Crypto Insurances are designed to back up the funds in case of any forgery, hacks, leaks, or other calamities
As per the reports of the Insurance Journal, FTX held insurance for the cryptos stored in its hot wallets with a limit of $7.5 million
Wordplay in insurance policies of those companies that millions of crypto investors trust, is a damaging stature for the industry
16 Nov 2022
The FTX crash landed thousands of its customers in dismay with billions of funds either lost or hacked only in a matter of the last few days. This has impacted global cryptocurrency prices, pushing some of the crypto tokens to their all-time lows. Amidst this crisis, the question of security and reliability in crypto has again become a major point of discussion.
Even after being considered one of the safest crypto ecosystems in the world, FTX’s total value turned into dust within hours. And this is what raises questions about the authority of the crypto as a trustable asset and the security mechanisms promoting its expansion.
One such security mechanism used by exchanges is Crypto Insurance. The mechanism is designed to back up the funds in case of any forgery, hacks, leaks, or other calamities. These insurances are used to build trust amongst customers, providing them the relief that their funds are secured even if anything goes wrong.
After reading about crypto-insurance, it is obvious for you to wonder whether FTX had insured its assets with any crypto-insurance company. However, none of us can access the ‘Security and Insurance’ section of the exchange’s website as it has ceased to load.
As per the reports of the Insurance Journal, FTX held insurance for the cryptos stored in its hot wallets with a limit of $7.5 million. This insurance was inadequate in all aspects to cover the losses of its users in worst-case scenarios. Apart from that, the Insurance Journal also reported that FTX has delegated its funds to BitGo, a digital asset trust and security company, to provide custody and insurance.
Talking about the data accumulated from our recent research, FTX Global did not have any collaboration with BitGo. And Mike Belshe, CEO of BitGo, confirmed the same in one of his tweets last week. On 8th Nov, Mike made it clear that none of the FTX Global funds were in the custody of BitGo.
But still, FTX US exchange, which is not a part of this crash, has deployed its smart crypto security protocols in collaboration with BitGo.
Conclusively, FTX Global was insured even though its overall cover was not significant to make things better in any way.
From Lloyd’s of London to IBM, blockchain insurance has become an integral part of the portfolios of global insurance players. Crypto insurance marks a significant portion of the exchange budgets and plays a key role in gaining the trust of its users. But does having crypto insurance make a centralized exchange immune to a breakout? Or does crypto insurance ever work?
The answer to this question may not be a simple yes or no but as per the previous crashes in the industry, no significant claims have been processed to serve the cause of investors. In the Great LUNA Crash, InsurAce registered investors' claimed $12 million or above but no institutional blockchain insurance player came forward.
Institutional crypto insurers have to make it an industry standard to expand their plans’ coverage for exchanges of significant sizes. From conducting the right investigation into books to covering all the possible threats to exchanges, insurers must be clear and comprehensive in their documentation.
Wordplay in insurance policies of those companies that millions of crypto investors trust, is a damaging stature for the industry. Centralized exchanges need to come up with better solutions to incite transparency in their operations otherwise the stream of users will continue to flow toward decentralized mediums.
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