Crypto insurance providers spend an enormous amount of time evaluating whether to provide insurance coverage to a crypto company, and almost none of them offer insurance for individuals, insurance and crypto executives told Cointelegraph.
Last year, $3.9 billion was stolen from crypto companies, decentralized finance platforms, and users, a massive 22% year-over-year increase — and that’s just counting hacks and exploits. Some believe 2023 could be even worse.
Raymond Zenkich, president of cryptocurrency insurance company Evertas, told Cointelegraph that initially assessing the risks of a crypto platform is a complicated process.
He explained that first, underwriting – the process of assessing and analyzing the risks associated with insuring the assets – is carried out “on the basis of a very detailed application form” that processes 2,000 variables across 20 risk areas.
“A key risk factor is key management: whether keys are kept in hot, warm, or cold wallets,” Zenkich noted.
Hot, warm, and cold crypto wallets each have different levels of risk. Did you know that until we introduced it, there wasn’t a standard definition of hot vs. warm? Developing standards is one way for insurers to help emerging markets mature.https://t.co/5OtqpLa8Oh
– Evertas (@Evertas) 20 January 2023
He added that that’s not all, because “there are multiple levels of hot and warm, each with their own risk profile.”
On April 14, cryptocurrency exchange Bitrue suffered a hot wallet exploit that saw attackers steal nearly $23 million worth of crypto assets. The affected hot wallet held less than 5% of the exchange’s total funds and the remaining wallets are “uncompromised,” according to the company.
Zenkich explained that after determining the extent of storage risk, the company then needs to look at thousands of “business, technology and operational variables” before it can figure out what the premium needs to be, explaining:
“Once we have the answers to all the relevant questions, we determine what premium we would need to charge to justify taking the risk.”
However, crypto insurance providers are typically unwilling to insure individuals who do not hold assets on an exchange — whether through self-custody or otherwise.
Adrian Przelozny, CEO of Australian crypto exchange Independent Reserve, said this is because it is “very difficult” for a customer to prove to the insurance provider that they actually lost the crypto and didn’t just take it themselves.
: Crypto hacks are down (for now).
After a record 2022 in which $3.7 billion worth of cryptocurrencies were stolen, new research from TRM Labs shows crypto hacks fell by 70% in the first quarter of 2023. What is driving the trend and how long will it last? https://t.co/exxBwJKzjP— TRM Labs (@trmlabs) 23. May 2023
Przelozny explained that while the provider only insures assets on the exchange platform itself, its “customers have a direct relationship with the insurer” and “can choose 100 percent coverage for a small fee upon signup.”
He added that it’s a long-term insurance contract that covers many events, from hacks to “thefts caused by our team.”
Related: Can You Recover Stolen Bitcoins From Crypto Scams?
Meanwhile, a spokesman for cryptocurrency exchange Binance told Cointelegraph that its emergency insurance fund, the Secure Asset Fund for Users (SAFU), is managed in-house.
“It’s a fund owned by Binance [that] was established in July 2018 to protect the interests of users,” they said.
“A proven loss suffered by a user due to a vulnerability or other deficiency in Binance’s security systems and/or security protocols would be covered by SAFU,” the spokesperson said.
However, Simon Dixon, CEO of online investment platform BnkToTheFuture, believes that traditional insurance providers can learn a few things from their crypto counterparts to improve their practices.
“With smart contracts, there is an opportunity to improve on traditional insurance and make it more accessible to everyone. I look forward to the industry growing despite our industry’s usual growth challenges.”
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2023-05-28 23:55:11
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