Amidst the current cryptocurrency bull market, the top exchange-traded insurance funds have seen a value increase of over $1 billion.
In comparison to their starting amount of $1 billion in January 2022, the Bitcoin, BNB, Tether, and TrueUSD (TUSD) balances that make up cryptocurrency exchange Binance’s Secure Asset Fund for Users (SAFU) exceeded $2.03 billion as of April 3.
Similarly, Bitget, a cryptocurrency exchange, saw an increase in its protection fund from its original $300 million in November 2022 to $612 million due to the growth of its Bitcoin assets. As part of a crypto bull run, Bitcoin has increased in value by 136% and BNB by 79.36% in the last year.
Only Bitget and Binance have revealed their on-chain addresses since then, although most exchanges provide users with some insurance coverage. To “cope with extreme security accidents,” the cryptocurrency exchange Huobi, currently HTX, revealed in 2019 that it has set up 20,000 BTC ($1.32 billion) in an autonomous address.
Whether the exchange retained the balance until now is still being determined. Furthermore, the HTX group of companies lost millions of dollars due to multiple exploits that occurred in the previous year.
For user protection, OKX, a cryptocurrency exchange, has launched a $700 million program called “Risk Shield.” It’s unknown how much of this money comprises fiat money, tokens, stablecoins, or all three.
Certain exchanges, like Coinbase, only provide insurance to users based on where they live and whether they have cash or cryptocurrency in their accounts.
Exchanges may decide not to provide the on-chain addresses of their holdings for various reasons, including deceit (as in the instance of the now-defunct cryptocurrency exchange FTX) or fear of cybersecurity attacks.
Former chief technical officer of FTX Gary Wang revealed to law enforcement officials in October of last year that the exchange’s purported $100 million insurance fund for 2021 was a hoax and never held any FTX Tokens (FTT).
FTX’s insurance fund was created to guard against customer losses during large, abrupt market swings, and the company frequently emphasized the fund’s worth on its website and social media accounts.
Similar to off-chain liabilities, on-chain addresses only provide a portion of the story and do not carry this information. Since then, other governments—like Hong Kong—have made it mandatory for cryptocurrency exchanges to offer their customers insurance that protects up to 50% of their fiat and cryptocurrency holdings.
