What does exchange insurance cover?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 5 min
In short
Some exchanges maintain insurance or a reserve fund against incidents such as theft. These come with defined covered events, caps and payout conditions, so they do not make every loss whole. The key point is not to read the existence of insurance as a guarantee of safety.
Key points
- Insurance or a reserve fund against incidents such as theft
- Covered events, caps and conditions are defined in advance
- Full reimbursement is not guaranteed
- Price falls and user mistakes are normally excluded
Definition
An arrangement — an external insurance policy or an in-house reserve fund — through which an exchange seeks to cover part or all of customer losses arising from defined events.
These arrangements mainly anticipate assets being stolen through external intrusion. Some operators buy cover from an insurer; others build an in-house fund from a share of fee income; some do both.
The crucial point is that coverage is bounded. Which events qualify, the payout ceiling and the exclusions are all set out in the policy or terms. If a loss exceeds what the fund or policy can absorb, distribution to users may only be partial.
Losses from falling prices, from sending to the wrong address, or from handing over credentials in a phishing attack are normally outside the scope. Insurance addresses failures on the operator's side; it does not absorb risks that sit with the user.
Watch out for
- · Even with insurance, losses are not necessarily made whole
- · Price declines and user errors are normally excluded
- · Scope and caps vary by operator — read the terms