adopters were crypto-native or DeFi focused funds and today on the platform, about 60% of organizations are professional DeFi portfolio managers and the 40% are not DeFi traders.”

MMI has looked to retain the same DNA and feel of the Orange Fox retail plug-in, with a familiar user flow allowing the user to connect to any Ethereum-based DApp and its tools. As Mathew explained, the difference in functionality comes when a user looks to confirm an action that then links to the specific custodial wallet address:

“Depending on whatever governance policies that you have set for that particular wallet, you can have a multi-approval setup, you could have filtering done at the protocol level.”

Mathew also highlighted a change in attitude from institutions toward the cryptocurrency space and their level of risk appetite and exposure. In the past, companies have not been comfortable with the concept of browser extension-based access, preferring participation in private chains:

“That’s changed. Organizations including investment banks that used to be doing multi-year pilots on private chains are now showing up saying, ‘we want to be looking at real Web3 use cases, we need to do the hard work and understand what it takes from an operational standpoint.’ It is a steep learning curve.”

MMI’s integration of custodial service providers also means that the platform does not necessarily know which will serve a specific institution’s needs best. The best solution is for users to get their hands dirty and begin exploring the different offerings and control mechanisms of the platform:

“There’s a stack for any kind of use case you can think about, just open up an MMI wallet and then put some positions down, even on a test net. Those are the kinds of conversations we're having with institutions within capital markets.”

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Headline-grabbing events in 2022 have put DeFi in the spotlight for the wrong reasons, with the collapse of the Terra ecosystem and its cascading effect through the space leading to institutional investors thinking twice before allocating huge amounts of funds to third-party intermediaries:

“I think people have taken a step back in realizing that they have placed trust within counterparties that may not have been adequately quantified. Sure you have access to the asset class through centralized intermediaries, but then, what is the price you’re paying for that?”

MetaMask Institutional is also exploring improving the education and information available to a participant before they interact with the platform to help guide institutions toward the most applicable type of custodial access offered through its partnerships.