The value of the largest crypto exchange insurance funds increased by 1 billion dollars during the ongoing crypto bull market. As of April 3, the balances of Bitcoin, Binance Coin, Tether, and TrueUSD (TUSD) that make up the Secure Asset Fund for Users (SAFU) at the crypto exchange Binance surpassed $2.03 billion, compared to the initial balance of $1 billion recorded in January 2022.
What’s Happening in Crypto Exchanges?
Accordingly, the initial $300 million protection fund launched by the crypto exchange Bitget in November 2022 has since increased to $612 million due to the rise in the value of Bitcoin assets. In the past year alone, as part of the crypto bull run, Bitcoin gained 136% and BNB 79.36% in value.
Although most exchanges offer some form of insurance protection for users, only Binance and Bitget have disclosed their on-chain addresses to date. In 2019, the crypto exchange now known as HTX announced that it had a reserve of 20,000 Bitcoins worth $1.32 billion at an independent address to cope with extreme security incidents. It is unclear whether the exchange has maintained the balance to date. In addition, the HTX group of companies faced various attacks last year, resulting in losses of millions of dollars.
Meanwhile, the crypto exchange OKX has a $700 million Risk Shield program for user protection, but it is not clear whether this amount includes tokens, stablecoins, fiat funds, or all three. Some exchanges, like Coinbase, only offer insurance depending on the geographical location of customers and whether their funds are in fiat or crypto.
Crypto Exchanges and Insurance Funds
Exchanges may choose not to disclose their on-chain asset addresses for various reasons, such as fear of cyber-attacks or deception, as in the case of the now-bankrupt crypto exchange FTX. Last October, former FTX CTO Gary Wang told law enforcement that the exchange’s supposed $100 million insurance fund in 2021 was fictitious and never included FTX tokens (FTT). FTX’s insurance fund was designed to protect user losses in case of sudden market movements and was often promoted on the website and social media.
Similarly, on-chain addresses only reveal part of the story and do not include information such as an exchange’s off-chain liabilities. Some jurisdictions, like Hong Kong, have since required crypto exchanges to provide insurance that covers up to 50% of users’ fiat and crypto assets.
