Custody Agreement
This Self-Custody Disclosure Statement is provided to you in accordance with the terms of the PRU, and is incorporated by reference into the Risk Statement and Relationship Disclosure Document.
Ndax Canada Inc. (Ndax, we, us or our) is currently operating under a pre-registration undertaking (PRU) dated March 24, 2023 (found here) that it signed in favor of the Alberta Securities Commission and the other members of the Canadian Securities Administrators. Under the terms of the PRU, Ndax is permitted to custody those crypto assets that you own that (i) are not themselves securities or derivatives (Crypto Assets) or (ii) are designed to maintain a stable value over time by referencing the value of a fiat currency or any other value or right, or combination (referred to as Value-Referenced Crypto Assets, and together with Crypto Assets, the Virtual Assets) that are available on our crypto trading platform (the Ndax Platform), rather than using the custodial services of a third-party custodian, until the earlier of (i) the launch of Ndax Trust Co., an affiliated Alberta trust company and (ii) March 24, 2024. Set out below is a description of Ndax’s custody solution.
Custody of Virtual Assets Generally
Virtual Assets that you do not withdraw from the Ndax Platform are held by us in an account that is clearly designated to be for the benefit of, or in trust for, our clients. This account is separate from Ndax’s assets, the assets of our affiliates, and the assets of any third party that we have retained to provide our custodial service to you. We ensure that our records relating to the Virtual Assets that we custody are accurate and complete. Other than Crypto Assets that you may stake under the staking services that we offer (the Staking Services), we do not pledge, re-hypothecate, or otherwise use your Virtual Assets. By holding your Virtual Assets in this manner, Ndax has made them as bankruptcy-remote as possible. However, please note that bankruptcy legislation in Canada does not address the treatment of Virtual Assets, so the impact of any applicable bankruptcy event is, as yet, undetermined.
Ndax utilizes state-of-the-art security systems for its custody solutions, including numerous internal controls, systems, and safeguards, to ensure that your Virtual Assets are safe and securely custodied, and protected against cybersecurity, third-party fraud, or related custody risk. Such measures include but are not limited to, risk management technology and tools, order management systems, internal controls and systems, extensive background checks, hiring and screening processes and procedures, limiting access to information to only key individuals, segregated bank accounts held in trust at regulated financial institutions for clients’ fiat balances, the use of third-party technology solution providers for wallet infrastructure and custody services, including cold, hot and warm storage solutions, geographically separated secure deposit of private keys, tamper-proof private key management systems, multi-party computation, multi-signature technology and, safeguards against single point of failure risk. While Ndax works diligently to ensure all custody-related risks are mitigated, we cannot guarantee a disruption-free trading platform. Disruptions to the operations of the Ndax Platform could result in investor losses or delays when executing transactions or withdrawing Virtual Assets.
As part of our custody solution, we use third-party technology solution providers that provide their wallet infrastructure services to Ndax and have no access or control over your Virtual Assets. We have conducted extensive due diligence on each of our third-party technology solution providers, which included, among other things, a review of all relevant agreements, policies, and procedures, external and internal reports, and other applicable documentation, and have not identified any material concern.
In addition, each of our critical third-party custody infrastructure technology providers arranges for an annual Service Organization Controls (SOC) 2 Type 1 or SOC 2 Type 2 report or an equivalent, which we obtain and review to ensure that all necessary complementary entity controls are in place and operate effectively.
We hold a majority of the total value of all Virtual Assets held on behalf of clients in cold and warm storage, with the remaining being held temporarily in hot wallets for immediate trading and/or withdrawal. We have the authority to access the Virtual Assets held in the cold storage for the purposes of settling transactions for our clients. A hot wallet is required for trading, withdrawal, and other liquidity purposes and provides you with the ability to withdraw your Virtual Assets without delay.
Ndax maintains crime and financial institution bond insurance for the Virtual Assets held in our self-custody solutions, consisting of an aggregate of at least CAD$1,000,000 in insurance coverage. This bond covers for losses of Virtual Assets held by us on your behalf, whether due to third-party hacks, insider theft, dishonest acts by our employees or executives, or loss of private keys. Ndax also has access to the insurance held by its custody technology providers.
As with any asset that is not in your complete control and possession, you are exposed to the risk of loss in the event of fraud, willful or reckless misconduct, negligence, or error on the part of Ndax or its personnel. While Ndax has insurance, there is no guarantee that such insurance will be adequate to protect you against such loss. There is also a risk that you will not be able to successfully obtain possession of your Virtual Assets, and a risk that the Virtual Assets custodied by Ndax will not be sufficient to ensure that you receive the value of your Virtual Assets.
To partially address this risk, Ndax is required to obtain an annual SOC 2 Type 2 report that covers, among other things, our custody solutions, and such a report must not identify any material concern.
Custody of Staked Crypto Assets
All staked Crypto Assets remain in the possession, custody, and control of Ndax at all times.
Unless you remove Crypto Assets from the Staking Services prior to the expiry of any applicable lock-up period, we hold staked all Crypto Assets in one or more omnibus staking wallets in our name, separate from those Crypto Assets held for you that you have not agreed to stake.
In the event of the bankruptcy or insolvency of any of Ndax or the applicable validator, Ndax, to the extent permitted by applicable law, will assume, and will not pass to you, any loss arising from slashing or other penalties because of the performance or non-performance of the validator.
Custody of Fiat
When you purchase Virtual Assets through the Ndax Platform, the purchase funds must be sent using one of the payment methods listed on our website, such as e-transfer, or wire transfer, and the fiat received will be held segregated in trust for clients in a separate account with the Alberta Treasury Branch or a Chartered Canadian bank. The fiat received will be held separately from our assets. We have authority over and access to the fiat held in this account for the purposes of settling transactions for our clients and collecting transaction fees payable to us. Providing Ndax access to fiat exposes the client's assets to the risk of loss in the case of fraud, willful or reckless misconduct, negligence, or error of Ndax or its personnel or third parties.
Last Updated on June 14, 2023