Key Man Risk: Inheritance and Multi-Sig Access

The loss of QuadrigaCX's CEO, Gerald Cotten, led to $190 million in customer assets being burned forever because he was the sole keyholder. In Web3, 'Key Man Risk' isn't just about expertise—it's about the physical and total loss of the balance sheet. This guide provides the operational framework to ensure your company never becomes a footnote in the history of unrecoverable assets.

The 'Bus Factor' measures how many leaders must be incapacitated before the company stops functioning. If your treasury is on a single hardware wallet, your Bus Factor is 1 and your risk is 100%. Professional organizations must aim for a Bus Factor of 3 or higher, ensuring that even if two senior leaders are lost, a quorum can still recover assets for payroll and operations.

Multi-Sig replaces 'possession of a device' with 'consensus of a quorum.' A 3-of-5 setup is the corporate gold standard. Keys should be distributed among the CEO, CFO, Board Chair, Outside Counsel, and an Institutional Custodian. This prevents accidental loss and internal collusion, allowing daily operations with 2-of-5 and recovery with 3-of-5.

For founders wary of sharing keys, a Dead Man's Switch smart contract can monitor activity. The CEO 'pings' the contract every 90 days. If 120 days pass without activity, including alerts during a grace period, the contract automatically transfers signing power to a pre-designated 'Successor Wallet' controlled by the Board.

Technical protocol requires legal backing to prevent lawsuits. Operating Agreements must be updated with a 'Digital Asset Succession' clause that defines specific wallet addresses as treasury, mandates the Multi-Sig protocol, and legally triggers keyholders to facilitate management transitions upon verified death certificates.

Geographic dispersion is vital; if all signers are in one office, you risk total loss from a single disaster. Backup 'Seed Phrases' should be split using Shamir's Secret Sharing (SSS) and stored across home safes, bank boxes, and trusted relatives to ensure no single location is a point of failure.

Recovery protocols must be tested annually. The 'Mortality Drill' simulates a lost CEO and verifies that backup signers can coordinate moving funds within 48 hours. If they can't find keys or remember PINs, the protocol is too slow for a real crisis.

For treasuries >$50M, managing Multi-Sigs internally may be too risky. Institutional custodians (Anchorage, BNY Mellon) act like traditional banks, handling 'Proof of Death' and granting access to designated board members while providing bankruptcy remoteness and insurance.

Fiduciary duty includes health transparency. Leaders undergoing high-risk surgery or terminal illness should temporarily lower Multi-Sig thresholds (e.g., 3-of-5 to 2-of-5) and ensure recovery signers are fully briefed on current wallet states.

In Web3, 'I forgot' or 'He died' are terminal states. Succession planning is an infrastructure requirement. By implementing Multi-Sig architecture and distributive keys, you transform a fragile one-man show into a resilient, fiduciary institution. If you disappear tomorrow, ensure your company's wealth doesn't disappear with you.