Virtual Assets Standards
Table of Contents
1. INTRODUCTION
In the rapidly evolving landscape of blockchain and digital assets, the digital asset custody service providers play a pivotal role in safeguarding the valuable assets of individuals and institutions. As these assets continue to gain prominence, the need for robust asset acceptance policies becomes increasingly essential. Digital asset custody service providers are entrusted with the responsibility of securely storing and managing various digital assets and other blockchain-based assets, on behalf of their clients. Unlike cryptocurrency exchanges, which primarily function as trading platforms, custody service providers focus solely on the safekeeping of these digital assets, resulting in a much lower risk profile.
There are currently hundreds of virtual digital assets prevailing globally. These assets are held by the clients in various modes (hot and cold wallets) based on their risk appetite. Liminal provides custody services to its Institutional Clients by holding and securing their digital assets within its state-of-the-art infrastructure. The security of assets is of paramount importance not only for Liminal but also for the industry.
2. PURPOSE
The purpose of this document is to lay down the procedures to be followed to accept a digital asset for securing within Liminal’s infrastructure and also the criteria for acceptance/removal.
3. CUSTODY MODEL
Qualified (full) Custody – This type of custody refers to the practice where Liminal assumes complete responsibility of storage, management and security of digital assets for its clients.
4. ASSET ACCEPTANCE PROCESS FOR QUALIFIED (FULL) CUSTODY
4.1 Negative list of Assets
As a policy Liminal does not accept to list Privacy tokens and Security Tokens which enhance
anonymity.
4.2 Crypto Currency Assets acceptance:
The asset acceptance process for full custody involves assessing the below criteria:
- Maturity / Market Capitalisation
- Security
- Traceability / Monitoring
- Exchange Connectivity
- Type of Distributed Ledger (DLT)
- Innovation / Efficiency
- Practical Application / Functionality
| Criteria | Description |
|---|---|
| Maturity / Market Capitalisation | The sufficiency, depth and breadth of client demand, the proportion of the Virtual Asset that is in free float, and the controls/processes to manage volatility of a particular Virtual Asset. The factor will also take into account the due diligence on the development team, reputation of the asset and track record. |
| Security | Consideration of whether a specific Virtual Asset is able to withstand, adapt, respond to, and improve on its specific risks and vulnerabilities, including relevant factors/risks relating to the on-boarding or use of new Virtual Assets (including size, testing, maturity, and ability to allow the appropriate safeguarding of secure private keys), screen whether the virtual asset was involved in a security breach which may render the chain insecure, the chain has mechanisms to resolve incidents and failures. |
| Traceability / Monitoring | Whether the organization is able to demonstrate the origin and destination of the specific Virtual Asset, if the virtual Asset is supported by necessary softwares/solutions within the company, if the Virtual Asset enables the identification of counterparties to each transaction, and if on-chain transactions in the Virtual Asset can be adequately monitored |
| Exchange Connectivity | Whether there are (other) exchanges that support the Virtual Asset; the jurisdictions of these exchanges and whether these exchanges are suitably regulated |
| Type of Distributed Ledger (DLT) | Whether there are issues relating to the security and/or usability of a DLT used for the purposes of a Virtual Asset; the type of consensus mechanism, whether the Virtual Asset leverages an existing DLT for network and other synergies; whether a new DLT has been demonstrably stress tested. |
| Innovation / efficiency | Whether the Virtual Asset helps to solve a fundamental problem, addresses an unmet market need or creates value for network participants |
| Practical application / Functionality | Whether the Virtual Asset possesses real world, quantifiable functionality, whether the asset addresses any use cases or enables any real world application. |
5. Procedure of accepting the Assets on the platform:
5.1 ASSESSMENT OF THE ASSETS
The assessment for an asset for its eligibility to be an accepted asset is derived based on all the factors listed above. The assessment and due diligence on the asset proposed to be supported for custody are carried out by the Product team, Technology team, Risk Officer, Operations Officer overseen by the General Manager. In addition to the above assessment factors, FAC considers below while assessing the asset acceptance which are :
- Its design, features, and use cases [whether or not intended by the Issuer or relevant developers];
- Whether there are features which may materially affect First Answer Custody's compliance with applicable laws, Regulations, Rules, or Directives, including but not limited to those relating to AML/CFT, sanctions, securities, intellectual property;
- Regulatory treatment by VARA and other appropriate authorities [including those outside of the Emirate], in particular whether the issuance of the VA has received any regulatory approvals;
- Whether a Virtual Asset is prohibited by VARA or any other appropriate authorities [both inside or outside the UAE] in jurisdictions in which First Answer Custody will provide VA Activities, or equivalent activities, in relation to such Virtual Asset;
- Its future development [e.g. roadmap] as communicated by the Issuer and/or relevant developers;
- Whether it may be susceptible to price manipulation for any reason and relevant mitigations that will be implemented by First Answer Custody;
- Whether potential or actual conflicts of interest may arise should First Answer Custody provide any VA Activities in relation to the Virtual Asset and relevant mitigations;
- The background of its Issuer including, but not limited to, relevant experience in the Virtual Asset sector and whether it has been subject to any investigations or claims in relation to fraud or deceit;
- If the Virtual Asset represents rights to any other assets, the enforceability of such rights;
- First Answer Custody must maintain all records relevant to such assessments for eight [8] years and provide such records for VARA’s inspection upon request;
- First Answer Custody shall notify VARA as soon as possible after becoming aware that a Virtual Asset no longer meets its VA Standards and shall take such steps as VARA may direct to minimize any adverse impact on clients arising as a result.
5.2 ASSET ACCEPTANCE
If the asset meets the criteria in all respects considering the above listed factors, the asset is considered as an acceptable asset. Upon successful review of the asset assessment by all the stakeholders detailed as above an approval is sought from the Senior Management and Board of Directors.
5.3 ONGOING MONITORING
The accepted assets are continuously monitored on a regular basis. Any adverse findings about the chain and/or assets are subject to due diligence to assess any potential risks associated with the instance. The list of assets are reviewed at least once in a year to ensure they continuously meet the acceptance criteria.
5.4 ASSET REMOVAL
The asset may be removed/terminated from the accepted list if:
- The asset no longer meets the acceptance criteria
- The asset is associated with any illegal or fraudulent activity
- The asset issuer fails to meet security or operational requirements
- The asset violates any policies of Liminal
- The objective of the asset is found to be involved with Ponzi schemes, marketing schemes aimed at defrauding the investors or users
- There is any adverse news about the chain or the assets or the team behind the development and issue of the assets
Virtual Asset removal from the system shall also be subjected to the process of internal assessment by the Product team, Technology and, Risk team and Operations teams.
After the due diligence for removal of the asset the same is sent for approval to the Senior Management team and the Board of Directors.
6. ROLES AND RESPONSIBILITIES
CUSTODY OPERATIONS
The Operations Officer is responsible for carrying out the due diligence and asset assessment of all the assets proposed to be supported for custody, along with the Risk Officer, Technology team and GM from the operations perspective and signing the transactions on to the block chain.
RISK OFFICER
The Risk Officer is responsible for carrying out the asset assessment along with Custody Operations, Product and Tech team. The Risk Officer is also responsible for ensuring this policy is fully adhered to.
PRODUCT AND TECHNOLOGY TEAM
The Product and Technology team is responsible for carrying out the asset assessment along with Custody Operations and Risk Officer. The Product and Technology team is also responsible for ensuring the development of systems and infrastructure to extend support for securing the assets accepted for listing on the platform.
GENERAL MANAGER
The GM will oversee the asset assessment carried out by Product and Tech team, Custody Operations, and Risk Officer and ensure the proposed virtual asset makes economic sense for the business.
BOARD OF DIRECTORS
The Board of Directors are responsible to approve or reject the proposed virtual asset. The Board of Directors also provide guidance and direction for asset acceptance.
7. ASSET ACCEPTANCE ON FORK SITUATIONS
A Fork event occurs due to changes in the underlying blockchain protocol which may result in a new Virtual Asset due to functionality changes, improvements or updates. These changes in the blockchain may or may not be supported by a consensus among the nodes/miners who validate the transactions on the blockchain.
A Soft Fork happens when there is a change in the underlying blockchain protocol but blockchain maintains backward compatibility with the older version. These Soft Forks result in technology upgrades and do not result in new Virtual Asset(s).
A Hard Fork happens when the underlying blockchain protocol is changed and is no longer compatible with the older versions, resulting in the splitting of the original blockchain into two or more, thus creating different Virtual Assets.
- Accept new Virtual Asset(s) in addition to the existing Virtual Asset
- Not to accept the new Virtual Asset(s) and continue to support the existing Virtual Asset
- Accept new Virtual Asset(s) and not to accept the existing Virtual Asset
- Not to accept new Virtual Asset(s) and existing Virtual Asset
Acceptance and non acceptance of Virtual Asset(s) are subject to these Policy guidelines. In all fork events the assets are subject to review on the criteria defined and taken for approval or otherwise as the case may be.