The growth of the Komainu custody service tracks rising institutional interest in digital assets

Growing institutional interest in the largest and most liquid crypto-currencies is now spilling over into staking via Decentralised Finance (DeFi) protocols and into Non Fungible Tokens (NFTs). While widening institutional interest in digital assets is partly explicable as a search for an income-producing outlet for crypto-currency holdings, it also attests to a growing institutional confidence that blockchain-based networks will one disrupt the established order in the money and capital markets. The joint venture partners behind one regulated digital asset custodian for institutional traders and investors – investment bank Nomura, blockchain technology vendor Ledger and crypto-currency fund manager CoinShares – are certainly betting on that outcome, with the support of some shrewd private investors. Dominic Hobson, co-founder of Future of Finance, spoke to Sebastian Widmann, Head of Strategy at Komainu, about the origins and growth of the firm.

Important Questions asked

1. Komainu was founded in 2018 and emerged in 2020. What happened between those dates?

2. How big is Komainu now (e.g., assets in custody, number of clients, number of employees)?

3. The three parents of the company come from different perspectives: Nomura (an investment IB – where you worked in Digital Assets yoursef), Ledger (a technology vendor) and CoinShares (a crypto-currency fund manager). What was the thinking of each?

4. Does the parentage of the company ever prompt questions from prospective clients about independence?

5. Do you use technologies other than those supplied by Ledger?

6. In March 2021, Komainu raised US$25 million in its Series A funding round from Alan Howard (who is also an investor in Copper), Galaxy Digital, NRI and NOIA Capital. What is the future value they see?

7. Komainu has ISO and ISAE operational certifications. What do these certify?

8. “Built by institutions for institutions.” Your focus is institutional clients but what sort of “institutional” clients (e.g., sell-side firms such as macro traders, hedge funds, DeFi funds, crypto- exchanges or buy-side firms such as private banks, wealth managers, asset managers, corporate treasurers) is Komainu looking to service?

9. How do you on-board institutional clients (i.e., what are your KYC, AML, CFT and sanctions screening processes)?

10. Do you believe digital identities will one day make customer due diligence and on-boarding more efficient?

11. Do you believe binding digital assets to digital identities could replace private keys?

12. Which of the following services do you provide now or intend to provide in the future: issuance; trading (proprietary or for third parties); settlement; custody and asset servicing (e.g., forks, airdrops, dividends, interest)?

13. What safe custody techniques (hot/cold/warm wallets, multi-sig or MPC key shards) and processes are you implementing on behalf of clients or advising them to use?

14. How does a secure digital vault differ from a secure digital wallet?

15. What asset classes are your clients investing in or trading now (e.g., crypto-currencies)?

16. Is the range of crypto-currencies which your clients hold getting broader?

17. Are your clients interested in Non-Fungible Tokens (NFTs)?

18. Are your clients actively investing in or trading Decentralized Finance (DeFi) protocols (e. g. staking their crypto-currency). If so, how are you supporting them?

19. Do you see DeFi as a bubble, a useful set of experiments, or as a new future for finance?

20. Are you custodying security tokens yet?

21. What is your view of the growth potential of the security token markets and which asset classes do you see as the earliest prospects (e. g. equity, bonds, privately managed assets, real estate, less liquid assets)?

22. Security tokens have a high reliance on “smart contracts.” How are you protecting smart contracts from, say, hacking or manipulation?

23. Are you custodying utility tokens or asset-backed tokens?

24. Do traditional custody arrangements offer any advantages that digital custody arrangements cannot (e.g., insurance against loss, transaction netting, securities lending, collateral management)?

25. Do you see the incumbent global custodian banks as competitors or as partners or as future parents?

26. Which firms do you see as your closest competitors in institutional digital asset custody (e.g., Copper, Zodia, Security Trust Company, HEX Trust etc.)

27. You are working with UK police to store stolen digital assets. How did that relationship come about?

28. From which locations are you providing services (I see London, Singapore and the US)?

29. Why did Komainu choose to be regulated in Jersey?

30. Is regulation – in particular, regulatory uncertainty – an obstacle to the growth of your business?

31. What makes Komainu different from its closest competitors (i.e., what are your competitive differentiators)?