The rapid developments and anonymous nature make the cryptocurrency market challenging to invest in. It is our top priority to provide our clients a safe and secure investment fund.

The Importance of Security

The cryptocurrency market is a revolutionary and emerging industry that has taken the world of finance by storm. The exponential rise of cryptocurrencies has many factors and one of the main drivers is the high-paced innovation of the market. While the infancy of the market provides investors with interesting investment opportunities, it also provides several challenges. One of them is the potential risk that lies in the secure storage of digital assets. As this technology is new, developers need to learn and understand the technology. Due to its digital nature, security often consists of lines of code. As these were created by developers, it is also prone to human error.

At Hodl, security and reliability are of the utmost importance. The safety of our participants' funds are our top priority. The Hodl funds maintain the highest standards of security and comply with the latest laws and regulations.

How do we ensure security?

Cold storage

The safest way of storing cryptocurrencies is in cold storage. As the Hodl funds are long-only, most of our investments are stored in cold storage. This type of storage secures the assets in a digital but offline environment. This ensures security as the wallet is not connected to the internet, which makes it unable for bad actors to retrieve the keys. Our funds are secured by Ledger Vault, the industry-leading solution for cold storage. 

The integration with Ledger Vault’s end-to-end security infrastructure also includes multi-signature wallets. This way, the wallet requires two or more signatures in order to transact, eliminating a single point of failure.

Decentralized Exchanges

Cryptocurrencies were developed from the idea of maintaining self-custody over your own funds while decentralizing financial services. Currently, most of the trading volume takes place on Centralized exchanges as they offer low trading fees and a vast array of cryptocurrencies. The drawback is that self-custody must be surrendered thus withdrawals need to be approved. This goes against the ideology of cryptocurrencies.

To maintain custody over the funds of our clients, Hodl utilizes decentralized exchanges with a proven track record such as Uniswap. This makes it possible to trade the assets without surrendering self-custody.

Centralized Exchanges

There are occasions when we need to use centralized exchanges, for example, when the funds are trading with larger volumes and the decentralized exchange doesn’t have enough liquidity. For these trades, the Hodl funds mainly use Binance as the exchange has published Proof-of-Reserves, evidence that the exchange has sufficient funds to operate and back all deposits. Binance does also have a long track record and offers one of the lowest trading fees. 

On several occasions, we use smaller exchanges, for example, when trading a smaller market capitalization cryptocurrency that has not yet been listed on Binance. In all cases, after the assets have been traded, they are immediately withdrawn and stored in self-custody.

Compliant to the latest regulations

Local registrations

The cryptocurrency market still remains largely unregulated which deters some investors from investing. We believe that regulation can help the market and eventually aid in mass adoption among the general public and institutions. To support this progress, Hodl is registered with the local authorities. For example, the Dutch Hodl funds are registered with the Autoriteit Financiële Markten (AFM), the Dutch supervisor of financial markets. Therefore we must comply with current and upcoming Dutch and European regulations.

Separated financials

To ensure the availability of the customer funds, the assets of the Hodl funds are stored in a separate entity. The funds are therefore not involved with the daily costs of operations and are available for withdrawal by the participant. This legal structure separates the digital assets from any legal and operational issues associated with and Hodl Group as a whole. All the Hodl funds follow a similar structure to preserve the assets of our participants.

AML and Wwft

To preserve the integrity and continuity of the Hodl funds, we follow the necessary steps to identify our participants, also known as Know-Your-Customer (KYC) processes. Besides the identification of participants, we monitor if the funds originate from legitimate sources as we are required to follow the Anti-Money-Laundering (AML) laws and the Anti-Terrorist Financing Act (Wwft).

Our investment strategy

Besides the integrated security measures, we implemented several risk-averse procedures in the investment strategy of the funds. We believe in the future of cryptocurrency, therefore all our positions are long-only with an investment horizon of five years. In addition to the long-only strategy, the Hodl Funds are structured via a bottom-up strategy. The risk-managament strategy divides the assets in the funds into three categories; the foundation with renowned assets, the floor with assets with practical use cases and great potential and the top with more speculative assets.

Due to the risk that is imposed in the volatile nature of the cryptocurrency market, our funds are excluded from leverage trading, short-positions and other derivatives. To generate additional returns, the Hodl Funds utilize specific DeFi services that guarantee the safety of our funds. Hodl does not engage in borrowing, lending or liquidity providing as this can lead to (impermanent) loss of funds. The Hodl Funds only engage in staking at platforms with a solid reputation and in relatively small amounts.