Best Crypto and DeFi Insurance

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Contributor, Benzinga
February 4, 2021

Quick Look: The Best Crypto and Defi Insurance

  • Best for Decentralization: Nexus Mutual
  • Best for Theft and Loss: Evertas
  • Best for Insurance Variety: Etherisc
  • Best for Crypto Wallets: Coincover
  • Best for Crypto Exchanges: Aon

Blockchain and cryptocurrencies are changing the way the insurance industry operates –– especially insurance in the crypto and decentralized finance (DeFi) space. Some companies are even decentralizing insurance funds with blockchain technology, meaning that anyone can buy tokens that represent a piece of the insurance fund and potentially profit from the value of the fund increasing.

Similar to other investments, losses from the value of your cryptocurrency decreasing are not insured. Losses from smart contract bugs and hackers, however, may be insured. To limit your risk as an investor, you should use a cryptocurrency exchange and crypto wallet that are insured. 

Disclosure: ²Sum of median estimated savings and rewards earned, per user in 2021 across multiple Coinbase programs (excluding sweepstakes). This amount includes fee waivers from Coinbase One (excluding the subscription cost), rewards from Coinbase Card, and staking rewards. ³Crypto rewards is an optional Coinbase offer. Upon purchase of USDC, you will be automatically opted in to rewards. If you’d like to opt out or learn more about rewards, you can click here. The rewards rate is subject to change and can vary by region. Customers will be able to see the latest applicable rates directly within their accounts

Best for Decentralization: Nexus Mutual

Nexus Mutual is a decentralized insurance fund that operates on the blockchain. Nexus Mutual uses smart contracts to pool funds and distribute insurance claims. 

Smart contracts are sets of code that are capable of performing financial functions on the blockchain. For example, once an insurance claim is verified, the Nexus Mutual smart contract pays out the insured party from the insurance fund automatically.

Investors in the fund get to vote on which smart contracts and crypto wallets they insure proportional to the amount of their Nexus tokens (NXM) in the fund. Companies who are insured by Nexus mutual pay into the fund with NXM tokens. Nexus uses mathematical functions to calculate the amount of claims they are capable of insuring so the fund doesn’t become over leveraged.

Best for Theft & Loss: Evertas

Evertas is the 1st insurance company that solely underwrites insurance for blockchain and cryptocurrency users. Not only does Evertas insure your crypto from online hacks, but they also insure for loss of your private keys. Private keys are what give you access to your cryptocurrency wallet.

Evertas also covers losses due to technology errors and omissions. Technology errors and omissions include smart contract failures, exchange outages and hardware malfunctions. This type of coverage is bought by cryptocurrency platforms to insure their legal liability to recover users’ funds in the case of a technology failure.

Best for Insurance Variety: Etherisc

Etherisc is a smart contract protocol for insurance on the Ethereum blockchain. This company is decentralized, meaning that anyone can invest into the insurance fund or be insured by the fund. And developers can create new insurance protocols on Etherisc, but these new proposals must be approved, registered and regulated by the government. 

As of now, the only licensed insurance on Etherisc is for flight delays and cancellation. Users can buy this insurance to insure against real-world flight cancellation or delays. 

Many other insurance protocols have been developed on Etherisc. Developers have created hurricane insurance, crypto wallet insurance, crypto loan insurance and crop insurance, but they have yet to get licensed. 

You also have the option to invest in the Etherisc insurance fund. Users can deposit Ethereum, Bitcoin, or USD to earn an interest on their investment. If you don’t want to risk money on Etherisc but want to get involved with the platform, you can be paid to process claims, develop insurance protocols or file insurance reports.

Best for Crypto Wallets: Coincover

Coincover is a centralized insurance option for crypto wallets, smart contracts and exchanges. They don’t directly sell insurance to retail investors, as its focus is to insure cryptocurrency companies from online hackers. If you see the “protected by coincover” stamp on your crypto exchange, then you know your funds stored on that exchange are insured against a security breach. 

Coincover also lets companies sell additional insurance coverage to their clients. For example, exchanges can sell you private key coverage, so you can be insured in case you lose your private keys. 

What’s most unique about coincover is their cryptocurrency storage solution. Coincover offers its users an insured crypto wallet where 100% of your cryptocurrency will be replaced in the event of a security breach. Also, coincover is incredibly secure –– it locks its private keys in a vault off-line, so an online hack is virtually impossible.

Best for Crypto Exchanges: Aon

Aon is a traditional insurance company that provides professional risk solutions to businesses. It’s a publicly-traded company on the New York Stock Exchange.  Aon also offers commercial risk solutions in several blockchain-related ventures like crypto brokerages, cryptocurrency miners and blockchain protocols. 

The company insures a Montreal-based cryptocurrency exchange called Shakepay. You can use Shakepay with confidence knowing that any loss due to a security breach is insured by a well-known insurance company.

Is Crypto FDIC Insured?

The Federal Deposit Insurance Corporation (FDIC) insures cash deposits at traditional banks up to $250,000. Like other investments, cryptocurrency is a separate asset class from the dollar, so it’s not insured by the FDIC. For cryptocurrency to ever be insured by the FDIC, mainstream adoption from banks and a stabilization of cryptocurrency prices would have to occur. 

However, some exchanges like Gemini are FDIC insured for cash deposits. This means that the 

cash you hold on Gemini will be covered if it is lost. Gemini is a great crypto brokerage if you look to frequently hold cash positions or swing-trade cryptocurrencies.

Crypto Exchanges That Are Insured

Many large exchanges offer insurance for their users. Coinbase insures the funds stored on its exchange, so if there was ever a hack its users would be reimbursed. 

To keep insurance costs low while maintaining security, Coinbase stores 98% of its funds in an offline hardware wallet, with the remaining 2% is stored on the exchange for liquidity. Hardware wallets cannot be hacked into remotely, so as long as the physical cryptocurrency wallet is kept safe, the funds will be secure.

Both Gemini and Binance insure user cash deposits through the FDIC. Any cash holdings you have on either of these exchanges would be reimbursed if there were ever a security breach. 

As of last year, Binance has created its own insurance fund for its users. The fund is called Secure Asset Fund for Users (SAFU). The SAFU is funded by 10% of the revenue from trading fees. This fund is used to insure users’ assets in the case of a security breach on Binance’s website. The fund does not, however, insure hacks against personal accounts, so be sure to keep your passwords safe and use 2-factor authentication.

  • securely through Gemini Crypto's website
    securely through Gemini Crypto's website
    Best For:
    New Investors
    Rating:
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  • securely through Coinbase's website
    securely through Coinbase's website
    Best For:
    Coinbase Learn
    Rating:
    Read Review

    Sum of median estimated savings and rewards earned, per user in 2021 across multiple Coinbase programs (excluding sweepstakes). This amount includes fee waivers from Coinbase One (excluding the subscription cost), rewards from Coinbase Card, and staking rewards. ³Crypto rewards is an optional Coinbase offer. Upon purchase of USDC, you will be automatically opted in to rewards. If you’d like to opt out or learn more about rewards, you can click here. The rewards rate is subject to change and can vary by region. Customers will be able to see the latest applicable rates directly within their accounts.

What is Actually Insured?

As you can see, there are many different ways exchanges go about securing and insuring your funds. If a crypto brokerage insures your funds on its exchange, you can trust that the exchange is secure. If it wasn’t, no insurance company would insure them. Even if there were a security breach, you know that your funds will be reimbursed by the insurance company. 

If an exchange holds part of your cryptocurrency in a hardware wallet, then it’s secured from hackers. Insurance on hardware wallets isn’t necessary, as they can’t be hacked into like an exchange can.

It’s also a good idea to use an exchange that is FDIC insured for cash deposits, especially if you plan on having a cash balance in your crypto brokerages account. Both Coinbase and Gemini insure their cash deposits, so you will be covered up to $250,000 in the case your cash deposit is lost.

The insurance industry is beginning to implement blockchains into their business model to cut costs for the companies’ bottom-line. Blockchain technology can help verify insurance claims and eliminate much of the overhead costs associated with traditional insurance firms. And decentralized insurance like Etherisc lets users directly own a piece of its insurance fund to earn interest on their cryptocurrencies.

Continue reading: BEST SPECIALTY INSURANCE COMPANIES USING BLOCKCHAIN AND INSURTECH

Frequently Asked Questions

Q

Is defi insurance worth it?

A

Yes, defi insurance is worth the investment because it protects investments and business transactions that are not insured by the FDIC.

Q

Is crypto a good investment?

A

Crypto can be a good investment if you do your research, budget properly and only spend money you can afford to lose.

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