The digital assets industry is a revolutionary and emerging market that has taken the world of finance by storm. The exponential rise of digital assets has many causes and one of the main drivers is the high-paced innovation of the industry. This high-paced environment provides investors with interesting investment opportunities and several challenges.
The biggest challenge is the safe storage of assets. As this technology evolves rapidly, things break along the way, frequently leading to loss of funds. Furthermore, due to its complex nature, mistakes are easily made and in a decentralized environment, they are irreversible.
At Hodl, our top priorities are security and reliability, we place the highest importance on safeguarding our participants' funds. To ensure these standards, the Hodl Funds are always seeking the best security practices.
The safest way of storing digital assets is in cold storage, a digitally secure but offline environment. As the core of the Hodl funds are long-term oriented, the majority of the investments are in cold storage. This ensures security as the wallet is not connected to the internet, which makes it impossible for bad actors to access the holdings. This solution is provided 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. Eliminating a single point of failure as a transaction requires two or more signatures to execute.
At Hodl Funds, our investment strategy has a long-term perspective, yet the funds still need to be periodically rebalanced. To execute these transactions, Hodl selectively utilizes tier-1 centralized and decentralized exchanges based on the specific asset or situation.
Centralized exchanges, renowned for their remarkable liquidity and minimal trading fees, are ideal for handling larger fund allocations. In contrast, decentralized exchanges provide the benefits of self-custody and access to assets with lower market capitalization. Our research analysts evaluate the assets, considering factors such as volume and cost-efficiency, before trading on an exchange, including prominent platforms like Binance. Moreover, Hodl actively collaborates with these exchanges to implement tailored security measures, such as the Ceffu Mirror.
Ceffu Mirror is a unique security measure that the holdings of the algorithmic trading bots utilize on Binance. Hodl dedicates a specified amount of assets in a wallet which are mirrored with a 1:1 balance on Binance, the profit/loss is settled at the end of the day. As a result, counterparty risk is minimized as no assets are on the exchange.
The latest implemented security measure of the Hodl Funds is the Ledger Enterprise Tradelink Network. This infrastructure allows institutions to maintain self-custody over their funds while trading digital assets on certain exchanges. The funds intended for use are directed to an escrow account hosted within the Ledger Vault environment.
An analyst can set up triggers for the transaction. Upon receiving confirmation, the escrow account plays a crucial role in facilitating the settlement process between Hodl and the exchange.
The digital asset industry remains largely unregulated which deters some investors from investing. We believe that regulation will aid in mass adoption among the general public and institutions. All the Hodl funds are registered and when possible regulated with the local authorities in various European countries. Therefore, we must comply with current and upcoming European regulations such as the Markets in Crypto Assets Regulation.
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 the Hodl Group as a whole. All the Hodl funds follow a similar structure to preserve the assets of our participants.
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) and Anti-Terrorist Financing laws.
As Hodl Group, we believe in the future of digital assets and blockchain technology. Therefore, our strategies reflect this long-term perspective as our investments are based on the growth of the industry, structured via a bottom-up strategy. The risk appetite of the investor is a crucial component of the different funds as Hodl offers actively managed, ventures and algorithmic