Crypto exchange insurance funds surge more than $1B amid bull market

Amidst a crypto bull market, crypto exchange insurance funds have skyrocketed by over $1 billion. Binance's Secure Asset Fund for Users (SAFU) has surpassed $2 billion, while Bitget's protection fund has surged to $612 million. Despite most exchanges offering some insurance, only Binance and Bitget have disclosed their on-chain addresses, raising questions about the transparency and integrity of other exchange insurance funds.

Crypto Exchange Insurance Funds Soar Amidst Market Surge

The ongoing crypto bull market has witnessed a significant surge in the value of top exchange insurance funds, with several major platforms reporting substantial increases in their holdings.

Binance's Secure Asset Fund for Users' (SAFU)

Binance, the world's leading cryptocurrency exchange, has witnessed a remarkable increase in the value of its SAFU fund, which is designed to provide insurance protection for users. As of April 3, the fund's balance exceeded $2.03 billion, representing an increase of over $1 billion since its initial $1 billion balance in January 2022. This growth can be attributed primarily to the appreciation of Bitcoin (BTC), Binance Coin (BNB), Tether (USDT), and TrueUSD (TUSD), which constitute the fund's assets.

Bitget's Protection Fund

Similarly, crypto exchange Bitget has reported a surge in the value of its $300 million protection fund, which was launched in November 2022. The fund has since grown to $612 million due to the appreciation of its Bitcoin holdings. Bitcoin has experienced a 136% increase in value over the past year, while BNB has gained 79.36%, contributing to the overall growth of the fund.

Discrepancies in Insurance Disclosures

While most crypto exchanges offer some form of insurance protection for users, only a few, including Binance and Bitget, have disclosed their on-chain addresses. This transparency allows users to verify the existence and value of these funds independently.

In contrast, crypto exchange Huobi, now known as HTX, announced a 20,000 BTC ($1.32 billion) reserve in an independent address in 2019. However, it remains unclear whether the exchange has maintained this balance until now, especially given the recent financial difficulties faced by the HTX group of companies.

Crypto exchange OKX has a $700 million "Risk Shield" program for user protection, but it is unclear whether this amount comprises tokens, stablecoins, fiat funds, or a combination thereof.

Some exchanges, such as Coinbase, offer insurance based on geographical location and the type of funds held (fiat or crypto).

Reasons for Withholding Disclosure

Exchanges may choose not to disclose the on-chain addresses of their insurance funds for various reasons, including concerns about cybersecurity attacks. Additionally, in the case of defunct cryptocurrency exchange FTX, deception played a role in withholding such information. Former FTX CTO Gary Wang revealed that the exchange's $100 million insurance fund in 2021 was fabricated and did not contain any FTX tokens (FTT).

Regulatory Developments

On-chain addresses only provide a partial view of an exchange's overall insurance posture, as they do not include information about off-chain liabilities. In light of this, certain jurisdictions, such as Hong Kong, have mandated that crypto exchanges provide insurance for users that covers up to 50% of their fiat and crypto assets.

Related Development

HashKey, a Hong Kong-based digital asset management company, has recently signed a Memorandum of Understanding (MOU) with multiple crypto exchanges to provide insurance against cyberattacks and theft.