Crypto custody insurance: a big step forward for crypto?

[KryptoBull]

We are all too familiar with insurance contracts for real estate, cars, health, voice... but insurance for crypto is not really popular. Previously, CEXs often set up reserve funds to deal with risks and compensate customers in the event of a hack ^[1]. This exists because crypto is not yet a trusted asset and the operations of companies in the crypto field have not received the trust of insurance services.

However, things may be about to change as insurance giant Marsh is launching a massive $825 million USD insurance facility specifically designed for custodians of digital assets. This product caters to organizations that store digital assets offline in "cold storage," considered the most secure method against cyberattacks. It also covers assets protected by innovative solutions like Multi-Party Computation, where cryptographic keys are fragmented for enhanced security ^[2].

To me, this is a really big step in the legalization and securing of the crypto industry. Now CEXs have more options for buying insurance for assets stored in their cold wallets, making the process of protecting user assets more effective. This may only be the first step, other insurance companies will also soon approach and provide the best services for the market, helping to increase trust and pave the way for wider adoption of crypto.

I am a CEX user, I love the convenience, features and high liquidity that CEXs can provide. I am currently using Binance so I am waiting for Binance to participate in this insurance product.

I would like to know your views on crypto custody insurance:

• Is insurance really important for CEXs and the crypto market?
• Would you trust CEXs more if they used crypto insurance services?
• Which CEX will be on board soonest to insure their users' assets?

References:
[1] Secure Asset Fund for Users (SAFU)
[2] Insurance Broker Marsh Introduces $825M Crypto Custody Coverage
Note:

• My opinion has been presented in a topic, on BitcoinTalk forum.
• This topic on AltcoinsTalks forum has included a minor change in the way my opinion is presented.
• This statement is to avoid accusations of plagiarism.

[Mr. Allcrypto]

Wow, if truly there are crypto insurance as you say it, then dealing with crypto is the safest for now, one can put his assets in his crypto wallet and be assured that their will be no problem because of the assurance.
It will be more convenient if most of all these apps like Binance, kucoin, Bybit etc... participate in this insurance product for users to be able to reserve their funds and be risk free.

[TomPluz]

To me, this is a really big step in the legalization and securing of the crypto industry. Now CEXs have more options for buying insurance for assets stored in their cold wallets, making the process of protecting user assets more effective. This may only be the first step, other insurance companies will also soon approach and provide the best services for the market, helping to increase trust and pave the way for wider adoption of crypto. I am a CEX user, I love the convenience, features and high liquidity that CEXs can provide. I am currently using Binance so I am waiting for Binance to participate in this insurance product. I would like to know your views on crypto custody insurance...

You are right, in the past as the cryptocurrency industry was not yet maturing, insurance companies are wary of the risks associated with platforms playing in this field hence they were then so reluctant to deal with it and establish a program tailored to it...but this is now changing most especially in the face of the recent approval of ETFs because that is telling insurance companies that the crypto industry has already arrived and is now recognized as a very legit and lucrative one. Now, this can just be the beginning of many more insurance firms offering financial protection to clients doing business in crypto and this can be a very big news.

1. Is insurance really important for CEXs and the crypto market?
Considering the many risks associated with cryptocurrency and the constant threat of hacking especially from North Korean agents, an insured CEX or any other platforms would mean peace of mind to its users and it would elevate the branding of the insured as they can claim that users can experience safety with their funds. This can mean that more and more people would be venturing into the crypto business resulting into the industry definitely coming to the mainstream.

2. Would you trust CEXs more if they used crypto insurance services?
Of course, I would. Now, I m expecting that soon insurance policy would be the normal and can even be required by SEC for CEX to continue doing business as this can surely lessen the risks borne by the investing public. Had there been a good insurance policy drawn by FTX then its thousands of users will not be losing a lot of money and their trust of the crypto industry will not have been squashed. There is a great need for insurance in this sector and we need it ASAP!

3. Which CEX will be on board soonest to insure their users' assets?
I am sure that top crypto exchanges like Binance, Kucoin, Biget, Bybit, OKX, Coinbase and many more would love to avail of a tailored insurance policy that they can depend on in times of trouble. And since these players are making good money, they won't have a problem paying their premiums...and ordinary users like you and me are guaranteed help in case something will go wrong.

[Cryptsafe]

Crypto insurance is a good idea. I believe it will run just as the normal fiat and other insurance do run. This insurance policy should have long kick started but I believe it was as a result of the Crypto market instability and volatility that did not allow the project then coupled with the fact that crypto currency was having lots of challenges in the past with government of various nations finding it very difficult to understand the process involved and other challenges that comes with Crypto activities.

One other thing I was looking at now is the identity of the account holders of any cex that picks interest in this insurance policy. Definitely, if a Crypto exchange indicates interests in the insurance scheme, I believe giving their data to the insurance company would likely be amongst one of the criteria for getting insurance cover and that is one of the things most users of cex do not like.

I believe there is nothing like privacy anymore with centralised exchange because looking at what the lot's of things they get themselves involved, one can not tell that they do not give out data of their users out just for them to be on the safe side not to talk of now that there is a Crypto insurance for cex, do you not think presenting data of their users would be amongst the conditions of they would get the insurance cover.

[0t3p0t]

Wow, if truly there are crypto insurance as you say it, then dealing with crypto is the safest for now, one can put his assets in his crypto wallet and be assured that their will be no problem because of the assurance.
It will be more convenient if most of all these apps like Binance, kucoin, Bybit etc... participate in this insurance product for users to be able to reserve their funds and be risk free.

Yeah probably be the best thing I've heard/read today is this insurance thing in crypto as we all know that safety is the first peiority in this space. Bankruptcy, hacked and other factors are safe with this but the question is are these exchanges really committed in offering this feature or service on it's platform? I do hope that top crypto exchanges will initiate this kind of thing so users will have the confidence in using the said platform whatever will happen. I am wondering if how much is the covered limit for that insurance?

[Cryptsafe]

Wow, if truly there are crypto insurance as you say it, then dealing with crypto is the safest for now, one can put his assets in his crypto wallet and be assured that their will be no problem because of the assurance.
It will be more convenient if most of all these apps like Binance, kucoin, Bybit etc... participate in this insurance product for users to be able to reserve their funds and be risk free.

Yeah probably be the best thing I've heard/read today is this insurance thing in crypto as we all know that safety is the first peiority in this space. Bankruptcy, hacked and other factors are safe with this but the question is are these exchanges really committed in offering this feature or service on it's platform? I do hope that top crypto exchanges will initiate this kind of thing so users will have the confidence in using the said platform whatever will happen. I am wondering if how much is the covered limit for that insurance?

Obviously, I was also thinking about it too if crypto exchange would key into this idea. As it is that such hack and other unfortunate events do happen unexpectedly, they would have nothing to hold onto. The fear of going or hoping for the insurance would be very minimal because the price would be very much high for them to incur except it is a well established crypto exchange that can afford the insurance bill.

However, if the government swings into action on this new policy for exchange to have insurance cover, I think none of the exchange can escape it but the the truth is that they would have to increase charges on their various platforms to meet up with the bill. I think it would be nice but who will cover the cost of the insurance. That is my concern because if it happens that they are coerced to do so, then I think they would fall back to customers imposing charges way too high to meet up because I know the money involved in the insurance is not a joke.

[MrSpasybo]

To me, this is a really big step in the legalization and securing of the crypto industry. Now CEXs have more options for buying insurance for assets stored in their cold wallets, making the process of protecting user assets more effective. This may only be the first step, other insurance companies will also soon approach and provide the best services for the market, helping to increase trust and pave the way for wider adoption of crypto.

I am a CEX user, I love the convenience, features and high liquidity that CEXs can provide. I am currently using Binance so I am waiting for Binance to participate in this insurance product.

I would like to know your views on crypto custody insurance:

• Is insurance really important for CEXs and the crypto market?
• Would you trust CEXs more if they used crypto insurance services?
• Which CEX will be on board soonest to insure their users' assets?

I am not surprised by the participation of insurance companies in the crypto market. The market is developing very quickly, the need for security against cyber attacks is increasing, and the acceptance of crypto is expanding, which are the reasons why insurance services can easily acquire customers in the crypto market. This can be seen as a step towards maturity for crypto with higher security for users' assets.

1. Similar to other fields, insurance is very important for crypto. CEXs and users always need such services to protect their assets in the worst case scenarios.

2. I have been trusting and using Binance, if Binance participates and has an insurance contract for user crypto deposits, I will be even more confident and trust Binance.

3. I think the CEXs in the United States will participate first, but Binance will also soon have its own deposit insurance contract to serve customers.

[Trongduy]

I would like to know your views on crypto custody insurance:

• Is insurance really important for CEXs and the crypto market?
• Would you trust CEXs more if they used crypto insurance services?
• Which CEX will be on board soonest to insure their users' assets?

1. Insurance is an important part of any market, helping to better protect users and projects, and encouraging more active participation.

2. I think the proof of reserves is good enough, but adding insurance will make CEXs even safer, so I can trust them more.

3. I think Coinbase will be the first exchange to participate because they are quite interested in these kinds of issues, and Coinbase is also storing BTC for spot ETFs.

[MUGNIA]

Wow, if truly there are crypto insurance as you say it, then dealing with crypto is the safest for now, one can put his assets in his crypto wallet and be assured that their will be no problem because of the assurance.
It will be more convenient if most of all these apps like Binance, kucoin, Bybit etc... participate in this insurance product for users to be able to reserve their funds and be risk free.

That's right, what's more, all cryptocurrencies already require KYC, so there's no harm if they prepare insurance too, so that every time you make a transaction and deposit there is no fear of loss if you save at CEX,
By the way, is there any insurance that would be trusted for this,? Meanwhile, for issues of education, health and old age security, people often embezzle their funds in crypto?

[KryptoBull]

Crypto insurance is a good idea. I believe it will run just as the normal fiat and other insurance do run. This insurance policy should have long kick started but I believe it was as a result of the Crypto market instability and volatility that did not allow the project then coupled with the fact that crypto currency was having lots of challenges in the past with government of various nations finding it very difficult to understand the process involved and other challenges that comes with Crypto activities.

One other thing I was looking at now is the identity of the account holders of any cex that picks interest in this insurance policy. Definitely, if a Crypto exchange indicates interests in the insurance scheme, I believe giving their data to the insurance company would likely be amongst one of the criteria for getting insurance cover and that is one of the things most users of cex do not like.

I believe there is nothing like privacy anymore with centralised exchange because looking at what the lot's of things they get themselves involved, one can not tell that they do not give out data of their users out just for them to be on the safe side not to talk of now that there is a Crypto insurance for cex, do you not think presenting data of their users would be amongst the conditions of they would get the insurance cover.

I do not think that users identity is one of the important parts of the insurance contract. The insurance company only needs to know that the crypto assets of CEXs are stored in a hardware wallet, which is auditable, and that CEXs are willing to pay a periodic fee to get protection in case of a bad event. Thanks to onchain data, the insurance company can track the movements of the CEXs' hardware wallet address. CEXs self-manage that hardware wallet, users are not involved in this hardware wallet, so I believe that all user information will still be kept confidential by CEXs.

[Lucius]

I would like to know your views on crypto custody insurance:

Is insurance really important for CEXs and the crypto market?

Insurance certainly makes sense considering that many hacks have already happened over the years, but even though insurance is something generally positive, it should be remembered that it has its price, and that in the event that CEX experiences a hack, the one who provides the insurance conducts a thorough investigation about the incident and that in the end they can claim that it is an inside job and that they will not pay anything.

Would you trust CEXs more if they used crypto insurance services?

Not more than I trust them now, because CEXs are still very risky and if we look at it from a Bitcoin perspective, completely opposite to the idea that everyone should be their own bank. Trading is one thing, but storing cryptocurrencies on such platforms is quite another.

Which CEX will be on board soonest to insure their users' assets?

I don't have an answer to that question, it's a matter of their personal assessment and business policy. Some may conclude that they need such a thing, and others that they do not want to pay additional insurance because they rely on their own.

[Aanuoluwatofunmi]

Going for any form of insurance service is like opting in for a centralized institution with all your vital information's and they will decide on what to do with your asset and how much you can earn from such, we don't need an insurance service if we are well acquainted with the use of crypto and how to run a non custodial storage of your asset, since its a decentralized digital currency and asset, we can invest in it on our own and hold and as it remains volatile, then we have chances of earning through such.

[Yamane_Keto]

If we take the FDIC as an example of bodies that guarantee customer funds, it has a limit of $250,000, and it does not insure all deposits. Even this limit cannot be guaranteed, as an insurance institution does not receive any appropriations from Congress, and if there was a collective failure of all banks, it would not be able to cover customer funds, and here it is the government that Intervene to fulfill these obligations.

If the same thing happens to cryptocurrencies, funds like SAFU can help with small and medium losses, but if the platform fails and all reserves are stolen, there is no guarantee capable of insuring customers’ money, and the government will not intervene to save your money, and it will bear the entire loss, no matter how huge the insurance fund is.

[KryptoBull]

If we take the FDIC as an example of bodies that guarantee customer funds, it has a limit of $250,000, and it does not insure all deposits. Even this limit cannot be guaranteed, as an insurance institution does not receive any appropriations from Congress, and if there was a collective failure of all banks, it would not be able to cover customer funds, and here it is the government that Intervene to fulfill these obligations.

If the same thing happens to cryptocurrencies, funds like SAFU can help with small and medium losses, but if the platform fails and all reserves are stolen, there is no guarantee capable of insuring customers’ money, and the government will not intervene to save your money, and it will bear the entire loss, no matter how huge the insurance fund is.

In the insurance contract, the customers are CEXs. We don't have a specific example yet, but I think CEXs can do it like this: suppose they have 8B USD, they can split it into 10 accounts on hardware wallets, each account containing 800M USD. They can participate in 10 insurance contracts, each with a compensation value of 800M USD in case that account is hacked. The condition is that CEXs need to pay 8M per year to maintain the contract.

We don't need to worry too much about the capital of insurance companies because they don't depend on the state budget, they are independent companies and are responsible for their customers according to their financial capacity. I really hope that we will have insurance companies capable of protecting CEXs' assets worth billions of USD.

[joniboini]

We don't need to worry too much about the capital of insurance companies because they don't depend on the state budget, they are independent companies and are responsible for their customers according to their financial capacity. I really hope that we will have insurance companies capable of protecting CEXs' assets worth billions of USD.

Personally, I'm on the camp that we should not rely on a third party to secure our funds. Sure, insurance companies can manage on their own, but what if the management fuck ups somehow and it makes you lose your money in the end? I've seen some news related to insurance companies going bankrupt due to corruption etc. It is hard to believe crypto insurance is immune from that. Even if we can blame the insurance company or the exchange for choosing such a terrible partner, it doesn't guarantee that we can recover our funds. While it might attract retail investors, I hope it doesn't make everyone forget why they want to use crypto as an alternative to fiat.