11.01.2024 / Insights

A Custodian's Role in Crypto ETPs

The SEC's green light for spot Bitcoin ETPs is a significant moment in the world of digital assets, introducing a new gateway to the crypto asset class in the US. A physical BTC ETP requires 5 key partners: ETP Issuer, Trustee, Custodian, Administrator and Authorised Participants. The custodian’s role may sound simple – hold and secure the underlying crypto asset. But, not all third-party custodians are created equal, and investors should look for custody partners that meet the following standards:

🔒 Institutional-Grade Security Measures: How does the custodian secure the underlying asset? What industry standards do they uphold? Do these include those from the Security Operations Center and International Organisation for Standardisation? At Komainu, our commitment to a resilient end-to-end security design is founded on a zero-trust model. This includes 24/7 network monitoring, segregated networks, regular external penetration tests, and compliance with SOC 2 Type I, SOC 1 Type II, ISO27001, and ISO27701 standards.

💼 Independent Third-Party Custody: True custodians are independent. Does your custodian wear multiple hats, creating conflicts of interest? A custodian should operate solely as a custodian, demonstrating clear segregation and robust client asset protection measures. At Komainu, we believe in the purity of custodial services without entanglement in exchanges, brokerages, or lending businesses.

📜 Regulatory Compliance: Regulatory oversight is the bedrock of confidence. Is your custodian regulated, and by whom? Regulatory oversight provides you with the confidence and assurance that your assets are being managed in a secure and compliant manner. At Komainu, we adhere to the highest standards of compliance and customer protection with an OAM registration in Italy, an MLR registration with the UK Financial Conduct Authority (FCA) and are regulated by the Jersey Financial Services Commission (JFSC), and the Dubai Virtual Assets Regulatory Authority (VARA).

🔐 Segregated Wallets: Does your custodian segregate client assets? Assets should ideally be fully segregated on-chain. At a minimum, client assets should be segregated from the custodians own assets. At Komainu, we believe in full asset segregation, separating funds on a client-by-client and client-custodian basis. Clients should be able to view their assets on-chain, without client funds sitting off chain or in an omni wallet.

A custodian sits at the heart of the digital asset ecosystem, and with the expected increase in institutional capital flows, custody has never been more important.

The SEC’s spot bitcoin ETP approval is a significant step forward for the US market, offering US qualified custodians exciting new opportunities. In the European market, ETP issuers have also been offering access to the digital asset market through ETPs, and we are proud to be a custodian for ETP issuers such as ETC Group and CoinShares. Coinshares shared a comprehensive overview of Crypto ETPs here: https://etp.coinshares.com/knowledge/investment-resources/what-are-crypto-etps

Built for institutions, Komainu offers comprehensive third-party digital asset custody solutions specifically designed to meet the unique requirements of institutional clients, providing an additional layer of security to ensure the protection of your assets. We work with ETP Issuers, Hedge Funds, Institutional Investors, Foundations and Governments.

If you want to know more about Komainu’s custody offerings, get in touch with the team: Contact Us - Komainu


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