In the ever-evolving world of cryptocurrencies, insurance providers face significant challenges when determining coverage for crypto companies. Surprisingly, very few insurers extend their services to individuals, according to insiders from the insurance and crypto sectors.
According to Chainalysis, only including hacks and exploits, $3.9 billion in cryptocurrency corporations, decentralized financial platforms, and users were stolen last year, a staggering 22% increase from the year before. Some people think 2023 may even be worse.Â
Raymond Zenkich, the president of Evertas, a prominent cryptocurrency insurance firm, sheds light on the intricate process of assessing risk within the crypto landscape.
Zenkich explained that the underwriting process, which involves evaluating and analyzing the risks associated with insuring crypto assets, is multifaceted. The initial step includes completing a comprehensive application form that delves into 2,000 variables across 20 risk areas.
Key management, particularly the storage of private keys in hot, warm, or cold wallets, plays a pivotal role in risk assessment.
However, the complexity doesn’t end there. Zenkich emphasized that there are numerous gradations of hot and warm wallets, each with its unique risk profile.
For example, the recent hot wallet exploit suffered by Bitrue, resulting in the loss of approximately $23 million, highlighted the vulnerability of such storage mechanisms. Fortunately, the majority of Bitrue’s funds remained secure.
While insurers are generally hesitant to cover individuals who hold assets outside of exchanges, Adrian Przelozny, CEO of the Australian crypto exchange Independent Reserve, highlighted the possibility of 100% insurance coverage for customers who maintain a direct relationship with insurers.
In contrast, leading cryptocurrency exchange Binance manages its emergency insurance fund, the Secure Asset Fund for Users (SAFU), internally.
Binance established SAFU in 2018 to safeguard user interests. In the event of verified losses resulting from vulnerabilities or security deficiencies, SAFU provides coverage.
