Particula - STEP Program Manager Application

I. Applicant information

Name: Particula GmbH

Address (Headquarters): Reinachstraße 57

City, State, Postal Code: Munich, Bavaria, 80995

Country: Germany

Website: https://particula.io/

Primary Contact Name: Timm Reinsdorf

Title: Managing Director

Country: Germany

Email, Telegram, Forum, & other methods of contact: timm.reinsdorf@particula.io (TG: @treinsdorf)

II. Applicant Details

1. Please describe your company

At Particula we are the leader in analytics and quality assessment for digital assets, significantly reducing due diligence times by over 90% and effectively mitigating crucial operational risks for financial leaders.

Our platform offers next-generation ratings and comprehensive analyses across technical, economic, environmental and compliance dimensions. This ensures that our clients - keen on investing, launching or benchmarking digital assets - gain instant security, enhanced market access, and clearer insights. With on- and off-chain data aggregated from diverse sources and presented through a user-friendly web application, alongside API delivery, Particula equips investors to transform their investment strategies and streamline operations.

Unique Selling Proposition (USPs):

  • Comprehensive Token Services: In-depth analytics and robust risk ratings across diverse asset classes and token types, paired with simplified, fast-track due diligence and classification framework for new assets.

  • Automated Technical Due Diligence: Real-time on- and off-chain analytics with a strong focus on smart contract, blockchain ecosystem and platform technology risk assessment.

  • Regulatory and Trading Insights: Detailed, up-to-date regulatory framework information and comprehensive insights into trading venues and service providers.

  • Customized Risk Management: Tailored monitoring, including early risk alerts, with comprehensive risk coverage addressing price volatility, technology, counterparty reliability, regulatory changes and smart contract functionalities.

  • Unique Asset Identification and Settlement: Utilization of unique token identifiers for precise asset monitoring, classification and automated settlement processes (International Token Standardization Association, ITSA and Digital Token Identifier Foundation, DTIF).

  • API Integration and Usability: Seamless data integration through a user-friendly API, datafeed and platform design, ensuring efficient access and utility.

2. Please give a bio of key team members and their relevant experience. Also mention the name and bio of the point of contact that will engage with Arbitrum DAO if selected. References are encouraged

Timm Reinsdorf, Managing Director: Former Big 4 auditor and management consultant for digital asset adoption, certified blockchain & DLT manager from the Technical University of Munich, with 6+ years of experience in finance, specializing in digital asset regulation.

Peter Golder, Executive Chairman: Former head of group digital assets at LSEG and CCO at Six Digital Exchange, co-founder & CEO of Euroclear Information Solutions and 776 Capital, with 25+ years of experience in capital markets.

Raveena Perera, Research Analyst: Former Moody’s credit risk analyst with 5+ years of experience in conducting in-depth research across various business units specialized in financial services and blockchain technology.

Carsten Hermann, Chief Technology Officer: Serial entrepreneur & board member of Entrepreneurs’ Organization, with 15+ years of leadership experience in tech companies, driving innovation in the blockchain space since 2017.

Axel Jester, Senior VP Business Development & Commercialization: Former managing director of Thomson Reuters DACH and Europe East, executive director at IBM, head of sales Europe at WM Group and vice president at JP Morgan Securities, with 35+ years of experience in tech and capital markets.

Nadine Wilke, Chief Growth Officer: Former scale-up executive with 4+ years of experience in business and product innovation, as well as product marketing and communication strategies.

Roman Werner, Product Owner AI & Data: Former head of AI and data science at IBM, with 17+ years of experience in digital strategy and AI-powered operations and transformations, IT asset management as well as process automation.

Peter Kleinschmidt, Internal Auditor: Former partner, accountant and tax advisor in PwC’s Financial Services Assurance department, with 30+ years of experience in audits of banks and securities trading organizations with a focus on IT and process assessments.

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3. Total team size

In addition to the core team listed, our entire operations team comprises a total of 15 professionals. This includes a rating specialist, two research analysts and a partnership and marketing specialist. Additionally, we have a dedicated team of developers skilled in both frontend and backend development, who manage our cloud-based infrastructure and excel in Python-based data modeling, processing, and analysis. Their expertise extends to leveraging large language model (LLM) data preparation and training. Furthermore, the team has extensive experience in smart contract development, blockchain-based data analysis as well as financial data integration.

4. Number of Years in Operation

Particula has been in operation for 2 years. The respective legal entity was founded in January 2023.

III. Applicant Performance

5. Past experience if any for performing each of the roles and responsibilities described in the appendix (Divide your answer into three sections corresponding to the 3 parts in the appendix).

Cashflow & Accrual Monitoring:

Our team offers extensive expertise in financial operations and digital asset management, which are critical for robust cash flow and accrual monitoring. With a background in leading firms such as the Big 4 audit firms and other major financial institutions, our professionals excel in managing initial capital contributions and redemption activities. Their skills in overseeing complex financial transactions are well-developed, based on the experience at globally renowned entities including LSEG, Six Digital Exchange and JP Morgan.

These capabilities are further enriched by their knowledge of financial analysis and reporting in various market conditions gained in strategic roles at institutions such as Moody’s and Thomson Reuters. This ensures careful alignment with service provider documentation, critical to maintaining the financial integrity of the DAOs treasury.

Underlying Asset Monitoring:

The core team has sophisticated expertise in market analysis and asset management, gained through strategic and executive roles at top-tier financial institutions. Backed by experience from leading asset management and digital trading platforms our professionals are adept at validating diverse asset allocations and ensuring alignment with the expected risk profiles.

The team’s capabilities in financial and risk analysis are further evidenced by their previous analytical roles and through former financial projects that involved complex data assessments and scenario planning. These experiences enable our team to perform comprehensive portfolio reviews and precise risk analytics, essential for accurate reporting on service providers’ underlying assets and reserves.

Operations & Counterparty Monitoring:

Our team possesses a robust foundation in operations management and compliance, developed within highly regulated environments. This collective expertise enables them to excel in monitoring and managing operations and counterparties. Their experience in implementing comprehensive internal controls and overseeing corporate compliance across various markets equips them to handle complex financial and audit reports efficiently, ensuring transparency and adherence to stringent regulatory standards.

Furthermore, their leadership roles in driving digital and operational transformations, particularly in managing changes within service provider structures such as custodian or broker adjustments, enhance our operational resilience. The team’s strategic execution capabilities, honed in settings that required meticulous operational oversight and sophisticated strategy implementation, ensure the rigorous administration of redemption tests and effective communication within complex governance frameworks.

This depth of experience underscores our team’s capacity to manage and monitor operations effectively, maintaining the operational integrity and responsiveness essential for the DAO’s objectives. Their combined backgrounds in financial services, technology and compliance management ensure that our operational processes align with the highest standards of efficiency and regulatory conformity.

Sample Projects & Previous Experience:

Timm Reinsdorf, Managing Director:

KPMG: Conducted annual audits of capital management companies, small partnerships and corporations as well as audits of asset statements and annual reports in the areas of asset management and private equity.

GFT: Provided technical and implementation consulting for banks and asset managers on digital asset adoption, focusing on financial market regulation. Accompanied projects to develop decentralized banking infrastructure and the tokenization of alternative investments.

Peter Golder, Executive Chairman:

Euroclear Information Solutions: Co-founder & CEO, led initiatives to increase efficiencies and promote liquidity in global fixed income markets.

776 Capital: Founder & CIO, managed the development of quantitative investment products for professional investors with a specific focus on asset class volatility, enhancing risk assessment and investment strategies.

Six Digital Exchange: Former CCO, engaged in the development of regulated, fully integrated digital trading, settlement, and custody infrastructures for digital assets.

LSEG: Led digital assets activities and crypto mandates of the group, focusing on strategic investments and ecosystem development.

Raveena Perera, Research Analyst:

Moody’s: Specialized in financial services and blockchain technology; conducted in-depth credit risk analyses.

Blockpit: Compiled comprehensive quality and tax reports on market conditions and opportunities for digital assets, using advanced data analytics tools.

Axel Jester, Senior VP Business Development & Commercialization:

Thomson Reuters: Managed complex financial transactions and regulatory technology, including trading platforms and data monetization, overseeing country operations in Germany and Switzerland. Additionally, held leadership roles in account management and drove sales growth across Europe.

JP Morgan: Held significant roles in institutional equities sales and TMT equities research and sales, dealing with hedge funds and global institutional asset managers.

WM Group: Building and operating of complex regulatory digital platforms connecting several hundred global financial institutions (settlement, custody, asset management) in the areas of Shareholder Rights Directive II, PRIIPS and Legal Entity Identifier.

Roman Werner, Product Owner AI & Data:

IBM: Head of AI & Data Science for Strategy & Operations; led AI-powered transformations and IT asset management for outsourcing clients. Focused on automating business operations and digital strategy within financial and operational frameworks.

Peter Kleinschmidt, Internal Auditor:

PwC: Former partner, accountant and tax advisor in PwC’s Financial Services Assurance department, with 30+ years of experience; led audits for large banking groups and their asset management companies as well as for securities trading institutions, focusing IT-risk management, governance, compliance, third-party services, processes and internal controls as well as anti money laundering.

6. Describe any conflicts of interest your entity, its investors or key personnel may have with any potential service providers selected under the program

As part of our due diligence process and commitment to uphold the highest standards of integrity and transparency, we have conducted a thorough review of potential conflicts of interest concerning our entity, its investors, and our key personnel in relation to any service providers considered under the program.

Our investigation includes examining the personal and financial relationships that our staff, management and major investors might have with potential service providers. To date, our internal audits and declarations collected from relevant parties have not identified any conflicts of interest. All our team members and investors have confirmed that they do not hold any direct or indirect financial stakes, employment relationships or contractual engagements with the prospective service providers. We maintain rigorous policies to avoid any conflicts of interest, including routine disclosures and a strict ethical code that mandates reporting of any potential conflicts.

We are prepared to provide affidavits and further documentary evidence to certify the absence of conflicts, ensuring full compliance and transparency in our engagement with selected service providers.

7. Under what situations would you make a recommendation for Arbitrum to withdraw its assets from a selected service provider to fulfill each aspect of the outlined scope in the appendix?

To ensure a robust and tailored recommendation for potentially withdrawing Arbitrum’s assets from a service provider, it is imperative to conduct a thorough and balanced analysis of the DAO’s investment objectives and requirements. This process involves developing a customized risk-return profile for the DAO, which will serve as a foundational element in setting customized red flag indicators and thresholds across the relevant areas outlined in the appendix.

Drawing on industry standards and leveraging our Digital Asset Risk Rating Framework, we propose the following key considerations for decision-making:

1. Cashflow & Accrual Monitoring

Recommendation for Withdrawal:

Initial Capital Contribution and Redemption Tracking: Initiate an inquiry if discrepancies or delays exceed 7 business days and recommend withdrawal if no satisfactory resolution is reached within an additional 7 days, considering the impact on cash flow and operational needs.

Interest Accrual or Payment Tracking: Trigger an alert if deviations from expected payments exceed 3% and initiate a formal review at 5% deviations, considering both the frequency of these occurrences and their financial implications on the DAO’s treasury.

Interest Payment Frequencies: Recommend reassessment of the service provider if mismatches between actual and documented payment frequencies occur more than once in a fiscal quarter, taking into account the provider’s explanations and the consistency of their communication.

2. Underlying Asset Monitoring

Recommendation for Withdrawal:

Asset Allocation Compliance: Alert if non standard assets exceed 5% of total portfolio and recommend withdrawal if the issue is not rectified within one month, considering the risk exposure and potential impact on the DAO’s investment strategy.

Portfolio Reporting: Implement quarterly reviews if reports are inaccurate or delayed by more than 10 days; recommend withdrawal if inaccuracies persist in subsequent reports or if the provider fails to meet the corrective actions agreed upon.

AuM Reporting: Conduct a review if the percentage of the product’s AUM pertaining to Arbitrum’s investment is inaccurately reported by more than 3% and recommend withdrawal if such inaccuracies occur twice within a year.

3. Operations & Counterparty Monitoring

Recommendation for Withdrawal:

Audit and Financial Reporting: Recommend withdrawal if financial and audit reports are not submitted within 15 days of the due date or if two consecutive reports fail to meet transparency standards, considering the operational risk and potential financial implications.

Service Provider Changes: Recommend an operational review if there are significant changes in key operational roles or management more than once in six months and consider withdrawal if these changes lead to a decrease in service quality or increased operational risk.

Material Changes in Terms: Recommend a strategic review if material changes are not communicated at least 30 days in advance or sooner if negative impacts on the DAO’s operations are anticipated.

Redemption Tests (Fire Drills): Recommend withdrawal if more than one test in a 12-month period fails to meet the agreed-upon timelines, especially if these delays could significantly impact liquidity.

4. Strategic Communication and Documentation Oversight

Recommendation for Withdrawal:

Governance Forum Communication: Recommend procedural adjustments if responses to significant inquiries take longer than 48 hours without adequate justification, considering the quality and effectiveness of communication in maintaining trust with stakeholders.

5. Additional Considerations for Potential Withdrawal:

Beyond the areas outlined in the appendix, it is crucial to consider further dimensions in any decision-making process concerning the potential withdrawal of allocated capital. The following areas are based on our practical experience, particularly important to evaluate, for which we as program managers can also provide additional quantified materiality thresholds in future collaboration.

a) Regulatory Compliance:

Continuously monitor the regulatory compliance status of the issuer in their home country, target markets and concerning investments by the DAO. Include an assessment of any emerging requirements such as new licenses or permits that may impact the viability of the investment.

b) Market Presence and Reputation of the Service Provider:

Assess the market presence, reputation and strategic orientation of the service provider. Consider the risks of reputational damage through detailed reviews of stakeholder engagement, transparency and the background of the corporate structure and its related entities.

c) Risk Management and Internal Controls of the Service Provider:

Review the robustness of the issuer’s existing risk management processes and the effectiveness of their internal controls. This should include an evaluation of how these processes integrate with the DAO’s risk management framework.

d) Operational Resilience, Governance, and Security:

Analyze the operational resilience, governance structures and security measures of service providers, especially regarding disaster recovery, business continuity plans and ongoing security protocols.

e) Custody Solutions and Competitive Analysis:

Evaluate existing custody solutions with a focus on license compliance, insurance coverage, asset segregation and technical security. Perform a competitive analysis to ensure these solutions meet the highest industry standards.

f) Third-Party Interactions and Pricing Mechanisms:

Scrutinize interactions with third parties, such as the use of external data (Oracle) for token pricing mechanisms and the implications of functionalities like rebasing on pricing stability. This should include comparisons with established public pricing resources.

g) Code Integrity and Functionality:

Assess code integrity risks, especially in terms of the roles assigned to internal and third-party functions within the token’s operational framework.

h) Liquidity and Trading Patterns:

Monitor liquidity and trading patterns for signs of bottlenecks or manipulated volumes, such as unexplained spikes or declines in trading activities, which can indicate underlying issues.

i) Investor Structure and Concentration Risks:

Analyze the distribution of token holders and wallet concentrations to identify clumping risks that could affect liquidity and market stability.

j) Legal Liabilities and Challenges:

Evaluate the exposure to potential legal liabilities that could arise from multinational legal interpretations or limitations within the service provider’s terms and conditions. This includes a review of jurisdictional risks and the legal structure of contracts.

k) Ownership and Valuation of Assets:

Verify ownership rights associated with tokens, particularly how they relate to underlying assets and their valuation. Perform correlation analyses to ensure the token’s value accurately reflects the underlying asset’s fair value.

l) Performance Benchmarking:

Develop and maintain an index for active benchmarking of service providers to identify performance deficiencies and guide strategic portfolio rebalancing.

8. Please list any experience your firm has in working with decentralized organizational structures

To date, there is no project-related experience in working with decentralized organizational structures.

9. What is the value of assets monitored by your entity?

As of 14 May 2024, our entity is responsible for monitoring tokens across more than 20 asset classes, with a total market capitalization of USD 7.7 billion.

10. Can you explain how risk management (investment and operational) is being done for assets under monitoring?

Our risk management process is designed to safeguard the integrity and enhance the value of assets under our monitoring, incorporating both automated systems and manual oversight to ensure comprehensive coverage.

Automated Monitoring and Alerts:

We utilize sophisticated software systems to continuously monitor a wide range of on- and off-chain metrics across the assets and the service providers we are monitoring. Our sources include both public and private data - ranging from websites and third-party data providers to tracking transaction volumes, asset allocations and smart contract activities. Monitoring occurs event-based or in real-time. Automated alerts can be configured to notify management teams if certain predefined thresholds are breached. We also enforce predefined risk limits and controls, such as maximum exposure limits for specific asset classes or individual investments, to prevent excessive concentration risk. This automation enables the DAO to respond quickly to potential issues, reducing the latency between detection and action.

Manual Assessments and Reviews:

Alongside our automated systems, our risk management process relies on manual assessments conducted by our experienced analysts. These assessments include detailed reviews of financial and audit reports to verify accuracy and compliance with transparency standards. Scenario analysis and stress testing are also conducted to evaluate potential investments under various market conditions. Manual oversight extends to evaluating the effectiveness of internal controls at the issuer or service provider level, ensuring they align with our stringent requirements.

Compliance and Regulatory Monitoring:

Our risk management includes a strong focus on compliance and regulatory adherence. We regularly review the regulatory compliance status of all issuers and service providers in relation to their home countries and target markets. This process involves assessing any new licenses, permits or regulatory changes that might impact the viability of the investment or its operational framework. Our compliance efforts are strengthened by continuous monitoring of legal changes in 30+ countries, ensuring our information remains current with the latest regulatory developments.

Information Security:

Our information security, based on SOC 2 and ISO 27001 principles, emphasizes the implementation of comprehensive controls and policies to safeguard data and ensure the confidentiality, integrity and availability of information systems. We’ve implemented access controls, encryption and regular monitoring, to protect against unauthorized access and data breaches.

Strategic Reviews and Counterparty Analysis:

We conduct strategic reviews that encompass market presence, reputation, operational resilience, governance and security assessments of service providers. These reviews help us evaluate potential risks from changes in key operational roles or management within service providers that might affect service quality or increase operational risk.

Disaster Recovery and Business Continuity:

Operational risk management also involves detailed planning and testing of disaster recovery and business continuity strategies. This process includes analyzing data from ‘fire drills’ conducted by the service provider to evaluate the efficacy of these plans. Such testing ensures robust data recovery capabilities and operational resilience under adverse conditions.

Integration with Internal Controls and Adjustments:

The insights gained from both automated and manual monitoring are integrated with our internal control systems. This integration allows us to make informed decisions and adjust our risk management strategies dynamically. Regular internal audits are conducted to evaluate and enhance these processes, ensuring that our thresholds and triggers in our automated systems are appropriately set based on the requirements of the DAO, evolving risk landscapes and internal audit feedback.

Reporting and Documentation:

Detailed documentation is maintained for all risk management activities. This includes documenting the rationale behind each decision made in response to alerts, discrepancies or any other issues identified during monitoring. Regular reports are generated and disseminated to relevant stakeholders, providing transparency and facilitating ongoing evaluation of our risk management effectiveness.

We refer to section 11 for further information on the preparation of reports.

Stakeholder Engagement and Communication:

Maintaining open channels of communication with all stakeholders, including timely responses to inquiries and concerns, is pivotal. This ensures that all parties are aligned and informed about the governance and risk management measures in place. The frequency and channels of communication can be individualized based on needs and requirements of the DAO. In addition Particula has implemented appropriate deputization rules for key personnel.

A comprehensive flow chart for our risk management process can be found here:

Proposal - Risk Management Process Flow

11. Describe the content, format and preparation process of performance reports. This should include details of interest earned and status of total assets. Provide a sample if available.

Performance reports are designed to provide comprehensive insights into the performance of investments, detailing interest earned and the status of total assets. The aim is to ensure that all relevant stakeholders are well-informed, enabling effective decision-making and ongoing management of the DAO’s investment portfolio. In this regard the reports can be tailored to meet the specific needs of the DAO, offering flexibility in both format and delivery method:

Content: Each report can include detailed breakdowns of interest earned over the reporting period and a current assessment of the total assets under management. This ensures stakeholders have a clear view of returns and asset growth or depreciation.

Format: Reports can be provided in various formats to suit different stakeholder preferences, including interactive web applications, direct API feeds for real-time data integration or traditional PDF documents delivered via email.

Preparation Process: Data for these reports is meticulously gathered and verified through our established analytical processes. It is compiled from reliable on- and off-chain sources and calculated using both proprietary and industry-standard methods to ensure accuracy. To enhance the data integrity, we provide access to our partner portal for all service providers. This enables the direct supply and verification of data points from independent third-party sources as well as from the service providers themselves. Prior to dissemination, each report undergoes a rigorous review by our analytics team to confirm its integrity and relevance.

Delivery Frequency: Depending on the DAO’s needs, reports can be scheduled for delivery on a monthly, weekly or daily basis. This frequency can be adjusted as required to keep pace with the dynamic nature of the portfolio and the DAO’s operational tempo.

Customization: The scope and detail of reporting are customizable, allowing stakeholders to receive information that aligns closely with their investment objectives and requirements. For example, a Risk Rating Report from Ondo $OUSG, which we have attached as a reference, provides a model of such tailored financial reporting.

Sample Report: Ondo - Ondo Short-Term US Government Treasuries ($OUSG)

IV. Applicant Pricing

12. Provide a copy of your standard contract, or one similar to what is being proposed here.

For the general framework of cooperation, please refer to our current terms and conditions: Terms of Service - Particula.

13. Comprehensive pricing breakdown inclusive of the full scope of services requested

To align the interests of the DAO and Particula and ensure positive treasury performance, we propose a commercialization model featuring a low pricing strategy for initial service provider valuations and a participation stake in the assets under management per project for ongoing monitoring services. We have sent detailed information about our proposed pricing model to the provided email address. Once the application phase is complete, we agree to make this information public as part of the decision-making process.

14. Terms of fee payment such as upfront vs monthly costs

As described under section 13.

15. Approximate percentage of your annual budget that this service contract would constitute ? (eg: if annual expenses are $100 and proposed contract is $10, then 10% is the answer).

As described under section 13.

V. Appendix: Roles and Responsibilities of STEP Program Manager

  1. Cashflow & Accrual Monitoring: Enable the Arbitrum Foundation to easily ensure that the Arbitrum Treasury receives timely payments or accruals. If payments are delayed or incongruent with stated rates, Arbitrum can take appropriate action (e.g. inquiry, divestment, etc). Specific functionality includes:
  • Initial capital contribution and redemption tracking
  • Track and notify interest accrual or payment amounts for each investment
  • Ensure expected interest accrual or payment frequencies match service providers’ documentation
  1. Underlying Asset Monitoring: Validate that service providers are investing in expected underlying assets and risk exposures. If nonstandard assets are being included in a provider’s portfolio, Arbitrum will be informed and can take appropriate action.
  • Report on service providers’ underlying assets and reserves
  • Provide portfolio statistics and risk analytics
  • Report % of product AUM that pertains to Arbitrum’s investment
  1. Operations & Counterparty Monitoring: Aggregates nonquantitative information to regularly inform Arbitrum of key structural information and material document changes and administer redemption tests.
  • Collate service provider financial and audit reports
  • Track underlying service provider changes (e.g. custodian or broker changes, change in 3rd party auditors, change in onchain addresses used for flow of funds)
  • Track material changes in provider terms
  • Administer Redemption Tests (i.e. “Fire Drills”) to test for provider redemption timeliness.
  • Communication with the DAO on the governance forum for questions pertaining to the program
  • Any other duties that may arise which are necessary for success