The ongoing crypto bull market has led to a significant increase in the value of top crypto exchange insurance funds, surpassing $1 billion. Binance’s Secure Asset Fund for Users (SAFU), which includes Bitcoin (BTC), BNB (BNB), Tether (USDT), and TrueUSD (TUSD) balances, now stands at $2.03 billion, compared to its initial balance of $1 billion in January 2022. Similarly, Bitget’s protection fund, initially valued at $300 million, has surged to $612 million due to the appreciation of its Bitcoin holdings. Bitcoin and BNB have experienced significant gains of 136% and 79.36%, respectively, in the past year.
While most exchanges offer some form of insurance protection for users, only Binance and Bitget have disclosed their on-chain addresses. In 2019, Huobi (now HTX) announced a reserve of 20,000 BTC ($1.32 billion) in an independent address to handle extreme security incidents. It is unclear if Huobi still holds this balance. However, the HTX group of companies experienced several exploits last year, resulting in the loss of millions of dollars.
OKX, another crypto exchange, has a $700 million “Risk Shield” program for user protection, but it remains unclear whether the amount consists of tokens, stablecoins, fiat funds, or a combination of all three. Some exchanges, like Coinbase, offer insurance based on the customer’s location and whether their funds are in fiat or crypto.
Exchanges may choose not to disclose their on-chain addresses for various reasons, including concerns about cybersecurity attacks or, in the case of defunct exchange FTX, deception. Former FTX chief technology officer Gary Wang revealed to law enforcement officials that FTX’s $100 million insurance fund in 2021 was fabricated and never contained any FTX Tokens (FTT). The insurance fund was intended to safeguard user losses during significant market movements and was frequently advertised on FTX’s website and social media.
While on-chain addresses provide some information, they do not reveal details about an exchange’s off-chain liabilities. Some jurisdictions, like Hong Kong, now require crypto exchanges to offer insurance that covers up to 50% of users’ fiat and crypto assets.
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