Crypto insurance providers spend enormous amounts of time deciding whether to cover a crypto company, and almost none of them offer guarantees to individuals, insurance and crypto executives told Cointelegraph.
last year saw $3.9 billion stolen from crypto firms, decentralized finance platforms, and users, a massive 22% increase since previous year, and that only counts the hacks and exploits. Some believe 2023 could be even worse.
Raymond Zenkich, president of cryptocurrency insurance firm Evertas, told Cointelegraph that initially assessing the risks of a cryptocurrency platform is a complicated process.
He explained that initially, a subscription, the process of evaluating and analyzing the risks of insuring assets, is carried out "based on a very detailed application form" that involves analyzing 2,000 variables in 20 risk areas.
“A major risk factor is key management: whether keys are stored in hot, warm, or cold wallets,” Zenkich noted.
Hot, warm, and cold crypto wallets all have different levels of risk. Did you know that until we did, there was no standard definition of hot vs. warm? Standards development is one way insurance helps emerging markets mature.https://t.co/5OtqpLa8Oh
— Evertas (@Evertas) January 20, 2023
It added that it doesn't stop there, as "there are various gradations of heat and heat, each with its own risk profile."
On April 14, the Bitrue cryptocurrency exchange suffered a hot wallet exploit, with attackers stealing nearly $23 million in crypto assets. The affected hot wallet held less than 5% of the exchange's total funds, and the remaining wallets "have not been compromised," according to the firm.
Zenkich explained that after determining the level of storage risk, the company will need to analyze thousands of "commercial, technological and operational variables" before it can determine how much to charge as a premium, stating:
"Once we have the answers to all the applicable questions, we determine what kind of premium we would need to charge to justify taking the risk."
Having said that, crypto insurance providers They are generally unwilling to insure people who do not have assets on an exchange, such as through self-custody or other means.
Adrian Przelozny, chief executive of Australia's cryptocurrency exchange Independent Reserve, said this is because "it would be very difficult" for a client to prove to the insurance provider that they actually lost the cryptocurrency and did not take it themselves.
: Crypto hacks are down (for now)
After a record high in 2022, in which $3.7 billion worth of cryptocurrency was stolen, new research from TRM Labs shows that cryptocurrency hacks dropped 70% in the first quarter of 2023. What's driving the trend, and how much? it will last? https://t.co/exxBwJKzjP— TRM Laboratories (@trmlabs) May 23, 2023
Przelozny explained that while the provider only insures assets on the exchange itself, its “clients have a direct relationship with the insurer” and “can opt to have 100% insurance coverage” for a small fee upon signup.
He added that it is a long insurance contract with many events covered, from hacks to "thefts caused by our team."
Related: Can You Recover Bitcoin Stolen From Crypto Scams?
Meanwhile, a spokesperson for cryptocurrency exchange Binance told Cointelegraph that its emergency insurance fund, the Safe Asset Fund for Users (SAFU), is managed internally.
“It is a fund that is owned by Binance [that] it was established in July 2018 to protect the interests of users,” they said.
“SAFU would cover a verified loss suffered by a user due to a vulnerability or other deficiency in Binance's security systems and/or security protocols,” the spokesperson said.
However, Simon Dixon, CEO of online investment platform BnkToTheFuture, believes that there are things that traditional insurance providers can learn from their crypto counterparts to improve their practices.
"There is an opportunity to improve traditional insurance with Smart Contracts and make it more accessible to everyone, which I look forward to seeing grow as an industry, with the usual growing pains in our sector."
Post navigation
