On Tuesday

Nornickel, based in Russia, is one of the world’s biggest commodity producers which smelts nickel and palladium and employs over 93,000 people.

Nornickel’s largest shareholders include the Russian oligarchs, Vladimir Potanin and Roman Abramovich. Nornickel, which is quoted on the Moscow and the London Stock Exchanges and has a market capitalisation of over £32 billion, has just announced that it is launching a Digital Asset, backed by palladium.

Nornickel and the German manufacturer, BSAF, have unveiled plans to build one of the world’s biggest factories making electric car batteries (to meet the growing need for such batteries) as more and more car companies produce electric-powered vehicles. These electric car batteries will require ever-increasing amounts of palladium so, by creating a Digital Asset backed by palladium, Nornickel is, in effect, enabling smaller investors as well as institutions trade this commodity 24/7.

According to Bloomberg, Nornickel’s CEO Vladimir Potanin sees the tokenising of contracts as a way of helping to make trading more efficient for buyers, such as car manufacturers which use palladium in their catalytic converters (as well as batteries) and producers like Nornickel. So, if someone commits to buying a certain quantity of the metal and finds they don’t need it all, by tokenising the metal it might be easier to transfer that part of the contract. Currently, it is only gold and silver that are available in a digital format, but It is only logical that there will be many more commodity-backed digital assets in the next year or two.

 

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Last Tuesday

Institutions have historically been required to have assets that they manage on behalf of their clients, and which are held independently by a third party, a custodian.

Deloitte summarises that a custodian’s role is “to safeguard assets” and therefore it is only natural, as banks and asset managers look to invest in Cryptocurrencies and Digital assets, that custody services are being sought.

There is a selection of companies offering custody services such as Bitgo, Coinbase, Digital Asset Custody Company, Gemini, itBit, Kingdom Trust and Xapo. However, these companies are largely unknown by many traditional asset managers. Goldman Sachs and Fidelity are now offering custody services too, but what we are beginning to see are new custody service providers with well-known backers. Most importantly, they have the added protection of having the assets that they look after insured.

Anchorage, having received backing from the legendary Silicon Valley investment firm Andreessen Horowitz, has been offering insurance on all assets that it holds as a custodian. Anchorage has used insurance broker Aon to arrange its insurance cover.  Knox, in which Fidelity invested in 2018, is also offering full insurance on any Digital Assets that it provides custody services for. Knox is based in Canada and has arranged its insurance cover via insurance broker Marsh McLennan. Jennifer Hustwitt, a senior vice president at Marsh, recently commented that “Over the past six months, we have seen a net expansion of insurance capacity as the technology continues to mature and regulatory frameworks emerge.”

The provision of fully insured custodian services will prove to be extremely important if more asset managers are to have greater involvement in Digital Assets.

 

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