Coinbase is mulling over launching its own “captive” insurance company for risk-mitigating purposes, Coindesk reports.
In order to fulfill its plans, Coinbase teamed up with insurance broker Aion that has already created the first cryptocurrency captive earlier in 2019.
An insurance problem
Presently, cryptocurrency exchanges mainly rely on self-insurance. They usually create a separate fund that would allow users to get back their money in case an extreme situation takes place.
Case in point: Binance, the number one exchange by trading volume, and its SAFU fund.
None of its customers were affected by the $41 hack that took place in May since Binance was able to cover all their losses.
While Binance routinely deposits 10 percent of its trading fees to a cold wallet, it might be challenging to keep your insurance-related funds untouched.
There is a lack of capacity and some are uncomfortable with what is available in the marketplace and are looking to alternative solutions,” said Jacqueline Quintal, a managing director and the financial institutions practice leader at Aon.
Making things formal
Captive is a regulated alternative to self-insurance — it segregated funds and opens the doors to the reinsurance market. Pretty much every major company on the Fortune 500 list already has its own insurance subsidiary.
Even when working with crypto-oriented businesses, a captive usually sets aside fiat money, to pay its policyholders, but crypto can be used when there is an excessive amount of claims.