Crypto asset insurance has become a critical safeguard for digital asset firms, from exchanges and custodians to miners and DeFi protocols. This guide explains key sector risks, available coverage, and how to improve insurability. As the market evolves, understanding how coverage works, and what it protects, is key to building institutional trust and resilience.
Understanding Crypto Asset Insurance
Definition and Scope
Crypto asset insurance covers digital assets like cryptocurrencies from losses due to theft, hacks, or other risks unique to this asset class.
The scope of coverage is broadening. Initially focused on theft of crypto held in custody, newer policies cover smart contract failure, DeFi protocol exploits, and NFT asset theft or loss.
Traditional insurance frameworks weren’t designed for the unique risks of web3, such as private key management, smart contract exposure, and decentralization, prompting the rise of purpose-built solutions.
Crypto Insurance Market Overview
Despite the global crypto market being valued at around $2.5 trillion as of 2025, fewer than one in five cryptocurrency holders currently have insurance coverage. Demand is high, with roughly 42% of uninsured holders indicating interest, yet overall insurance capacity still lags behind market growth.
Forecasts suggest that the market will grow at a CAGR of 18% between 2025 and 2033. Currently, it consists of traditional insurance firms that have started to underwrite for crypto and specialized providers with deep sector expertise.
Regulatory Framework
Digital asset regulations are changing quickly and vary widely by jurisdiction. Regulatory uncertainty once limited insurer participation, but clearer frameworks are now driving market confidence.
In the US, federal proposals like the Securities Clarity Act define digital assets more clearly (distinguishing them from securities) to reduce legal ambiguity. At the state level, some jurisdictions have become crypto-friendly while others still lack explicit rules.
In Europe, new regulations like MiCA (Markets in Crypto-Assets Regulation) are introducing requirements for crypto asset service providers that include obtaining insurance for custodial operations as a prudential requirement.
Both insurers and clients must stay aligned on compliance. Underwriters now expect clear evidence of governance, licensing, and cybersecurity standards — all of which are central to insurability. Insurers, in turn, must ensure their offerings comply with financial regulations in every jurisdiction.
The Risk Profile of Crypto Assets
Unique Risk Characteristics
Crypto and traditional assets differ in several ways:
- Continuous trading: The 24/7 global market offers no downtime. Incidents can happen at any hour, so mitigation must be instant.
- Irreversibility: Once a transaction is recorded on-chain, it can’t be reversed, even if it was fraudulent.
- Pseudonymity: Identities behind wallet addresses are difficult to verify, complicating claims and asset recovery.
- Technical complexity: The sophistication of elements like cryptographic key management and smart contracts introduces attack vectors unfamiliar to traditional insurers.
Together, these characteristics increase both the likelihood and potential impact of losses, underscoring why purpose-built insurance is so vital.
Common Threat Vectors
Digital asset businesses face these common threats:
- Exchange hacks and breaches: Exploiting hot wallets or exchange APIs is a top cause of losses.
- Private-key theft or loss: Stolen or misplaced keys mean irreversible loss of access.
- Smart contract vulnerabilities: Bugs and exploits like flash loan attacks have drained billions.
- Insider threats: Employees with privileged access can execute or facilitate theft.
- Social engineering: Various types of elaborate scams involving phishing and impersonation continue to target firms.
Historical Loss Analysis
The history of cryptocurrency is rife with significant losses. Early incidents like Mt. Gox (2014) which lost 850,000 BTC (worth $473 million at the time) shook the industry. Later hacks include Coincheck (2018) in which ¥58 billion ($530 million) worth of NEM stolen and the Ronin Network hack (2022) which led to losses of $625 million.
DeFi platforms have become a major target in recent years, accounting for a large share of losses. According to Chainalysis, DeFi protocols as victims accounted for 82.1% of crypto stolen by hackers in 2022. 64% of stolen funds were accessed through exploits of cross-chain bridge protocols. One possible reason DeFi platforms may appeal to attackers is that developers often prioritize growth over security.
According to Chainalysis’ 2025 Crypto Crime Report, DeFi and cross-chain bridge exploits remained the leading sources of crypto theft in early 2024, while large exchange breaches drove a resurgence in centralized platform attacks later in the year.
Chainalysis and other analytics firms consistently cite private key compromise as a leading cause of crypto theft, highlighting the ongoing risks of weak key management and insider access.
The report uncovered several more trends:
- The increase in the use of AI to conduct crypto fraud.
- A rise in high-yield investment scams and ‘pig butchering’ which were the most common fraud types in 2024.
- A diversified range of illicit actors in crypto crime, including transnational organized crime groups using crypto to facilitate a range of traditional crimes. Funds are often laundered on-chain, even when actors primarily operate off-chain.
When digital assets are stolen, recovery rates are generally very low compared to traditional assets. Occasionally, there are major successes like when a hacker returned around half of the $611 million stolen in the 2021 Poly Network exploit after an appeal. Allegedly, the hacker’s motivation was to challenge themselves so they were willing to cooperate. These cases are exceptions.
Types of Crypto Asset Insurance Coverage
Custody Risk Protection
Crypto custody insurance protects against loss or theft of assets held in a custodian’s care (or sometimes self-custody). A key consideration is whether assets are held offline in cold storage or online in hot wallets, which are more exposed. Insurers also require certain security measures for custodial coverage, like multi-signature protocols where multiple approvals are needed to move funds.
Another consideration is whether the custodian is an institutional custodian or self-custody is being insured. Some policies exclude self-custody unless the insured meets rigorous controls.
Coverage terms typically include protection against external theft and internal collusion, and sometimes physical destruction of storage media. There may be aggregate limits per incident or policy term.
Exclusions can include loss of funds due to the custodian’s own negligence or failure to follow mandated security procedures, as well as broader exclusions like blockchain-wide failures. Each policy is different, so insureds must scrutinize what custodial scenarios are covered.
Exchange and Trading Platform Coverage
Exchange and trading platform insurance typically blends several protections, including business interruption, user fund protection, and regulatory defence coverage for lawsuits, regulatory investigations, and enforcement.
Smart Contract Insurance
Smart contract insurance often requires the project to pass independent code audits and security reviews. Coverage typically extends to losses caused by bugs or exploits that drains user funds.
Policies may exclude design failures, and experimental protocols may be uninsurable, or coverage may be capped at relatively low amounts.
Claims processes for smart contract failures vary but typically involve technical investigations to confirm a vulnerability was exploited.
Mining Operation Protection
Mining insurance includes property and casualty cover for physical equipment, and business interruption insurance for lost earnings when operations are down.
Energy supply disruption coverage is triggered when a grid failure causes downtime, and some policies cover regulatory risk in case regulatory changes affect mining viability.
Stablecoin and DeFi-Specific Coverage
Specialized insurers offer coverage against the following risks affecting stablecoins and DeFi platforms:
- De-pegging: If stablecoins are destabilized under market stress, users can experience significant losses.
- Oracle manipulation: Many smart contracts depend on price oracles for asset prices. If an attacker manipulates an oracle, they can trick a smart contract into mis-valuing assets and draining funds.
- Governance attacks: Here, an attacker gains control of voting power in a DAO and passes malicious proposals.
- Liquidity pool exploits: Here, a hacker might exploit a vulnerability to manipulate prices or drain liquidity.
Whether protecting custodial assets, exchange operations, or smart contract protocols, coverage is evolving in step with digital asset innovation, offering reassurance as markets mature.
Underwriting Process and Considerations
Risk Assessment Methodologies
Underwriting begins with a comprehensive security review, assessing how private keys are managed, what access controls are in place, and whether regular penetration testing occurs.
For an exchange or custodian, this involves reviewing how private keys are stored, what authentication and access controls are in place, and whether regular penetration tests have been conducted. On-chain analytics is another tool that help to identify risk patterns.
Governance structure evaluation is also vital — who has privileges, how many signatories must approve transfers, and how distributed is governance?
Premium Determination Factors
Premiums are determined based on various factors:
- Security controls: This is one of the most heavily weighted elements. Organizations with strong security may earn lower premiums while those with weak practices may face high premiums or be declined coverage.
- Transaction volume and asset values: The scale of assets (in value or transaction volume) directly affects exposure.
- Historical security record: A clean record can reduce premiums while a history of incidents, near misses or known vulnerabilities may increase them.
- Geographical and jurisdictional considerations: Operations based in highly regulated jurisdictions with robust oversight and compliance regimes may receive better terms.
- Team experience and security expertise: A highly skilled team that demonstrably understands crypto risks can lower the perceived risk, while an inexperienced team or one with known red flags may raise it.
Policy Limits and Exclusions
Coverage caps vary widely. Smaller exchanges may have limits below $50 million. For large institutions, they can reach into the hundreds of millions, sometimes exceeding $900 million for cold storage.
Insurers impose sub-limits for specific risk categories (like hot wallet losses or social engineering scams), reducing exposure to unpredictable or high-frequency events while still offering some protection.
As mentioned, exclusions can include losses due to market volatility, regulatory intervention, self-custody if not meeting standards, personal key loss by a user, or blockchain-wide failures.
Some policies might enforce an aggregate limit across multiple coverage types. If claims fall under more than one category — for example, crime and tech E&O — the payout might not be allowed to exceed the single aggregate cap. Insureds need to be aware of such clauses to ensure they are adequately covered.
Claims Process and Management
Documentation Requirements
When a claim is filed, insurers will ask to see technical evidence. This can include blockchain transaction logs, chain analysis, forensic reports, and proof of wallet ownership.
Incident-response documentation (how the insured responded, what controls failed, what steps were taken) is vital. Some insurers require proof that the incident was reported to law enforcement.
Claim Settlement Approaches
Claims are typically settled in fiat currency, though valuation timing can be complex given crypto’s volatility. Some insurers, like Relm, now offer crypto-denominated payment.
Policies typically stipulate that if a proportion of assets are recovered after the claim is filed, the payout will be adjusted.
Future Trends and Innovations
Decentralised Insurance Models
Decentralised insurance models include parametric insurance where payouts are triggered automatically once predefined conditions are met, and DAO-based models where members pool capital and vote on claims.
Integration with Traditional Finance
Traditional insurers are also expanding into crypto, adapting crime and cyber policies to digital assets and partnering with DeFi protocols to deliver faster, more flexible claims.
Some traditional firms are partnering with DeFi insurance protocols to bring more flexibility and speed up claims processes. DeFi protocols are also partnering with more established insurers for reinsurance.
As the digital asset ecosystem matures, hybrid models that blend traditional underwriting with decentralized verification will likely define the next generation of insurance innovation.
Emerging Coverage Areas
Several coverage areas are emerging that brokers should monitor and bring into client conversations. These include NFT-specific insurance, Layer-2 solution coverage, cross-chain bridge coverage, and metaverse asset insurance.
Best Practices for Crypto Businesses and Holders
Insurance Strategy Development
Developing a clear crypto insurance strategy starts with a coverage-needs assessment — identifying what assets the client holds (custody, trading, protocol / developer risk, mining, DeFi involvement), quantifying worst-case exposures, and determining which risks can be transferred via insurance and which must be mitigated internally.
Sometimes, a layered approach is suitable — like using captive or self-insurance as one layer and commercial insurance to extend coverage. For substantial holdings, custodians may work with consortia.
Risk Mitigation to Improve Insurability
Improving insurability starts with strengthening the firm’s security posture, both technically and operationally. This includes increasing cold storage ratios, implementing practices like zero-trust models and MFA, using multi-sig wallets, and ensuring robust physical security. Conducting regular pen tests and independent audits is also key.
Other improvements include having well-documented policies and procedures for incident response and comprehensive staff training and awareness programs.
These measures don’t just improve underwriting outcomes — they demonstrate resilience and build trust in a fast-evolving market.
Evaluating Insurance Providers
Key criteria include financial stability, track record of claims payments (especially in crypto), clear policy wording (clear definitions of covered events, triggers and exclusions), limits and sub-limits offered, coverage gap identification techniques, and experience with regulation across jurisdictions.
Takeaways for Brokers and Clients
The risks facing crypto firms are diverse and rapidly evolving. With regulatory scrutiny increasing, robust security and tailored insurance are becoming core to operational resilience.
Traditional insurers often struggle to address these complexities — but Relm designs bespoke coverage backed by deep technical and regulatory insight, protecting digital asset businesses from today’s and tomorrow’s risks. Contact us today to learn more.
