This Custody Disclosure Statement is incorporated by reference into the Risk Statement and Relationship Disclosure Document. All capitalized terms used but not defined in this statement have the same meaning given to them in the Relationship Disclosure Document.

Ndax Canada Inc. (Ndax, we, us or our) is registered in the category of investment dealer under applicable securities laws and is approved to operate an alternative trading system and is a member of the Canadian Investment Regulatory Organization (CIRO).  

Set out below is a description of Ndax’s custody arrangements.

Custody of Virtual Assets Generally

Virtual Assets that you do not withdraw from the Ndax Platform are held by us, or an acceptable third-party custodian, in accordance with the exemptive relief decision Re Ndax Canada Inc. dated Dec 19, 2024 (the Decision Document) (found here). Under the terms of the Decision Document, not less than 80% of Virtual Assets held on behalf of clients are held in cold and warm storage with acceptable third-party custodians that are regulated as trust companies (the Custodians), with the remaining being held temporarily by Ndax, through our own custody solution, in hot wallets in order to facilitate client deposit and withdrawal requests, to facilitate trade settlement with Liquidity Providers and to hold certain of the Stakeable Crypto Assets that have been staked by clients. 

We have the authority to access the Virtual Assets held in cold storage by Custodians for the purposes of settling transactions for our clients. 

Custody of Virtual Assets Held by Third Party Custodians

As set out above, Virtual Assets you do not withdraw from the Ndax Platform may be held by third-party Custodians.  The Custodians operate custody accounts for Ndax to use for the purpose of holding the clients’ Virtual Assets in trust for clients. All Virtual Assets held by the Custodians are held in segregated omnibus accounts in the name of Ndax in trust for or for the benefit of Ndax’s clients and are held separate and distinct from the assets of Ndax, Ndax’s affiliates, and the other clients of the Custodians.

Currently, Ndax uses the following Custodians: 

• Coinbase Custody Trust Company, LLC (Coinbase) – Ndax uses Coinbase for Ndax’s staking offering and cold storage custodial services to securely hold certain client’s Virtual Assets. Coinbase is a New York trust company regulated by the New York State Department of Financial Services (https://www.dfs.ny.gov).

• Tetra Trust Company (Tetra) – Ndax uses Tetra for Ndax’s staking offering and cold storage custodial services to securely hold certain client’s Virtual Assets. Tetra received its Certificate of Registration from the Government of Alberta on July 5, 2021. Tetra is regulated by the Alberta Treasury Board and Finance (the ATBF) (https://www.alberta.ca/treasury-board-and-finance.aspx). Ndax is authorized to use Tetra as a Custodian pursuant to exemptive relief from CIRO’s prescribed acceptable securities location requirements, on the condition that Tetra only custodies regulated Virtual Assets, maintains its good standing status as an Alberta licensed trust company with, and continues to be regulated by, the ATBF, complies with the ATBF capital requirements,  the annual CIRO approval of the extension to the relief granted to Tetra is approved, and the total market value of crypto asset holdings held at Tetra does not exceed an amount specified by CIRO (which will be tested on a bi-annual basis and other conditions imposed by CIRO.

• BitGo Trust Company, Inc. (BitGo) – Ndax uses BitGo for Ndax’s staking offering and for cold storage custody of client’s Virtual Assets.  BitGo is a South Dakota trust company licensed under the South Dakota Division of Banking (https://dlr.sd.gov/banking/banks/default.aspx). Ndax is authorized to use BitGo as a Virtual Asset custodian pursuant to exemptive relief from CIRO’s prescribed acceptable securities location requirements, on the condition that BitGo maintains its good standing under the South Dakota Division of Banking’s requirements, the annual CIRO approval of the extension to the relief granted to BitGo is approved, and the total market value of crypto asset holdings held at BitGo does not exceed an amount specified by CIRO (which will be tested on a bi-annual basis and other conditions imposed by CIRO.

Each Custodian has established and applies policies and procedures that manage and mitigate the custodial risks, including, but not limited to, an effective system of controls and supervision to safeguard the Virtual Assets for which it acts as custodian and to mitigate security breaches and cyber incidents. Each Custodian has established and applies written disaster recovery and business continuity plans.

Each of the Custodians maintains an appropriate level of insurance for Virtual Assets held by the Custodian. Ndax has assessed the Custodians’ insurance policies and has determined, based on information that is publicly available and on information provided by the Custodians and considering the controls of the Custodians’ business, that the amount of insurance is appropriate.

Ndax has conducted due diligence on the Custodians, including, among others things, the Custodians’ policies and procedures for holding Virtual Assets and a review of their respective SOC 2 Type 2 examination reports, and Ndax has not identified any material concerns. Ndax has also assessed whether each Custodian meets the definition of an acceptable third-party custodian.

Ndax confirms on a monthly basis that any Virtual Assets held with the Custodians reconcile with the Ndax’s books and records to ensure that all clients’ Virtual Assets are accounted for.

Custody of Virtual Assets Held by Ndax

As set out above, up to 20% of the Virtual Assets held on behalf of clients are held by Ndax, through Ndax’s custody solution in order to facilitate client deposit and withdrawal requests, to facilitate trade settlement with Liquidity Providers and to hold certain of the Stakeable Crypto Assets that have been staked by clients. 

Virtual Assets held by Ndax for clients are held separate and apart 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 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.

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, Coinbase and BitGo, from theft and Ndax will self-insure the assets held at Tetra.

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 for clients in a separate account with the Alberta Treasury Branch or a Chartered Canadian bank, in accordance with CIRO IDPC rules. The fiat received will be held separately from our assets. We have authority over and access to the fiat held in trust for clients 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 December 19, 2024.