Knøx, a Monreal-based digital asset protection startup, has raised an $8.25 million seed round and is launching a digital asset custody service for institutions and fiduciaries.
The funding round was led by Initialized Capital, which was Coinbase’s first investor, with participation from iNovia and Fidelity. The startup targets asset managers, liquidity providers, and exchanges, aiming to protect clients against losses, including both external theft and internal collusion. The investment will be used to further build out the company, and optimize Knøx’s offering.
“Entities who have their digital assets managed by a third party deserve the right to insurance.”
“Entities who have their digital assets managed by a third party deserve the right to insurance,” said Alex Daskalov, co-founder and CEO of Knøx. “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.”
The Knøx insurance program was developed alongside Marsh, an insurance broker and risk adviser. The startup is attempting to address the potential counterparty risk that can arise from financial institutions gaining increased exposure to digital assets and limited insurance policies surrounding those assets.
Founded in 2017, Knøx aims to provide insurance coverage for 100 percent of asset values held in its custody. The startup’s custodial solutions were designed on the foundation of risk management principles and security controls. This approach has enabled the company to gain access to broader insurance coverage with larger limits and lower rates for its clients.
“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,” Daskalov told BetaKit.
The foundation of Knøx is the lack of a sufficient amount of risk management applied to institutional clients looking to enter the digital asset space. After some time operating quietly with a number of early prospects, Knøx was ready to open the doors to anyone wishing to enter the digital asset space.
“We had to spend a whole lot of time understanding the insurance industry, speaking to a lot of insurers, and finding ways in which we can actually get them to wrap their heads around what it means for this stuff to actually even be stolen before we could produce an insurance policy for that,” Daskalov said. “We spent many years understanding [the] insurance industry as it exists, then building the service, and then actually demonstrating the efficacy of the controls that we have put in place to prevent the theft of Bitcoin.”
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Over the last year, Knøx has been focused on operations, strategic partnerships with financial institutions, insurance underwriting, and passing security audits for its core technology.
“It’s extremely difficult for customers to detect and evaluate the risk exposure these problems create for them and this provides a false sense of security,” said Garry Tan, managing partner of Initialized Capital. “There is a growing appetite for more comprehensive insurance policies covering digital asset custody. Knøx brings peace of mind to responsible entities that are exposing capital to this nascent digital asset class.”
Knøx is now unveiling its custody product to institutions as part of an early access program. Clients can access their Knøx custody account with a dedicated terminal via a secure end-to-end system.
“We really looked at this problem and said, if we needed to do something like store, say, a quarter of a billion dollars in Bitcoin with some entity, what would we expect from an insurance policy so that we could actually gain confidence with that company,” Daskalov said. “We designed the insurance policy with that in mind.”
Image courtesy Knøx