Description of Proposal
Currently, the assets backing AMKT are permitted to be stored in a single custody account by the AMKT DAO Service Entity (Battery Labs). That custodian is currently Coinbase Custody Trust Company, LLC (“Coinbase”). This concentration of assets in a single custodian represents a potential risk; for example, if support for any of the underlying AMKT assets were to be discontinued, AMKT could be negatively impacted.
The proposal has been created on the premise that AMKT should have a fallback custodial account created by the Service Entity, so that should such an outage event arise the Service Entity, and by extension the DAO, will be adequately prepared for a custodian migration.
This proposal permits the AMKT Service Entity to switch, at its election and in its discretion, the custody provider of the assets underlying the AMKT token. If approved and implemented, this proposal would permit the AMKT Service Entity to engage additional custodians going forward in a time and manner that the Service Entity determines is appropriate. This means that:
- A different custodian (or custodians) will hold the underlying assets; and
- A different platform (or platforms) will be used to buy and sell the underlying assets in connection with redeeming AMKT and rebalancing / reconstituting the AMKT index.
If approved by the AMKT DAO, the service provider would make this transition upon the occurrence of one of the conditions described below, using an appropriate timeframe as determined by the service provider.
Rationale
Coinbase currently serves as the custodian to the underlying assets for AMKT. This is a single point of failure that presents operational risk to AMKT, and an adverse event that impacts Coinbase Custody or any of the underlying AMKT assets could negatively impact AMKT. This proposal permits the service provider to switch, at its election and in its discretion, the custodian to provide a fallback option to mitigate the adverse impact of such an event.
Proposed Changes
I’m proposing to amend the Working Constitution to permit the service provider to move the custody account to a different custodian in the event that one of the following enumerated events occurs:
- Custodian raises its fees for its services to a level that materially changes the service provider’s operating economics and, by extension, the fees paid into the AMKT network;
- Custodian no longer supports some or all of the underlying AMKT assets;
- Custodian no longer supports the service provider as a customer;
- Custodian no longer supports the geographic jurisdiction in which the service provider is located;
- Custodian faces a security risk, insolvency or some other material operational threat;
- Custodian’s licensing or regulatory status changes in a way that materially alters its business; or
- An event occurs that, in the service provider’s determination, would materially impact the ability of the custodian to safely and efficiently support the underlying AMKT assets.
Custodian Selection Considerations:
Reputation and Regulatory Status: The proposed custodian should be recognized in the crypto-asset industry as a reputable and properly licensed participant with no legal or regulatory issues, either current or imminent, that could materially impact its business. The proposed custodian should be incorporated in, regulated by, and/or operate out of a jurisdiction that has adopted a clear and supportive crypto-asset regulatory framework.
As part of its selection of a new custodian, the service provider will determine that the reputation and regulation of the proposed custodian is comparable to the functionality offered by the current custodian.
Functionality: The current Custodian offers both custody services and trading support for the assets underlying AMKT, which facilitates the AMKT creation and redemption process, and the AMKT re-balancing and re-constitution process. The proposed custodian should support all of the assets that constitute the AMKT index, and offer sufficient API and other technical support to the service provider and to AMKT users that may interact with the custodian and its services.
The service provider will attempt to select a custodian whose functionality is comparable to the functionality offered by the current custodian.
Cost: The proposed custodian’s fees should be comparable or superior to the fees of the current custodian and should not materially impact the service provider’s current operating economics. If the fees of the proposed custodian are materially higher, the service provider still may select the proposed custodian if other considerations are met, such as functionality or network security.
The service provider will attempt to select a custodian whose fees are comparable to the fees of the current custodian and will not materially impact the service provider’s operating economics.
Network Security: The proposed custodian should offer network security that is comparable or superior to the network security of the current custodian.
The service provider will attempt to select a custodian whose infrastructure and procedures provide a comparable level of network security to the current custodian.