A small Calgary-based fintech startup has been granted regulatory approval by the Alberta government to provide custody services of cryptocurrency for institutional investors, effectively making it the first regulated custodian based in Canada that will store digital assets.
Tetra Trust Co. is led by Eric Richmond, who is also the chief operating officer of Coinsquare, a Toronto-based trading platform for digital assets.
The biggest holders of crypto assets in the world are American crypto exchanges such as Gemini and Coinbase. Canadians who invest in crypto on domestic platforms such as Wealthsimple Crypto, for example, technically have their digital assets stored through Gemini, which is based out of New York and ultimately holds the private key to access those assets. Canadian regulators recognize Gemini as a “qualified custodian,” an entity that has been approved by regulators to hold client funds and securities in a secure fashion.
But until Tetra received the green light from Alberta’s Ministry of Finance to launch this week, Canadian investors had no regulated domestic option to store digital assets.
“At the end of the day, with other large custodians like Gemini and BitGo, your assets are being domiciled under the laws of a jurisdiction other than Canada. With Tetra, your assets are protected under Canadian law,” said Mr. Richmond, the chief executive officer of Tetra.
Mr. Richmond told The Globe and Mail that it took more than 18 months to obtain regulatory approval from the Alberta government. Tetra finally obtained its licence to hold digital assets on July 5.
It subsequently announced the closing of multiple financing rounds for an undisclosed amount backed by Coinbase Ventures, the Canadian Securities Exchange, financial technology company Mogo Inc. , venture capital firm Urbana Corp. and Caldwell Growth Opportunities Fund.
The storage and security of cryptocurrency assets is one of the biggest sticking points for governments and regulators as they grapple with ways to effectively regulate an industry that is increasingly flooded with young, often inexperienced investors.
In Canada at least, much of this nervousness stems from the collapse of the country’s largest crypto exchange, QuadrigaCX, in December, 2018 – thousands of investors lost more than $250-million because crypto assets on the exchange could not be accessed after the death of its founder, Gerald Cotten. Quadriga was effectively its own custodian, with digital assets of investors stored in a digital “cold wallet” – encrypted software not connected to the internet – that was only accessible on Mr. Cotten’s laptop.
Tetra has nine employees, but is looking to use some of the funds obtained from investors to expand its work force. Its revenue model, according to Mr. Richmond, is fee-based. Clients who use Tetra as a custodian will have to store at least $1-million worth of crypto, for an agreed-upon fee. Mr. Richmond would not disclose what Tetra’s fees or range of fees are.
Tetra is targeting family offices, mutual funds and stock exchanges as clients. ”We are not necessarily looking for individual high-net-worth clients,” Mr. Richmond said.
There are at least 10 crypto-based exchange-traded funds that investors have access to on Canadian exchanges, all of which use foreign custodians to hold their assets.
The key to Tetra’s success will be, in part, persuading large mutual funds to use Tetra as a custody instead of larger entities such as Gemini. Its first client, however, is expected to be Coinsquare, which uses Coinbase as a custodian.
There are other competitors emerging in the crypto custody space. Last month, Brane Capital, an Ottawa-based fintech company that intended to become the first qualified custodian of digital assets in Canada, announced it would be listing on the TSX Venture Exchange this fall, while actively pursuing qualified custodian status. Brane provides custody solutions for digital assets to entities that are not registered dealers (such as family offices, high-net-worth individuals), and are not obligated to use a qualified custodian.
Another would-be competitor, Calgary-based Olympia Financial Group Inc. , recently backed away from its pursuit of becoming a qualified crypto custodian in Canada, saying there was little “internal risk appetite due to current market conditions.”
Mr. Richmond, however, estimates that the current market for crypto custodial services is in the tens of billions of dollars and aims for Tetra to have more than $1-billion worth of assets under management by the end of 2021.
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Vanmala Subramaniam