The digital assets industry is a revolutionary and emerging industry that has taken the world of finance by storm. The exponential rise of digital assets has many factors and one of the main drivers is the high-paced innovation of the industry. 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 is our top priority. The Hodl funds maintain the highest standards of security and comply with the latest laws and regulations.
The safest way of storing digital assets is in cold storage. As the core of the Hodl funds are long-term orierented, 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 access the holdings. The technology which secures our funds 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. This way, the wallet requires two or more signatures in order to transact, eliminating a single point of failure.
Digital assets were developed from the idea of maintaining self-custody over your 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 assets. The drawback is that self-custody must be surrendered thus withdrawals need to be approved.
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.
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 asset 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.
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
To limit the impact of the volatile cryptocurrency market, our funds are long-term oriented. 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.