When we started building Otim, we had a simple assumption: enterprises would deposit funds on our platform and use it for automated crypto operations like refueling wallets and rebalancing portfolios. Through customer conversations, we discovered something more nuanced: we needed to meet people where their liquidity already lives. Instead of requiring fund deposits, we've built Otim to orchestrate funds from wherever they exist and take action with them.

There's an intricate, multi-layered system that governs how enterprise funds move through the crypto ecosystem, and understanding it changes everything about how you should approach building for enterprises.

We call it the waterfall of funds.

The Liquidity Location Problem

The fundamental challenge in crypto is understanding where digital assets are held versus where they're spent. Traditional finance has a clear hierarchy: bank accounts hold funds, credit cards facilitate spending. The relationship is straightforward and universal.

Crypto lacks this "first-class citizen" status in financial infrastructure. Instead, we have a fragmented ecosystem where fund storage and spending mechanisms exist in entirely different layers, often disconnected from each other.

This creates what we call the liquidity location problem. Every crypto platform faces the same bootstrap challenge: convincing users to move funds when they're already comfortable with existing setups. Consumers remain deeply attached to traditional financial tools, and even crypto native businesses rely heavily on qualified custodians for their enterprise operations. The "If It Ain't Broke, Don't Fix It" mentality is more powerful than most builders realize.

The Enterprise Reality

Almost all enterprise crypto holdings originate from qualified custodians. These institutions provide the trust, safety, and regulatory compliance frameworks that enterprises require to operate legally.

The enterprise custody space is dominated by "The ABCs": Anchorage, BitGo, and Coinbase. These three providers have established themselves as the trusted custody layer, building the regulatory compliance, security protocols, and enterprise-grade services that institutions demand.

This isn't changing anytime soon. You're not competing for fresh deposits; you're working within an existing waterfall of funds that starts with qualified custodians.

The Four-Level Waterfall

Enterprise crypto fund management operates like a waterfall, with funds flowing from one level to the next:

Level 1: Cash to Crypto Conversion

Enterprises convert traditional cash holdings into crypto through qualified custodians who facilitate the entire on/off-ramping process. Collateral custodians (like Fidelity, BitGo, or BlackRock) securely hold USD collateral that gets exchanged for stablecoins through EMT sponsors like Circle or Tether. These custodians handle the complex regulatory compliance and technical infrastructure that enterprises need to enter the crypto ecosystem safely.

Level 2: Custodian MPC Solutions and Services

Qualified custodians use Multi-Party Computation (MPC) infrastructure for signing security and offer comprehensive in-house solutions for enterprises. These include digital asset buying, staking, lending, and DeFi access through front-ends built on top of protocols like Uniswap pools. This approach prevents user error while providing enterprise oversight within the custodian's managed environment.

Level 3: Self-Custody Solutions and DeFi Access

For enterprises wanting more control, custodians also offer self-custody solutions that function like WalletConnect-compatible wallets but with institutional-grade MPC signing security requiring n-of-m signatures for transaction execution. These solutions include Anchorage's Porto, BitGo's hot wallet, and Coinbase Prime's on-chain wallet, which allow customers to use DeFi protocols outside of the custodian's in-house solutions while maintaining institutional security standards.

Level 4: Distribution Patterns

Companies choose between two approaches:

• Deep On-Chain Presence: Extensive distribution across multiple hardware wallets, complex multi-sig setups, multiple hot wallets, with funds eventually bubbling back to centralized custody
• Shallow On-Chain Presence: Minimal exposure with 1-2 wallets, quick return cycles, and limited on-chain risk

Real-World Examples

As a compliant token distribution platform, Liquifi doesn't store client tokens themselves to perform their operations. Instead, their clients keep tokens with qualified custodians, and Liquifi integrates with those custodians to propose transactions for programmatic token distributions.

Multiple trading firms use Fireblocks with a sophisticated multi-tier system: custody to hardware wallets to hot wallets and back. They chose operational complexity to achieve specific security goals.

Companies like Hyperlane, 0x Labs, and others have developed unique approaches within this framework. The waterfall structure remains consistent, but implementation details vary significantly based on risk tolerance and operational requirements.

Why This Matters

The waterfall structure is universal. Every enterprise follows some variation, regardless of industry or size, supported by sophisticated sub-ledger systems, accounting integration, and policy and governance layers that track movements, ensure compliance, and implement risk management frameworks at each level.

Working within this framework is more practical as custody begins to commoditize. The custody layer exists for crucial reasons: regulatory compliance, security, and risk management that enterprises cannot ignore. Building valuable services on top of this infrastructure often succeeds, giving their customers superpowers that custodians can’t provide.

The waterfall represents crypto's current maturation state. It's not the final form, but it's today's reality. Future developments will evolve this structure rather than replace it.