How you can protect Bitcoin and Co. from crashes

Cryptocurrencies still belong to the asset class of high-risk assets. From hacks to unexpected price collapses, there are numerous ways in which investors can lose their coins – and thus their money. Most recently, the collapse of the Terra network drove numerous private investors into ruin. To protect investors from a total loss, various service providers offer such as Opium Finance or this Protocol meanwhile, insurance companies that cover certain risks. The following is a brief overview of the risks that investors can insure themselves against.

1.) Protection against hacks on crypto exchanges

A majority of investors hold their cryptocurrencies on exchanges such as Binance, Coinbase or FTX. Although the trading venues are considered safe and repeatedly emphasize that they are protected against various risks, investors can still protect themselves separately. The minimum insurance amount as well as the term varies depending on the provider and the asset.

For example, should a crypto exchange be a victim of a Hacker attacks the insurance takes effect and compensates investors, unless the exchange itself can pay for the damage incurred. In addition, some policies also include protection against withdrawal stops.

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2.) Stablecoin De-Peg Insurance

In the volatile environment of the crypto market, investors value stablecoins for their value stability. The prices of the cryptocurrencies are tied to another asset – mostly US dollars – and represent it in a ratio of 1: 1. Consequently, decoupling from the underlying asset is disastrous for stablecoins, as the recent example of the Terra Stablecoin UST proves.

But investors can also take precautions here to protect themselves against such a ”de-pegging event”. Thus, it is possible to take out insurance against the same decoupling from the underlying asset. If the stablecoin falls below a certain threshold (for example, $ 0.92) over a longer period of time (for example, 10 days), the insurance coverage takes effect and compensates the insured with a compensation in the ratio of 1:1.

Due to the Terra debacle, these types of policies are increasingly in demand: all Stablecoin insurances are currently sold out on InsurAce. According to its own data, the platform paid around $12 Million to the injured.

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3.) Protection against hacks on smart contracts

Attacks on smart contracts are still commonplace in the crypto space. Most recently, the hack on the Ronin Chain – the blockchain behind Axie Infinity – made headlines. In total, the attackers stole cryptocurrencies worth over $ 600 million.

In order to protect against loss due to exploits and hacks, various crypto insurers offer policies that cover the exploitation of vulnerabilities in smart contracts. If the investor loses cryptocurrencies stored in the smart contract in the course of a hack, InsurAce, for example, will reimburse compensation at the time of loss – minus possible refunds through the smart contract protocol.

In addition, some insurers also offer individual packages in which several risks can be covered depending on their own needs. The advantage: the insured has bundled his insurance cover in a contract. The disadvantage: in most cases, the minimum insurance amounts are significantly higher (for InsurAce, for example, from 500,000 US dollars).

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