Ultimate Resource On The Crypto Insurance Market (#GotBitcoin?)
The cryptocurrency insurance market is expected to grow at a faster rate if United States regulators provide more regulatory clarity, according to industry experts. Crypto Insurance Market To Grow, Lloyd’s Of London And Aon To Lead (#GotBitcoin?)
As Forbes reported on Sept. 5, CEO of San Francisco-based cybersecurity agency Coalition, Joshua Motta suggested that the market for digital currency insurance is now worth between $200 million and $500 million in premium revenue. He expects the market to outpace the current 20% to 25% expansion rate of the cybersecurity insurance sector.
Lloyd’s of London, the world’s leading insurance market providing specialist insurance services to enterprises, seems poised to become one of the major players in the crypto insurance sector following April news of Coinbase revealing insurance coverage for its hot wallet crypto holdings, reportedly covering a $255 million limit via Lloyd’s.
“The Next cyber”
According to Eric Boyum, head of the technology insurance brokerage arm of Aon — an insurance broker that purportly occupies 50% of the crypto-insurance market — the crypto market insurance sector would grow even faster once U.S. regulators clarify whether digital assets are deemed securities and should comply with the same laws that govern public companies.
Commenting on the issue, Ty Sagalov, insurance industry veteran and founding member of the first licensed and regulated insuretech company in the U.S. Lemonade, said:
“I see this market as the next cyber. It will grow to a multi-billion-dollar premium market within the next five to ten years.”
Crypto Goes Into Insurance
This summer, Coinbase was reportedly looking to launch its captive insurance company in partnership with Aon. Such a solution was expected to allow the company to keep the money that would be normally spent on the insurance premium, reportedly nearly all Fortune 500 firms maintain captive insurance companies.
Also, Aon will reportedly provide crime insurance coverage for institutions using Metaco’s SILO cryptocurrency asset infrastructure solution for hot and cold storage, which implements hardware security module-based technology.
UK Startup Launches Crypto Insurance, 24/7 Bitcoin-Monitoring Service
Cardiff-based cryptocurrency insurance startup Coincover has launched an insurance policy covering theft and loss.
Local news outlet Whales247 reported on Sept. 24 that this is “the first and only service to guarantee digital funds held online will not be lost or stolen.”
Coincover’s service reportedly monitors the wallet at all times and issues warnings in case of suspected theft, recovers funds in case of private key loss, manages key backups, provides cash replacement value in case of theft, and checks for any suspicious activity.
Making Crypto Less Risky
Furthermore, the startup covers over 100 different crypto assets and the company has been invited by the UK’s Department for International Trade as one of the eleven insurance technology companies to share expertise in the Silicon Valley market. Coincover co-founder David Janczewski commented on the development:
“Cryptocurrency ownership is growing fast and becoming more mainstream, but it can still feel like a risky investment. Virtual currencies, by their very nature, are a new concept for many.”
Janczewski also notes that cryptocurrencies have been attributed to crime and scandal since the start as well as hacks and thefts. These are the issues his company is trying to solve, he explained.
As Cointelegraph recently reported, according to industry experts the cryptocurrency insurance market is expected to grow at a faster rate if United States regulators provide more regulatory clarity.
Meanwhile, cryptocurrency insurance is becoming a more prevalent service in the industry, namely for custodial services. For instance, earlier this month Bitcoin (BTC) futures firm Bakkt announced that deposits held in its warehouse are protected by a $125 million insurance policy.
In Rare Deal, Crypto Custodian Wins Insurance On Full Value Of Client Assets
Marsh & McLennan, the world’s largest insurance broker, has arranged an unusually generous and comprehensive insurance program for a new cryptocurrency custodian called KNØX.
Unveiled Tuesday, Montreal-based KNØX is courting wealth managers and hedge funds with its cold storage service, in which the cryptographic private keys to a wallet are kept offline. To give potential clients additional peace of mind, the insurance arranged by Marsh covers them in case of external theft and internal collusion, up to the full value of their holdings.
By contrast, often insurance policies covering crypto assets are shared across multiple clients of a custodian, explained Alex Daskalov, co-founder and CEO of KNØX. For example, a custodian holding $1 billion in assets, and advertising a $100 million insurance policy may only be 10 percent insured, in which case the customer is given a false sense of security, Daskalov argued.
If the customer were to experience a total loss of $100 million they would only be reimbursed $10 million.
The Knøx Program Was Developed With Marsh To Remove Ambiguity Of This Sort, Daskalov Told Coindesk:
“Often we see people purchase an insurance policy and then hold in the aggregate funds well above the limit of that insurance policy. So for us, it was an important guarantee that when a customer is on-boarded to our platform, the full value of their assets is insured.”
That’s not to say the cover is limitless. “There is, of course, an upper ceiling,” Daskalov acknowledged, without saying precisely what it is.
Asked if KNØX was ready to hold and insure north of $100 million for any of its customers, Daskalov said this would “not be a problem.” (To put that figure in context, until recently, the largest amount of insurance cover heard of in the crypto space was when Coinbase was reported to have up to $255 million).
Jennifer Hustwitt, senior vice president at Marsh, told CoinDesk the insurance cover being offered with the KNØX solution was led by insurance company Arch and supported by various syndicates at Lloyd’s of London.
KNØX recently raised $6.2 million in funding led by Initialized and iNovia, with participation from Fidelity Investments Canada, FJ Labs, and Ferst Capital.
Daskalov said that for custodying and insuring 100 percent of a customer’s assets, KN0X would charge a fee starting at 1 percent of assets and work down depending on how much business was being conducted. To get a customer’s assets out of cold storage in order to trade would normally take an hour, although the service level agreements (SLAs) are more conservative, he said.
While scarce, crypto insurance cover is popping into the headlines with increasing regularity, thanks to the likes of blockchain security firm BitGo touting $100 million cover from Lloyd’s and Coinbase exploring new avenues with the number two insurance broker Aon, which is also working with custody providers Anchorage and Volt.
Hustwitt said there has been a net expansion of insurance capacity available for digital asset risks in the past six months.
Some carriers are starting to participate in programs who previously had not and this is edging up the capacity and size of insurance deals, she said. “At any given time the amount of overall capacity will depend on a risk-by-risk basis. Having said that, there is upwards of $750 million to $1 billion in potential insurance capacity available across specie and financial institutions insurance markets.”
A Caveat Would Be That The Carriers Participating And The Capacity Changes On A Month To Month Basis, Said Hiustwitt, Concluding:
“Our working metric right now is up to a billion. We break new ground with every deal we do.”
Ledger’s Vault Scores $150 Million in Crypto Insurance From Lloyd’s Syndicate
Ledger, the creator of the iconic Nano hardware wallet, is wooing institutional investors to use its technology to custody cryptocurrency for themselves with the help of big-name insurance broker Marsh.
Marsh has arranged a $150 million insurance policy from Lloyd’s of London syndicate Arch for users of the startup’s Ledger Vault technology platform, the companies announced Thursday.
The move is another sign that the insurance industry is gradually becoming comfortable writing coverage for digital assets – widely considered a prerequisite for institutional investment.
In the past year, quite a few crypto custodians have trumpeted insurance cover in the hundreds of millions. Unlike those firms, Ledger Vault is not a custodian; rather, it provides tools for investors to store their own crypto.
“We didn’t have to do this. We are buying insurance for the Vault platform at no additional cost to customers of our platform,” said Demetrios Skalkotos, global head of Ledger Vault.
Ledger’s policy covers third-party theft of private keys in the event of a physical breach of a hardware security module (HSM) in one of its data centers. Also covered is the entirety of the on-boarding process for clients which involves the generation of private keys within the company’s HSMs, as well as collusion within Ledger leading to insider employee theft.
The policy does not, however, cover theft via a third-party remote hack of the type reported fairly regularly at crypto exchanges around the world. The Ledger Vault solution itself is meant to prevent this type of hack by isolating private keys from the internet.
Firms using Ledger Vault set up their own transaction controls and governance procedures. The firm is trying to move away from the frame of reference of online “hot” wallets and offline “cold” ones, calling itself “temperature-agnostic.”
On top of the new insurance policy, Ledger Vault clients will be well-placed to arrange their own dedicated primary insurance facilitated and “fast-tracked” by Marsh and Arch, the companies said.
“Clients that are part of this insurance program for Ledger Vault have the ability to obtain a dedicated limit that is dependent on the assets held on the Ledger Vault platform,” said Jennifer Hustwitt, senior vice president at Marsh & McLennan Companies, the insurance broker’s parent. “It would be separate from the $150 [million] that Ledger is purchasing.”
James Croome, vice president of specie at Arch, said in a statement that the syndicate “spent over six months working with the Ledger Vault team to develop a customized offering for their clients.”
Ledger has sold 1.5 million units of its flagship consumer product, the Nano, a device for storing private keys to crypto wallets.
This Blue-Chip Crypto Insurance Consortium Lacks One Thing – A Sizable Loss
In a rare interview, London-based insurance firm Arch says a sizable but containable loss would demonstrate how well its $150 million crypto storage policy would react.
Only a handful of cold storage crypto policies have been written at this time; high-net-worth individuals are the main driver for the business.
Lloyd’s of London has set up a crypto subgroup within its Product Innovation Facility, which includes mega-broker Marsh.
Marsh says it has a hot wallet crime cover product in the pipeline.
An insurance company saying it hopes to pay a sizable claim sounds like a turkey looking forward to Christmas.
But that’s exactly what James Croome, fine art and specie underwriter at Arch Insurance International, says he wants his firm to do. Just to show that it can.
Arch is one of the few underwriters willing to insure cryptocurrency exchanges and custodians against the theft or loss of customer funds. London-based Arch Insurance International, which works with a number of big-name brokers offering crypto cover, has yet to pay out for any losses in this relatively new market.
If someone does manage to pull off a heist of cryptographic keys kept offline in cold storage, Arch will get a chance to demonstrate it’s good for the money, said Croome, who works out of London.
“I would like there to be a containable but sizable loss,” he said. “Because that would give evidence to our potential clients as to the service we can provide, the speed at which we will pay the claims and remind people who have bought coverage that it does work appropriately.”
Insurers have years of experience in covering specialized assets in the traditional world, whether that’s fine art or the regulatory requirements to protect financial services firms. But they feel less secure with crypto because there is a shortage of data for firms to model policy rates.
In response to this, Croome helped create a consortium, including mega-broker Marsh and global law firm Norton Rose Fulbright, to offer cold storage cover for crypto assets.
Released in September, Blue Vault, which is solely owned by Arch, provides limits of up to $150 million and covers the loss of digital assets due to internal and external theft (via direct access to the storage media as opposed to remote hacking attacks) and including employee collusion. Blue Vault also covers physical damage or destruction of private keys from fires, floods, earthquakes and other catastrophic events.
Ankur Kacker, vice president and specie expert on Marsh’s Digital Asset Risk Transfer (DART) team, said: “We have placed four policies for Blue Vault as of now, all in the last seven months.”
Marsh, the world’s largest insurance broker, recently announced a deal with Ledger Vault, the institution-focused arm of Ledger, the well-known hardware wallet provider for $150 million cold storage cover; Marsh is working in a similar way with crypto custodian KNOX.
Arch chose to work with law firm Norton Rose Fulbright on the crypto policy because it wanted precise policy wording. Ambiguous language is a pet peeve of Croome’s.
“My biggest annoyance with the specie market is the existence of ambiguous wordings, which is why I chose to work with a legal firm with a track record in this space,” he said.
Norton Rose Fulbright has given presentations in New York, Bermuda and to the London Market to help “educate insurance markets and develop set the market and standards for cold storage of these assets,” said Nicholas Berry, a partner at the law firm. The firm also helped Lloyd’s of London with its market guidance on underwriting digital assets.
Norton Rose Fulbright enlisted the help of Peter McBurney, Professor of Computer Science, King’s College London and a consultant with the law firm, to spell out technical aspects of key management and crypto storage and create appropriate policy wording. This is an instance where the London Market has led other international markets, said Berry.
“Going back to 2018, there has been a mismatch between supply in terms of underwriting capacity and demand for those wanting cold storage or even hot crime-type cover. Some of the big brokers have been pushing the supply side to provide more cover in terms of higher limits, wider cover,” he said.
Crypto insurance is widely seen as a prerequisite for greater institutional involvement in the market. But Croome is wary of companies offering insurance policies as a marketing ploy.
“We tend not to look at insureds that are looking for a chicken-egg scenario. They feel they don’t have a current revenue stream but are hoping the existence of insurance will help speed up the point at which assets come into custody and therefore increase their revenue,” he said.
As well as Marsh, Arch has been working with Aon, the number two broker by size. Other brokers known to be exploring crypto include Arthur J. Gallagher and Paragon.
But Croome says that for now he is shying away from really broadening out his broker network for crypto.
“I think I will keep to the ones that have shown comprehension of that which we like. They understand that and therefore they can filter out the sort of things we seek to avoid,” said Croome.
Insurance companies like Arch bring in third party specialists to examine physical vault security and do the same to understand and communicate the risks around the storage of crypto. “I wouldn’t consider myself capable of valuing a Dutch master [painting], knowing if it was genuine or a fake.That’s not my job,” said Croome.
Peter McBurney, who divides his time between academia and advising Norton Rose Fulbright’s clients on technology matters, does the equivalent of physical vault checking for the IT system that would create and store the private keys.
McBurney estimates there are still reasonably few policies written in London covering crypto cold storage, and the same in New York, although this number is increasing. “It’s still very early days, it is almost virgin territory.”
McBurney said ultra-high net worth individuals or hedge funds who already have relationships with custodians for storage of fine art or gold bullion are driving the market for crypto insurance.
“They are going to their existing physical custodians and saying, ‘Can you also store our private keys?’ So the custodians are going to insurers and saying, ‘Can you insure us to store these private keys?’ and that’s where a lot of the business has originated. It’s customer-driven from the individuals and the hedge funds who have large crypto holdings,” he said.
Lloyd’s of London, the centuries-old insurance market, has realized there are new revenue streams to be had with crypto. Its underwriters have launched the Product Innovation Facility, which spans some 24 markets and has over $100 million of capacity. The facility includes a crypto subgroup, where Marsh has a representative.
A spokesman for Lloyd’s said it’s too early for any on-record comment from the crypto subcommittee at this time. Marsh also did not comment on the group’s purview.
The group will likely be looking beyond cold storage to include crime bond markets; E&O (Errors and Omissions) insurance; D&O (Directors and Officers) and a general smorgasbord of potential product offerings to the digital assets world, according to sources close to the Lloyd’s market.
Hot And Cold
The risk relating to crypto held on exchanges and in wallets connected to the internet is a very different animal from vaulted cold storage.
To deal with losses from third-party hacks, most of the large crypto exchanges simply self-insure, holding large amounts of bitcoin locked up for such occasions. Having battled it out in the market for some years, people like Binance chief “CZ” Changpeng Zhao or Kraken CEO Jesse Powell see insurance for hot wallets as a fundamentally flawed concept.
Arch is not looking to enter the hot wallet space any time soon. However, Croome said he can see ways the crime market could interplay with the specie world.
“We will often take an excess layer, the larger chunk of capacity above the crime policy, to very high exposures but on a much tighter coverage. They will take much broader coverage with much smaller limits,” he said.
Marsh’s Digital Asset Risk Transfer team has clearly been pursuing its own plans regarding a hot wallet product. Quizzed on the subject of hot wallet coverage, Kacker said:
“At this point in time, I don’t want to let the cat out of the bag. But I can say it’s in the pipeline.”
Bittrex Takes Out Record $300M Insurance On Crypto Held In Cold Storage
Bittrex has insured digital assets held in its cold (or offline) storage to up to $300 million, the highest coverage yet offered by a cryptocurrency exchange.
The company announced the news Thursday, saying it has obtained digital asset insurance that will protect users’ holdings in cases of “external theft and internal collusion.”
Bittrex CEO Bill Shihara said the cover, which has a limit of up to $300 million, offers “peace of mind” and would show clients the exchange is “committed to prioritizing security throughout all of our decisions and forward-looking blockchain technologies.”
The insurance was underwritten by Arch Syndicate 2012, which provides specialized insurance for corporations. The policy was approved after the exchange demonstrated its internal security and compliance protocols, and was supported by other syndicates based out of Lloyd’s of London, one of the world’s largest insurance markets.
The term “external theft” is likely to mean a theft via a physical intrusion into Bittrex’s crypto vault, as cold wallets are not generally vulnerable to hacking. The cover may be similar to Arch’s Blue Vault, which provides limits of up to $150 million and covers the loss of digital assets due to internal and external theft (via direct access to the storage media) and also includes employee collusion.
CoinDesk has contacted the exchange to clarify the cover more precisely.
Sarah Downey, the co-leader of the Digital Asset Risk Transfer (DART) team at Marsh, the insurance broker that assisted Bittrex in drawing up the policy, said: “Insurance plays a critical role in the growth and development of any business, including those that work with blockchain technology and digital assets.”
Insurance coverage is a growing trend among businesses that hold users’ cryptocurrency. Custodial solution KNØX has insurance, also from Lloyd’s, which covers losses of up to $100 million. The Winklevoss brothers created their own insurance company earlier this month to guarantee losses up to $200 million for Gemini exchange users.
Coinbase previously held the record for the largest insurance coverage in crypto, insuring against third-party attacks of up to $255 million for digital assets held in the exchange’s hot wallets. With Bittrex’s news this week, the bar has been raised by a cool $45 million.
Lloyd’s New Insurance Offering Covers Crypto Held In Hot Wallets
Insurance giant Lloyd’s of London now provides a new type of liability insurance policy to protect cryptocurrency in hot wallets that is lost by theft.
Lloyd’s new offering was developed by Lloyd’s syndicate Atrium together with crypto will-focused firm Coincover, with limits from as little as £1,000 ($1,275), Lloyd’s announced on March 2. The policy is also backed by an array of other Lloyd’s insurers, including TMK and Markel, all of whom are members of Lloyd’s Product Innovation Facility.
“It is a new type of liability insurance policy with a dynamic limit that increases or decreases in line with the price changes of crypto assets. This means that the insured will always be indemnified for the underlying value of their managed asset even if this fluctuates over the policy period,” the announcement detailed.
Demand For Crypto Insurance Grows
Matthew Greaves, an underwriter at Atrium, noted an increasing demand for insurance for cryptocurrencies due to the popularity of such assets. David Janczewski, CEO of Coincover, commented:
“As the crypto-asset market heats up again at the start of 2020, a new wave of crypto-curious customers are standing by at the ready to jump in, having previously been put off by the lack of adequate protection against theft and loss. With this innovative new policy, we can remove these barriers and broaden the appeal of crypto.”
Lloyd’s is not new to cryptocurrency insurance. Back in August 2019, Lloyd’s began to insure crypto custody platform Kingdom Trust.
Most recently, news broke that blockchain security firm and crypto wallet service BitGo was planning to provide crypto insurance through Lloyd’s. Within the partnership, Lloyd’s is set to insure up to $100 million of assets held by BitGo or BitGo Trust Company.
The Winklevoss’ Gemini Exchange also launched an insurance company to cover up to $200 million for its institutional-grade crypto custody service, Gemini Custody. This is reportedly the largest amount for any cryptocurrency custody service in the world.
Retail Crypto Insurance: Protecting Crypto Holdings Becoming Mainstream
Insurance underwriters associated with Lloyd’s of London are now backing a new liability policy designed to protect cryptocurrency stored in online wallets. With a modest minimum of 1,000 British pounds ($1,275) in protected assets and rather flexible terms, the product seems to be geared for retail and corporate investors. But who is behind the novel service, and how will the policy work?
Forces Behind The Innovation
Despite the enthusiasm expressed in early media accounts for “insurance giant Lloyd’s backing crypto,” Lloyd’s of London is not an entity to which any centralized agency can be ascribed. Unlike most other major players in the field, it is not an insurance company, but rather a marketplace where insurance underwriters and brokers meet to assess and pool risks. This corporate body boasts a centuries-long history, with its governance structure codified in the 1871 Lloyd’s Act.
Lloyd’s hosts both individual and corporate underwriters, the latter being referred to as syndicates. If the introduction of crypto hot wallet insurance were viewed as a manifestation of some entity’s trust in digital finance, that entity would be the syndicate called Atrium.
In fact, Atrium’s interest in blockchain technology can be traced back to at least 2016. The syndicate has been one of several London-based firms to back a research project seeking to understand “potential application of these technologies in wholesale insurance,” in the words of Atrium’s chief information officer, Justin Emrich.
While the bulk of the credit for creating the new crypto-focused liability policy goes to Atrium, there are several other syndicates backing the new product. All of them are members of Lloyd’s Product Innovation Facility — a project that claims to have over 100 million pounds in endowment and is designed to provide forward-thinking underwriters a playground to experiment with insurance products that address novel types of risks.
As Contelegraph reported, the present crypto incursion is not the first time a Lloyd’s-affiliated underwriter is offering risk protection to digital asset holders. In August 2018, the United States-based financial services provider Kingdom Trust secured insurance for its crypto custody platform. Although it was brokerage firm SDBIC that facilitated the deal, the identity of the underwriter remained unknown.
How It Works
Naturally, insuring digital assets requires cooperation between those who specialize in underwriting risk and those who deal with cryptocurrency matters first-hand. The United Kingdom-based crypto security firm Coincover is responsible for the operational side of the new service. Upon request from Cointelegraph, the team behind the digital asset security platform shared some details of the theft cover solution.
The coverage protects the insured against losses sustained as a result of theft from their online wallet. Only users of pre-approved providers’ solutions are eligible to be covered, and currently only BitGo multisignature wallets qualify. Coincover will hold backup keys for protected accounts.
The policy protects users against a number of attack types, among them brute force, hacking, phishing scams, malware, insider attacks, device theft and criminal extortion. The event of an attack should be verified with local law enforcement authorities. However, it’s not hard to imagine the potential difficulties if a police unit proves uncooperative or unprepared to handle such an “exotic” crime.
Once the claim is approved, the insurance provider will aim to pay it out within 48 hours. The fiat value of the payout will be determined according to the coin’s price on coingecko.com at the time and date of theft.
Also, several common scenarios of coin loss are outside of the scope of coverage, including a willing yet mistaken transfer of cryptocurrency to a third party, or direct hardware loss or damage. The insurer will not protect against disruption or failure of the blockchain underlying the asset.
The price of coverage starts at 0.75% of the sum insured per year, and depends on the risk profile of the client and the level of cover required. The list of protected coins includes nine major currencies — Bitcoin, Ether, Bitcoin Cash, Bitcoin SV, Ripple, Stellar, Dash, ZCash and Litecoin — along with more than a hundred ERC-20 tokens.
Going into 2020, cryptocurrency theft shows no signs of subsiding any time soon. According to a recent KPMG report, poor quality code and insufficient security measures were primary culprits in the theft of over $9.8 billion in cryptocurrency since 2017, prompting institutional investors to consider owning cryptocurrency a risky endeavor.
The burgeoning custodial services sector is rapidly approaching levels of cold storage security that could match the expectations of financial institutions. However, the tradeoff is that digital funds physically stored in remote underground compounds are not always immediately available. Online wallets are much better suited for situations when quick liquidity is needed, and having reliable instruments to protect such hot holdings could provide traders with more flexibility.
Michael Collett, co-founder of digital asset management platform Stack, is not surprised by the panel of underwriters at Lloyd’s moving into the cryptocurrency space. He sees increasing enthusiasm for digital assets as a means of hedging against the ongoing volatility in traditional markets, prevalent among retail investors, high-net-worth individuals and institutional investors alike. Collett told Cointelegraph:
“As cryptocurrencies become increasingly popular, there will be growing demand for insurance that can protect digital assets on both an individual and institutional scale. While this product deals with individual investors’ non-custodial assets, there is little stopping the extension of this service offering — if it proves viable — to cover the cryptocurrency holdings of large financial institutions, ultra high net worth individuals, and pools of investors. This is a prudent move from Lloyd’s of London to slowly move into the cryptocurrency sector.”
Sharon Henley, head of product innovation at Coincover, shared an optimistic outlook with Cointelegraph. She observed that the growing popularity of the decentralized finance paradigm is associated with a demand for maintaining direct digital asset ownership backed by instruments that improve the security of such holdings. Coincover’s new insurance policy was developed with both individual and corporate investors in mind. Henley said:
“We are seeing demand across the spectrum, from crypto newbies, to exchanges, to asset managers. We can say that there is clear recognition from the insurance industry in general that assets will go digital and there is a great opportunity to bring in a level of security and protection to facilitate further widespread adoption. Ultimately, we feel insurance on digital assets will become baseline criteria for selecting your wallet or exchange service provider.”
Henley further believes that others in the insurance industry are looking at hot wallet protection as well, and similar products will not take long to emerge. Therefore, one thing seems certain: potential competitors, as well as the broader crypto community, will monitor the performance of Atrium and Coincover’s joint venture closely.
If the novel liability policy finds sufficient demand from individual investors, it could not only contribute to expanding the range of crypto-related insurance products on offer, but also encourage those still on the fence to finally buy into the vision behind digital currencies.
Bitcoin Insurance Funds Take A Beating As Markets Rout
Amid global market mayhem, several major Bitcoin (BTC) and crypto insurance funds are showing signs of severe strain.
As of March 13, Bitcoin derivatives exchange Deribit recorded a shocking slide in the balance of its Bitcoin insurance fund, down from 391 BTC to 183 BTC (-53%) within a span of three days.
Binance’s Insurance Fund Balance Halves Overnight
Earlier today, the Binance Insurance Fund issued an update on Twitter, revealing it had used over $6,000,000 in the past 24 hours to reduce auto-deleveraging (ADLs) on its platform.
“In the event that the insurance fund continues to deplete, we will inject new funds and continue protecting our users,” the exchange pledged.
Binance’s data reveals its insurance fund had more than halved overnight, dropping from 12,864 Tether (USDT) to 6,227 between March 12 and March 13.
Binance did not immediately respond to Cointelegraph’s request for comment.
Insurance Funds Across The Industry
Between March 11 and 12, data from crypto derivatives trading platform BitMEX indicates that its daily insurance fund dipped only slightly — from 35,508 BTC to 33,881 BTC.
As of press time, the fund’s balance is yet to be updated for March 13, preventing any conclusive assessment of the impact of the markets’ turmoil.
Data from crypto exchange OKex shows that 1,009.5 BTC was deposited into its BTC/USD Futures Insurance Fund, with 475.2 BTC thereafter withdrawn to cover a bankruptcy loss.
Between Feb. 24 and March 9, no withdrawals from the fund had been made at all.
The balance for Huobi’s Bitcoin Insurance Fund, meanwhile, shows an increase between March 12 and 13, from 1,121 BTC to 1,327 BTC.
The exchange, however, does not provide a breakdown of the data that would reveal the pattern of withdrawals and deposits within the same time period.
Reading The Signs
As early as January, prominent Bitcoin advocate Andreas Antonopoulos had uncannily forecast the scenario of this week’s financial turmoil and its likely impact on the crypto markets.
“When people get scared, when there is a recession like that, they pull back their investments, and they’re going to pull back from crypto too,” he said at the time.
This week, several traditional markets suffered their worst blows since 1987, and Bitcoin followed by plummeting 60% to lows of around $3,600 on some exchanges.
Some, notably Edward Snowden, are mulling whether to buy the big dip. The whistleblower tweeted earlier today that:
“This is the first time in a while I’ve felt like buying Bitcoin. That drop was too much panic and too little reason.”
As of press time, Bitcoin is trading $5,611, down 7.3% on the day, according to Cointelegraph’s Bitcoin Price Index.
BitGo Allows Customers To Extend Crypto Insurance Cover Over $100M
Customers of digital asset security specialist BitGo can now boost their insurance limit beyond $100 million to cover the loss or destruction of crypto stored in special vaults.
BitGo came out with a Lloyd’s-backed cold storage insurance product in February 2019 and is now allowing customers to extend the $100 million worth of cover to suit their needs. It’s a sign of the continued maturation of the crypto insurance sector.
“We’ve had lots of demand from small to large firms,” said Rodrigo Vicuna, BitGo’s CFO. “There have been small exchanges looking for an extra $5 million or $10 million. We also have had requests for as high as a couple hundred million. It really just depends on the size of the client and how much financial backstop is right for them.”
A couple of years back, crypto custodians and large exchanges struggled to secure insurance against the loss of digital assets. But more recently, syndicates within Lloyd’s of London specialist insurance market have been taking on more risk and increasing capacity in the market.
BitGo’s crypto policy is covered by Lloyd’s “specie market,” to use insurance industry parlance. This means insurance against theft or damage from vaults that typically hold cash, gold, fine art and so on.
For crypto, this means a $100 million worth of cover, plus any excess added on, is to insure against the loss of digital assets from devices that are not and will never be connected to the internet. It covers loss from insider theft and if a third party gains physical access to storage media and cryptographic keys.
BitGo announced the first customer for its new policy is Hong Kong-based exchange Crypto.com. Kris Marszalek, co-founder and CEO of Crypto.com, said in a statement, “BitGo carries a robust insurance program, elevating the scope of protection for our digital assets in their custody and providing further assurance to our customers that their funds are safe and protected.”
BitGo’s excess policy offering is arranged through insurance broker Woodruff-Sawyer & Co. in partnership with London’s Paragon Brokers.
As well as expanding its cold storage cover, BitGo also gives customers the option to add some hot wallet cover, thanks to a relationship with U.K.-based Coincover, which recently announced it was backed by Lloyd’s. Coincover offers a crime policy covering third-party hacks, by far the most common means by which crypto is stolen.
BitGo had previously teamed with Digital Asset Insurance (DAI), which later changed its name to Coincover. The partnership meant BitGo business clients could purchase theft insurance and a key recovery service.
“Anybody with a BitGo wallet could get hot-wallet coverage with us,” said David Janczewski, Coincover’s CEO.
Janczewski said Lloyd’s offers the policy on a case-by-case basis. In terms of the typical limits to what is available for hot wallet cover “it’s in the millions, possibly tens of millions,” he said.
“When we came out with that announcement back in 2019 saying you can now have optional hot wallet insurance up to your limit, the reason we designed that program was so BitGo would provide the initial protection,” said BitGo’s Vicuna. “Then, on top of that, clients each have their unique needs.”
BitMEX Defends Insurance Fund Being ‘Barely Used’ In BTC Price Crash
Bitcoin (BTC) derivatives exchange BitMEX continues to field criticism after attempting to explain a mass liquidation event during which BTC/USD crashed 60%.
In a blog post on March 23, BitMEX addressed what it says were “a number of questions” from traders since the event occurred eleven days ago.
BitMEX: Insurance Fund Functioned As Normal
At the time, BitMEX appeared to suffer from what various sources have called a cascading margin call, forcing out traders and sustaining the price of Bitcoin plummeting in the process. The exchange then went offline for around half an hour, after which the price recovered.
After fending off claims of foul play, BitMEX still faced queries over why its giant insurance fund — a bank of over 35,000 BTC ($205.6 million) — was not used to help.
Explaining its role, the blog post states that the fund’s primary purpose has always remained the same: to prevent auto-deleveraging (ADL) of successful traders’ positions to prevent the bankruptcy of positions that get liquidated.
“It is important for the Fund to be large enough to absorb intraday shocks, to avoid ADL on the platform,” it summarizes.
Fund’s Size Raises Questions
Not everyone was convinced. Responding to the post, Twitter-based trader lowstrife argued that questions remained about BitMEX’s modus operandi.
“The main question I raise here is why the insurance fund, when the worst-case scenario almost happened, was barely used,” he commented.
“Which raises questions of why it’s so large, and it’s overall efficacy. Here we arrive at the limits of my knowledge and opinion.”
According to data from Skew, March 12 saw the highest number of liquidations in BitMEX history at $876 million. The day after saw the second-highest at $798 million.
Civic Wallet Now Offers $1M ‘FDIC-Like Insurance’ For Crypto
Civic Wallet is a multi-signature non-custodial wallet that now comes with a $1,000,000 guarantee from Coincover.
Civic Technologies (CVC) has been known in the crypto space as one of the leading providers of decentralized identity and is now purportedly the first company to offer a non-custodial wallet with $1,000,000 protection. The wallet is currently in private beta.
Speaking to Cointelegraph, Civic co-founder and CEO, Vinny Lingham compared its key feature to the protection offered by the Federal Deposit Insurance Corporation (FDIC):
“This is the first time that both technical and non-technical users can feel safe about their holdings. Until now, people had to keep their coins in the cold storage, but now they don’t have to worry about it as their holdings are insured up to $1,000,000 just like a bank account with the FDIC.”
Coincover CEO, David Janczewski said, “Coincover is not an insurance company, we like to think of ourselves as ‘protection and security company for cryptocurrency’, for the insurance, we work with Lloyd’s of London underwriters.”
This being a multi-signature wallet, one key is stored by the user, another by the custodian BitGo, and the third one, currently by Civic, but will eventually migrate to Coincover. According to Lingham, one of the main benefits of this insurance is that in case Civic goes under, users will not lose their coins.
Another major advantage is the ability of legal heirs to recover funds through Coincover. For now, the coverage is only available to the United States residents but in the future, it will be extended globally and will include all the coins supported by BitGo.
Lingham noted that the coverage is free, but in the future Civic may start charging a fee on the accounts containing over $1,000,000 worth of cryptocurrency.
Civic Wallet users must still abide by stringent Know Your Customer requirements by supplying their government-issued identification and subjecting their visage to facial recognition software.
Users will also be able to connect their bank accounts and buy crypto without leaving the wallet.
As wallets containing higher amounts of cryptocurrency continue to grow in number, an insurance policy could not have come at a better time.
Crypto.com Claims Industry Record For Insurance Coverage As Users Double
Crypto.com has secured what it claims is the largest insurance coverage in the industry, following a surge in new users and volumes over recent months.
Crypto.com has secured a $100 million direct insurance policy provided by Arch Underwriting at Lloyd’s Syndicate 2012.
Per a May 11 announcement, the new policy brings Crypto.com’s total coverage to $360 million — with the firm claiming to now have the largest insurance coverage within the entire cryptocurrency sector.
With Crypto.com also reporting that its userbase has doubled over six months to tag $2 million, Cointelegraph spoke with the firm’s chief executive, Kris Marszalek, to find out more about the firm’s new coverage and spike in users.
Crypto.com Secures $100 Million Direct Coverage
Marszalek stated that the new $100 million policy is the largest direct policy secured by Crypto.com, noting that other coverage has come “indirectly via our custodial partner Ledger Vault.”
“The insurance policy covers loss attributable to various events such as physical damage or destruction (including natural disasters), third-party theft and more, against the cold storage assets on custodial partner Ledger Vault,” he stated, adding that Crypto.com “were able to ensure the coverage terms suit our specific needs.”
When Asked Whether Insurers Were Hesitant To Work With A Crypto Firm, Marszalek Stated:
“The insurance industry is still very new to the crypto space, and between the rare players which endeavour to cover crypto assets, the requirements imposed on the insured companies are often higher than those on traditional companies due the limited understanding of the technology and perceived higher risk of crypto assets.”
“For Crypto.com, the whole process took over six months and involved enhanced due diligence exercise on the entire company processes, and in particular on the storage and access of our multisig hardware signing devices and physical back-up keys.”
Transaction Volumes Spike
Crypto.com also announced that it has surpassed the 2 million customer milestone — with its user base doubling in half a year despite the coronavirus pandemic.
“In Q1 2020 we saw a record-breaking quarter with new users and trading volume. From the Fall of 2019 to Spring of 2020, we doubled our user base from 1 million to 2 million in under 6 months and saw transaction volumes triple between December and April,” Marszalek said.
“We definitely saw spikes right after the announcement of stimulus packages by the U.S. government. The growing distrust of the monetary policy over quantitative easing turned out to be the perfect build-up for this month’s Bitcoin halving and for the past two weeks we’ve seen a significant increase of new users.”
Marszalek said that Crypto.com’s debit card is the most popular product among new users, noting significant interest from European users after launching in the region.
“We are just around the corner from rolling out MCO Visa Card across Europe, where our team has successfully built momentum, especially for markets where localization is necessary,” he said.
“The Crypto.com App has reached top 50 in the Finance category in the U.K., France, Italy and Spain — markets where our team has spent hard work launching local communities and doubling effort on local language support,” he added.
Bakkt Announces New Insurance Coverage, Claims More Than 70 Custody Clients
Bitcoin warehouse Bakkt has onboarded more than 70 clients for its custody services and given them the option to tap more than $600 million in insurance coverage overall, the company announced Monday.
In a blog post, company president Adam White said Bakkt had partnered with insurance broker Marsh to provide more than $500 million worth of cover. Bakkt customers would have to purchase this insurance themselves, and it would be in addition to, rather than instead of, the custodian’s existing $125 million insurance coverage.
Marsh has been involved in the crypto space since at least 2018, and already facilitates or provides insurance for Crypto.com and Ledger.
Bakkt now has more than 70 customers for its custody services, the company said.
As part of its processes, the company has also completed an SOC 1 Type I examination (an evaluation of financial reporting controls at a given moment in time), which was conducted by KPMG. PricewaterhouseCoopers also conducted an SOC 2 Type II examination (an evaluation of customer data protection controls over a six-month period) of Bakkt’s enterprise functions, including the infrastructure hosted by its parent firm, Intercontinental Exchange.
“These audited procedures and controls are essential to our institutional customers,” White said, citing Tagomi as one of its clients.
Bakkt is also continuing its work on a retail-focused mobile app, eyeing a potential user base of more than 30 million individuals after partnering with two unnamed financial institutions, the blog post added.
“This suite of enterprise loyalty and merchant products has powered the redemption of more than 1.5 trillion points, helping companies put loyalty points to work for consumers,” he said.
The retail app development is tied to Bakkt’s earlier acquisition of Bridge2 Solutions, a loyalty rewards platform.
“Our enterprise loyalty products provide critical infrastructure to companies around the world and we’re proud to power thousands of programs that unlock digital assets for consumers,” White wrote.
Canadian Exchange Bitbuy To Offer 1:1 Bitcoin Deposit Insurance
Toronto-based cryptocurrency exchange teams up with a local security firm to offer full security against “the unthinkable”.
Toronto-based cryptocurrency exchange, Bitbuy, now offers full insurance on all Bitcoin (BTC) deposits in an apparent first for the industry, according to a press release shared with Cointelegraph on May 27.
The platform claims that the full value of its Bitcoin cold storage holdings is insured as a result of a partnership with Knox, a Canadian Bitcoin custody provider which normally caters to institutional investors and service providers.
“The funds that Bitbuy are transferring into our custody system are insured for the full value of the holdings, and this is effective immediately,” Knox CEO Alex Daskalov told Cointelegraph.
According to Daskalov, Knox’s custodial offering is composed of a mix of proprietary software and hardware, and “a very elaborate global logistics system that we have spent years constructing and battle testing”.
For its services, Knox charges AUC fees of up to 100 bps, “all while removing the burden of managing a globally distributed custodial system of such complexity”. Dean Skurka, head of finance and compliance at Bitbuy, told Cointelegraph that all incremental costs will be covered by the exchange, and no additional fees will be introduced for users as a result of this partnership.
“Our intention is absolutely to keep all of users’ funds in an offline segregated custody account that is insured as a result of this partnership,” Skurka said, adding:
“Knox has never lost Bitcoin, and this is an event with an especially low expectation. That said, they are fully prepared to navigate the claims process with us should the unthinkable ever occur. Any claim events would be carried out on a case by case basis.”
While Bitbuy lists six more cryptocurrencies apart from Bitcoin, the insurance option is currently available for BTC deposits only. The exchange plans to expand the program in the future, but there is no timetable set at this time.
The goal Is To Prevent QuadrigaCX Scenario From Happening Again
Both companies mention the infamous $190 million QuadrigaCX case as a starting point for their partnership. In January 2019, the now-defunct exchange announced that its CEO, Gerry Cotten, had suddenly died from medical complications. This left all of the exchange’s funds — which were purportedly held in a cold storage account for which only Cotten knew the password — inaccessible.
“QuadrigaCX Was A Huge Wake-Up Call For This Industry In Canada, And Indeed The World Over,” Daskalov Told Cointelegraph, Adding:
“We believe that customers who do not wish to hold their own Bitcoin deserve the right to a method that is not mired in the risks faced by people like those who lost their holdings in QuadrigaCX.”
Ziglu Insures Cryptocurrency Holdings Up To £50,000 Against Cybercrime
The multi-currency banking platform has announced that each customer will now be insured against cybercrime up to £50,000.
United Kingdom cryptocurrency banking platform Ziglu launched an insurance program on July 15 for digital assets held with the service. Under the new program, each customer’s cryptocurrency holdings are insured against cybercrime to a value of £50,000 ($63,000).
Customer assets are held in segregated accounts, with the vast majority stored in offline cold wallets. These additional measures decrease the risk of theft through hacking or other means.
Multi (Fiat And Crypto) Currency Accounts
As Cointelegraph reported, Ziglu is the brainchild of Mark Hipperson, former Barclays technology head, and co-founder of U.K. challenger bank, Starling.
The service launched last month, offering an account that allows users to hold funds in multiple fiat and crypto-currencies, and freely exchange between them. Its fully transparent model guarantees no hidden fees or transaction charges, and competitive exchange rates.
“One of the biggest concerns for users is the safekeeping of their funds and cryptocurrencies. Ziglu’s insurance programme brings peace of mind to existing customers or those dipping their toes into cryptocurrency for the first time.”
£50,000 Covered Against “Cybercrime”
Insuring against “cybercrime” clearly covers a diverse range of potential attack vectors. We asked Hipperson what type of attacks were perceived to be the most likely to require such cover:
“We expect the target to be the hot wallets but the type of attack changes rapidly which is why our insurance covers a broad spectrum of attacks on the digital asset wallets.”
The £50,000 limit currently applies per customer, although Hipperson said that Ziglu may look to expand this to be per cryptocurrency in the future.
Further Future Enhancements
Planned future additions to the service include direct global payments to friends, family, and businesses via banking networks. There is also talk of a Mastercard debit card.
The debit card will allow users to spend any currency they hold, including crypto, anywhere in the world. The card will apply direct currency conversion at point of sale, allowing users to easily hold and spend cryptocurrency alongside their fiat funds.
Insurers Come To Crypto’s Wild West Promising 50% Plus Returns
Adventurers in what is perhaps the most lucrative and risky corner of the cryptocurrency world are starting to see a bit of a safety net.
In the past year, scores of investors big and small have poured billions into decentralized-finance applications that allow users to lend, borrow and trade crypto without intermediaries like banks. While the DeFi sector is booming, it has also been plagued by hacks, fraud and a copy-and-paste coding culture where a modified app can siphon away users from an established rival.
Now software developers are launching products that claim to reduce the risks by selling something akin to insurance coverage. But here’s the catch: They’re also DeFi apps.
Unlike insurance offered through the likes of Lloyd’s to custodians and large crypto exchanges, these apps — which run on digital ledgers called blockchains — let any investor buy coverage. They also allow anyone to form investment pools to provide coverage — often promising annual returns of at least 50%.
New Cover Purchased!
Cover ID: 3683
Project: Keeper DAO
Cover Amount (USD): $150,150.00
Cover Amount (ETH/DAI): 150,000.0 DAI
Start Date: 2021-03-25
Expiration Date: 2021-04-24
More info: https://t.co/Rf3jaJTObF
— Nexus Mutual Bot (@NexusMutualBot) March 25, 2021
Here’s how it works. Investors typically decide to offer coverage for a specific DeFi app, or vote on which DeFi apps everyone’s money should go into covering. That means a chance to get rich, or to lose everything by making the wrong bet.
“Definitely do your own research and buyer beware,” said Mike Miglio, chief executive officer at Bridge Mutual, which is planning to launch a DeFi insurance app. “That is the true nature of what DeFi is supposed to be.”
But this dis-intermediation of insurance companies could also potentially undermine the very promise of insurance.
“The main missing ingredient is risk reduction,” said Aaron Brown, a crypto investor and writer for Bloomberg Opinion. “A pure financial contract doesn’t do that, and I don’t see how a decentralized entity can underwrite.”
Typically, the DeFi insurance apps are highly automated: All transactions happen via self-executing software programs known as smart contracts. And like most DeFi apps, the new insurance ones are also at the risk of being hacked.
What’s more, the investors in the insurance pools find that profits are heavily dependent on the price appreciation of digital tokens used to execute the applications.
With Nexus Mutual, the largest provider of such DeFi policies, investors receive a certain number of NXP tokens in exchange for Ether cryptocurrency, and they can cash out by selling the tokens. At Bridge, users are primarily paid with the app’s own BMI tokens, as well as in a so-called stablecoin DAI whenever a premium on a policy is paid.
“If the price of the token goes up or down, the APY goes with it, but we are aiming for a base of 50% assuming the price is stagnant,” Miglio said. The market value of BMI’s tokens have more than doubled since the coin’s debut in February, according to data tracker CoinMarketCap.com. But there are no guarantees the rally will continue.
“The fundamental purpose here is for sharing risk together rather than for gains,” said Hugh Karp, founder of London-based Nexus, who lost NXM tokens in a phishing attack last year before the company offered that type of coverage.
Now Nexus offers coverage for 70 different smart contracts and has issued about 4,000 policies. So far it has had to pay out twice for a total of $2.5 million, which includes when Yearn.Finance got hacked earlier this year. Meanwhile, it’s taken in $20 million in policy premiums.
Whether the good times will last is unclear.
“The insurance protocols are being thoughtful and careful to the extent possible, but much of this is still unknown unknowns,” said Lex Sokolin, global fintech co-head at ConsenSys.
Crypto Insurance Firm Evertas Wins Lloyd’s of London Approval
Evertas, the first such “coverholder” to specialize in crypto wallets, was sponsored by Lloyd’s syndicate member Arch Insurance.
Evertas, an insurance platform focused on the cryptocurrency space, has been granted approval to call itself a Lloyd’s of London coverholder.
Something of a coup for a crypto firm, coverholders are specialty insurance providers authorized by Lloyd’s, the 336-year-old general insurance market, to write and service policies covering risk in various geographies or niche sectors.
It makes Evertas the first coverholder at Lloyd’s to specifically cover digital wallet products and write policies on behalf of Lloyd’s syndicate member Arch Insurance, which also served as sponsor of the Evertas coverholder application.
The need for insurance coverage across the cryptocurrency industry far outweighs capacity in the market. While there’s a growing appetite and expertise among certain Lloyd’s members to explore cryptocurrency-related risks, the overarching Society and Council of Lloyd’s has been skittish when it comes to public announcements about crypto coverage being provided in the market.
“Our approval of Evertas’ coverholder application is an example of collaboration between Lloyd’s insurer Arch and their new distribution partner on an innovative solution aimed at facilitating the growth of an industry sector previously hindered by a lack of risk transfer options,” said Hank Watkins, president of Lloyd’s in the Americas, in a statement.
Evertas CEO J. Gdanski said his team has worked long and hard to define a policy framework for the risks related to typical classifications such as “hot,” “warm” and “cold storage” of digital assets.
“We’ve come up with the most comprehensive policy form and product that’s out there, where it’s very clear what is and is not being covered, resolving a lot of the legal ambiguities and technical inaccuracies,” said Gdanski in an interview.
The Evertas insurance product goes live next week and the target market includes traditional funds, crypto funds, family offices and high net worth individuals, Gdanski said.
“We are the first full product to have underwriting that is scalable and appropriate for different market participants,” Gdanski said. “So if you have a crypto risk, if you’re looking for insurance, you should have your broker contact us.”
Binance Builds Up $1 Billion Insurance Fund Amid Crypto Hacks
Binance Holdings Ltd. has built up a $1 billion insurance fund for its users amid a barrage of hacks on cryptocurrency trading platforms, according to a memo.
Binance, the world’s largest crypto exchange by trading volume, has been earmarking money for the emergency portfolio since July 2018 and just recently consolidated the funds into one place. The effort marks an attempt to combat concerns from users following a string of cyberattacks, including one at Binance in 2019.
Earlier this month, Crypto.com said customer accounts that held about $34 million in cryptocurrencies and cash were hit by unauthorized withdrawals. Hackers seized more than $80 million of digital assets from a blockchain extension by Qubit Finance last week.
“At Binance we always said ‘funds are safe,’ and today the Binance Secure Asset Fund size acts as an effective safeguard as well as protection for users against such unlikely issues,” Chief Executive Officer Changpeng “CZ” Zhao said in the memo seen by Bloomberg News.
The fund was valued at $1 billion based on the opening price on Jan. 29.
Cybersecurity breaches have become ubiquitous on cryptocurrency trading platforms, leaving investors frustrated and companies suspending services to fix network vulnerabilities. It’s a caveat of a system where transactions can only be traced to anonymous serial codes rather than personal identifications.
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