Crypto.com has gathered a record-breaking $360 million worth of insurance to cover the potential loss of coins stored in special offline vaults.
Announced Monday, the crypto finance platform accessed the cover through institutional custody provider Ledger Vault, which offers $150 million of pooled insurance cover to clients via insurance broker Marsh, and Lloyd’s of London underwriter Arch Insurance.
Crypto.com, which reports two million users on its platform, has topped up the Ledger Vault cover with a $100 million direct policy, and also availed itself of $110 million worth of digital asset custody insurance from BitGo under a pooled and direct policy.
Snagging crypto insurance has been notoriously difficult over the past few years, even for the large blue-chip exchanges. Things appear to be changing, however, with Lloyd’s, the 300-year-old specialist insurance market, recently putting its name to a product covering losses from so-called “hot wallets,” or accounts that remain connected to the internet.
There has been some rivalry among crypto custodians touting big-figure insurance cover, with Seattle-based exchange Bittrex recently trumpeting some $300 million of cover for cold storage, or offline accounts. Coinbase and Gemini have also announced insurance coverage of $200 million and above to assuage potential concerns of deep-pocketed institutional clients.
‘An arm and a leg’
Crypto.com CEO Kris Marszalek said the multi-month process of attaining insurance cover was like working with Visa to issue a crypto credit card, which took the startup a year and a half to complete.
“These types of big firms and institutions take their sweet time of course, and boy, oh boy, do they charge an arm and a leg for this,” said Marszalek. “It’s us paying for the big insurance guys’ education in this space. Over time, as the industry gets bigger and maybe some competitors come in, we will have slightly more leverage to negotiate,” he added.
Firms that are part of Ledger Vault’s $150 million insurance program can buy additional coverage on top. This involves more tire-kicking from the team of crypto specialists at Marsh and Arch, one of the few underwriters at Lloyd’s that fully understands cryptocurrency.
“A complete and detailed understanding of the custodial process is one of the most critical, and time-consuming, stages in the underwriting of any digital asset risk,” James Croome, head of specie for Arch Underwriting, told CoinDesk via email.
“By choosing to partner with Ledger Vault, a known service provider to insurers, Crypto.com was not only able to provide underwriters with the necessary confidence in their custodial security, but they were also able to obtain a policy in a much shorter time frame than is ordinarily the case,” said Croome.
Crypto.com has taken a multi-vendor approach towards insurance, involving both Ledger Vault and BitGo in its collective cover. Marszalek said this was less to do with amassing a big dollar amount and more about having a regulated presence in different regions and jurisdictions. (BitGo received regulatory approval from the South Dakota Division of Banking to operate as a qualified custodian for storing digital assets, for example.)
Cold-storage cover of the sort Crypto.com has purchased covers loss or destruction of private cryptographic keys by natural disasters like earthquakes and the like, as well as insider theft and collusion among employees. It does not cover remote, third-party hacks; the system must be infiltrated in such a way that the attacker physically accesses the storage medium.
Big players in the exchange space like Binance and Kraken have called out crypto insurance as a flawed concept, taking the view that firms simply have to self-insure at the end of the day.
Marszalek was philosophical about this.
“Is it a panacea for the security issues the industry faces? I don’t think so,” he said. “Am I a fan of the insurance industry in general? Probably not. But our customers care. They know that before the insurer gives their stamp of approval, they are going to go in and check everything.”