Binance's $6.3 bil. hack: How crypto insurance works

On May 11, 2021, hackers executed the largest cryptocurrency heist in history, siphoning $6.3 billion from Binance, the world's largest crypto exchange. This event brought much-needed attention to the issue of cryptocurrency insurance, as insurers grappled with the unique challenges of underwriting risks associated with digital assets.

Digital asset insurance is a specialized form of coverage designed to safeguard cryptocurrency exchanges, custodians, and other industry players from financial losses due to theft, cyberattacks, technological failures, and other business risks. Unlike traditional insurance policies, digital asset insurance policies are tailored to the unique needs and risks of the crypto industry.

Coverage under digital asset insurance varies depending on how assets are stored, how hackers gain access, and the specific terms of the policy. Insurers are cautious due to the lack of regulation and the volatile nature of cryptocurrency prices. Despite this, demand for protection against digital asset theft and claims against company executives has been growing.

The underwriting of such risks is primarily handled by specialist insurers operating in the Lloyd's market and Bermuda. While the rise of crime and demand for protection have kept pace with cryptocurrencies' meteoric rise, underwriting these risks remains a niche business.