Since its launch in June last year, what has Komainu been working on?
Since opening its top-tier digital asset custody solution services to third-party clients in June of 2020, Komainu has seen significant interest from two types of institutional clients. Institutions with existing exposure to digital assets are looking to mitigate the risks and complexities of having to self-custody digital assets, as well as institutions that have been leveraging an external or vendor solution. These institutions have now realised that Komainu could service their custody needs in a more secure, regulated, and efficient way.
Komainu has also seen significant interest from institutions that do not currently have any exposure to digital assets and are looking for the right partner to help them navigate the digital asset industry. Komainu is an attractive option for these types of institutions. From inception, our goal is to be the trusted partner for institutions wanting to gain access to the digital asset industry in a secure, efficient and regulatory compliant way.
We announced our involvement in initiatives that encapsulate the needs of institutions with and without exposure to digital assets at the beginning of 2021, starting with us being named as the custodian for CoinShares new line of physically-backed exchange-traded products (ETPs). CoinShares is an excellent example of a crypto native company looking to leverage a secure, regulated, and efficient platform to custody the assets backing their ETPs. We also announced that we will be working closely with the National Police Chiefs Council (NPCC) Cybercrime Programme, via a framework agreement. This agreement provides custody services for digital assets seized during investigations, providing an institution with custodial services where they previously did not exist. This framework agreement allows other members of the UK police force that are part of the NPCC to quickly sign on to a similar custody agreement. Both of these initiatives are great examples of how custody services for this nascent asset class can be leveraged by industry veterans and new institutional entrants alike to properly secure digital assets.
In short, Komainu never stops building and is always looking to provide custodial services to institutions of all types. Additional developments will be shared with the marketplace in the near future.
Why was last year the right time to launch a digital asset custody business?
Even though the pandemic has presented significant challenges, it has also accelerated the world economies’ digital agenda exponentially. As such, it has been a landmark year for the acceptance of digital assets among institutions, with new corporate initiatives and balance sheet allocations being announced on a regular basis. This increased acceptance has perfectly primed the marketplace for us. While Komainu officially opened its business to third-party clients in June of 2020, CoinShares, one of the founding partners, has been trialling the system since the beginning of last year. Launching a business and servicing our first client during the escalation of the COVID-19 pandemic battle-tested our operating model. Our systems’ performance proved that Komainu could efficiently operate and service its clients even in the most challenging environments.
Providing excellent service to clients in these challenging times requires effective internal policies and control frameworks, resilient business processes, and an agile and experienced leadership team. These integral aspects for any business looking to succeed were in place prior to the start of the pandemic, fortunately for Komainu. We are confident that the company’s track record throughout 2021 will lay the foundation for Komainu to establish its reputation as a leading digital asset custody solution for institutional investors.
How are you competing with existing larger custodians in this space?
When launching Komainu, the three partners in this venture (CoinShares, Ledger, and Nomura) did not want to create another black box technology solution to market. Instead, they wanted to launch the first regulated turnkey solution for digital asset custody, tailored to meet the specific needs of institutional investors. Komainu fills a gap in a marketplace that was in desperate need of an institutional-grade custody solution that is fully regulated, as existing digital asset custody providers only met a portion of an institution’s needs. These alternative solutions were not tailored to institutional clients’ specific needs. Komainu has been purposely built to be the leading, regulated and institutional focused digital asset custody solution, enabling traditional financial services providers to effectively gain exposure to this nascent asset class.
While Komainu has begun to establish itself as a challenger position amongst more established custodians, in terms of assets under custody, we believe that we are operating in a different segment. Compared to existing custody solutions, we have developed a unique offering that can be tailored to the specific needs of institutional investors and their clients.
What trends are you seeing from clients?
The growing acceptance of digital assets as a bona fide asset class among institutions has been very encouraging. Furthermore, the various developments and discussions around Central Bank Digital Currencies and Security Token Offerings have led financial services institutions, governments, regulators, and central banks to delve deeper into this emerging industry with increased interest. We have also seen the public perception of digital currencies change – from being referred to as ‘currency for the dark web’ in 2015 to ‘digital gold’ in 2020.
This shift in perception is illustrated by established institutions such as MicroStrategy, Square, and Tesla committing a portion of their corporate reserves into bitcoin. This trend is only just beginning. As institutions and corporates become more comfortable with this asset class, they will allocate additional capital to decentralised and immutable digital currencies as a means of portfolio diversification.
Furthermore, we have seen increased experimentation and pilot projects around tokenised assets, ranging from traditional securities to alternative investments such as fine art (NFTs) and precious metals (GoldToken by MKS). Komainu is the ideal partner for institutions wishing to gain access to the digital asset industry and can provide tailored solutions based on a clients’ specific needs.
How do you expect the digital asset space to expand?
The digital asset industry is still in its nascent phase, albeit having gained increased interest from the traditional financial services industry. To date, when you refer to digital assets most people think of bitcoin and other cryptocurrencies, however, Komainu believes in a world where every type of assets can be represented digitally and tokenised on a distributed ledger, thereby creating market efficiencies by reducing frictions and layers of intermediaries. Over the past year, we have seen significant progress being made, from both a regulatory and public perception perspective, to establish digital currencies as the next generation of financial products, signalling the beginning of a shift toward tokenised assets in finance.
What are the biggest challenges right now for this space?
There are various challenges in the digital asset industry, as in any nascent industry, but providing the first regulated digital asset custody solution for institutional investors is an important place to start. This is the foundation layer. We strongly believe that secure and trusted custody lays the foundation for any digital asset strategy and our solution will facilitate the adoption of this new asset class among institutional investors. With the right custody solution, our clients can experiment and innovate in their core businesses while ensuring that their digital assets are secure. Before we see the widespread adoption of digital assets, we will have to address other challenges, including the current lack of understanding and education in this space. At Komainu we will continue working closely with our clients and share our extensive expertise to assist them in their journey into the digital asset ecosystem. Furthermore, the current lack of clear and coherent regulation around digital assets in some jurisdictions is also a challenge. We work closely with regulators and policymakers around the globe to ensure we fully address their concerns, help them understand the unique benefits of digital assets and the underlying blockchain technology to create a regulatory environment that encourages innovation and the acceptance of this new asset class. Lastly, we believe that other areas of the digital asset value chain will have to be tailored to meet the specific needs of institutional clients, something that we are actively working on at Komainu.
What will Komainu be working on for the next 12 months?
Over the next 12 months, Komainu will keep executing and delivering for our shareholders and our clients. We will look to actively scale the business with the goal to create the first global digital asset custody solution. Komainu will continue to actively build its client base and work with specific clients to help them with their initial foray into the digital asset industry.
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