The crypto and NFT (non-fungible token) industry could be the one under stress now, but it is the digital asset insurance players who are seeing all the actions currently because of the troubles facing virtual currency ventures.
Crypto insurance companies are seeing a volley of requests for fresh or increased insurance covers from digital asset operators.
The insurance majors are also flushed with filings for claims for losses by companies and individual crypto investors, industry insiders said.
Alongside, the crypto market is also witnessing increased inter-segment collaboration, with e-wallet players such as Liminal joining hands with blockchains such as Polygon, Tezos and Avalanche to support them with safe and secure asset custody solutions in the wake of the FTX collapse and increasing instances of crypto and NFT (non-fungible token) frauds.
“We have taken a $50 million insurance from Lloyds of London to ensure 360-degree protection of our client’s funds,” Mahin Gupta, founder of Liminal, a digital wallet infrastructure platform, told Arabian Business.
Industry insiders said several other ventures were also currently in the process of approaching insurance majors with requests for either fresh or increased insurance cover to protect their clients’ funds.
Asset insurance giants like Nexus Mutual, Canopius, Munich Re and Zurich Arch are among the ones which are underwriting crypto risks to provide insurance for various crypto companies, industry sources said.
Crypto insurance mitigates the fallout in the event of cyberattacks, internal process errors, software bugs, etc. by providing adequate coverage to compensate for lost funds.
Going by statistics, a hacker attack takes place every 39 seconds, with IBM.com estimating the average cost of a data breach at $3.86 million.
Gupta said Liminal’s partnership with Canopius 4444, a Lloyd’s London syndicate, is to create a backup device insurance worth $50 million to cover the company’s backup keys.
“Since, we don’t hold our customer’s keys, they have full autonomy of their assets. We aim to help and protect our users from potential hacks, breaches, or even human error, which results in lost funds, by establishing several layers of protection,” Gupta said.
Digital wallet infrastructure platforms provide a security blanket to customers with their keys which are used to monitor and process their transactions.
“In an event where our [Liminal’s] keys become irrecoverable and even the user has lost their keys, in such circumstances, this insurance cover can be used,” Gupta said.
Industry experts said while insurance cover does provide an extra layer of security to digital assets, it is equally important to ensure the security of digital assets by using hardware wallets to store cryptocurrency and tokens offline and also opt for self-custody to have full control over customer keys.
According to industry sources, many of the asset insurance majors were currently in the process of settling loss claims by crypto players as also individual investors.
Insurance firm Nexus Mutual is said to have approved 9 out of 10 claims for custody cover to those locked out of CeFi (centralised finance) funds for more than 90 days for members in Hodlnaut who held active FTX custody cover when withdrawals were first halted in August this year.
Nexus Mutual members have reportedly paid $1.04 million to investors affected by halted withdrawals on Hodlnaut.
The insurance company in its newsletter also mentioned that if withdrawals are still halted on 6 February 2023, members who held active FTX custody cover when withdrawals were first halted can begin filing claims.
Nexus Mutual also settled many claims during the Teraa Luna fiasco as well as during bZx flash loan attack, according to industry sources.
Even as investors are busy making claims for losses, some of the crypto startups have also launched a customer awareness programme about good practices to ensure their funds’ safety.
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