Today, KNØX announced the launch of a digital asset custody service for institutions and fiduciaries with comprehensive insurance coverage.
KNØX protects clients such as asset managers, liquidity providers, and exchanges against losses - including both external theft and internal collusion - up to the full value of their holdings. The KNØX insurance program was developed hand in hand with Marsh, the world’s leading insurance broker and risk adviser.
Financial institutions are increasingly gaining exposure to Bitcoin and other digital assets, though insurance policies still fall short - policies are usually structured with limits shared across multiple clients. This structure can introduce potential counterparty risk.
As an example, a customer with $100 million in digital assets may choose to keep their funds with a custodian holding $1 billion in assets, and advertising a $100 million insurance policy.
The custodian is 10% insured, yet the customer is given a false sense of security believing that the $100 million policy will be able to cover their holdings. In fact, in the event of a total loss, the customer will be reimbursed $10 million, forced to accept a $90 million loss. The total limit is most commonly shared across clients.
“Entities who have their digital assets managed by a third party deserve the right to insurance. Too often, insurance policies are purchased for marketing purposes instead of transferring the risks that matter. Our insurance program is designed to help fiduciaries meet their obligations.” said Alex Daskalov, co-founder and CEO of KNØX.
KNØX designed its custody offering with financial institutions in mind, offering:
- Financial Protection -- insurance coverage up to the full asset value held under custody
- Simplicity — intuitive product interface for back office teams and fund administrators
- Bespoke Governance -- internal control policies on transactions are defined by clients
- Over the past year, KNØX has been focused on:
- Operations -- received the first multi-million dollar deposit of BTC held under secure custody in the summer of 2018 and has been expanding operations since;
- Strategic Partnerships -- supported large global financial institutions in developing digital asset custody strategies and infrastructure;
- Insurance Underwriting -- designed a proprietary insurance program and bespoke policy wording with Marsh, the world’s leading insurance broker and risk adviser;
- Security Audits -- passed critical security audits for its core technology and infrastructure conducted by an independent security audit firm.
Commenting on the announcement, Brett Gibson, partner at Initialized Capital and KNØX board member, said: “One of the largest issues with the way digital assets are insured by custodians in the market today, is that third-party custodians tend to provide partial insurance, or shared insurance limits, for the assets they custody.”
Garry Tan, managing partner of Initialized Capital, added. “It’s extremely difficult for customers to detect and evaluate the risk exposure these problems create for them and this provides a false sense of security. There is a growing appetite for more comprehensive insurance policies covering digital asset custody. KNØX brings peace of mind to responsible entities that are exposing capital to this nascent digital asset class.”
Clients can access their KNØX custody account with a dedicated terminal via a secure end-to-end system. Internal control policies - rate limits and number of signatories - are set by firms as part of a customized governance model.