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Digital asset custodian Knøx has raised $8.25 million in a seed round and launched a custody service for insurance institutions and fiduciaries.
The funding round was spearheaded by San Francisco-based venture capital firm Initialized Capital, with participation from Fidelity and iNovia. The funds will reportedly be used to enhance its offerings.
“We raised $8.25 million dollars, particularly because we felt like we needed a margin of safety and we felt that it was important to raise a little bit more perhaps than we felt was necessary to build a service in the first place,” Alex Daskalov, Knøx co-founder and CEO, told BetaKit.
The firm’s products are designed for asset management companies, liquidity providers, and exchanges, particularly addressing the issue of customers’ protection against losses.
“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,” Daskalov said.
Comprehensive Insurance Program
Speaking with The Block, Daskalov said that the firm has been operating “silently” since the round formally closed in June 2018. Now, financial institutions can sign up to Knøx’ services, which reportedly includes up to 100% insurance coverage through its partner and insurance giant Marsh.
“Our custodial service capable of insuring the full value of a customer’s assets,” he told the news outlet.
Most of the time, insurance policies cover crypto assets that are shared across several clients of a custodian. For instance, a custodian owning $1 billion in assets and advertising a $100 million insurance policy may only be 10% insured. This means if the customer were to experience a total loss of $100 million, then they would only be reimbursed $10 million. Daskalov argued such case gives clients “a false sense of security.”
“Often we see people purchase an insurance policy and then hold in the aggregate funds well above the limit of that insurance policy. So for us, it was an important guarantee that when a customer is on-boarded to our platform, the full value of their assets is insured,” he told CoinDesk, while making clear that the cover is not limitless and hinting that there is “an upper ceiling” without going into details.
The firm is currently offering insured cold storage custody service, and it charges its customers a fee based on their asset held under custody and the insurance allocation they opted.
Earlier this month, crypto futures platform Bakkt announced that the bitcoin deposited at its regulated custodian, Bakkt Warehouse, is protected by a $125 million insurance policy.
