Entering the Age of Insured Crypto assets – Technicity
Many of the well-established players in Cryptoverse are offering insurance for their digital holdings
The demand for insuring the Crypto assets has been driven by security concerns regarding the storing of these digital assets. This along with a sizeable market cap of over $200 billion does need some kind of mechanism which prevents the crypto investors from losses.
Especially considering the fact that hackers & other nefarious players have had sizeable success in making way with big bounties. In the first six months of 2019 alone, Cryptocurrency thefts, scams & fraud worldwide have led to losses worth approximately $4.26 billion.
While the mainstream acceptance of Cryptos has been stifled by regulators around the World, the money pouring in from institutional investors does vouch for the fact that broader market players are beginning to show interest. One of the main concerns from the regulators has been to put a safety mechanism that would safeguard the common investor against unforeseen losses. Insuring crypto assets, therefore, has become as important as putting the right security measures to protect the businesses & investors.
The chart below shows that we have had seven different crypto exchanges hacked in the first six months 2019, including Binance which is one of the strongest players in the industry. Thankfully big-name insurers like Lloyd’s of London, one of the oldest players in the insurance industry, with a net worth of $45 billion, has stepped up to take the challenge.
Although Binance’s hack was a big setback, it had safeguards put in place. The exchange had created the Security Asset Fund for Users (SAFU) in 2018 in the case of such an event happening. SAFU is funded by receiving 10% of all Binance’s trading fees, which are securely stored in cold storage until the time when the need arises.
Some of the other major crypto players have resorted to safeguarding their users with insured products. Coinbase for instance, claims that it has an insurance policy covering cryptocurrency in its hot storage systems continually since November 19, 2013. The leading crypto exchange last year also partnered with Lloyd’s of London to acquire a hot wallet policy with a $255 million limit.
Gemini is another leading digital asset exchange and custodian which secures insurance coverage for its assets arranged by Aon — a global professional services firm providing a broad range of risk, retirement and health solutions. This coverage is in addition to FDIC-insured U.S. dollar deposits that users have within the traditional financial structure.
Other major digital asset custodians like Anchorage & Kingdom Trust have secured insurance products for their holdings as well — while the former partnered with Aon, the latter roped in the services of Lloyd’s of London. The digital asset insurance coverage further bolsters confidence and protection for not just the consumers using these platforms, but for the wider spectrum of the society.
The challenges still remain though. The lack of insurance statistics, education & misunderstanding on the part of the insurance industry regarding the general crypto industry hinders the efforts of the Crypto businesses to acquire insurance products. Having said that, these small steps towards safeguarding the people’s investment in digital assets will go a long way in building their confidence to include crypto assets in their portfolios.