DIGITAL ASSET INSURANCE
Recent horror stories about lost passwords have brought the issue of hot or cold storage into the mainstream. Trust of digital asset custodians is at the heart of the issue. RELM understands these concerns and has developed a complete solution rooted in improving the client risk management framework, while providing financial assistance and certainty should the worst happen.
Digital asset custody insurance is a policy purchased by a custodian, such as a digital asset bank, to provide a source of indemnification for the loss of digital assets from a client account. Depending on the scope of custody services provided, this type of insurance can cover digital assets stored in both an offline environment, i.e. “cold” storage, and an online environment, i.e. “hot” storage.
As the awareness and adoption of cryptocurrency is becoming more widespread, so too are investor demands for safe and secure digital asset storage solutions. Many investors understand the value proposition that digital assets present; however, few have the aptitude to properly vet prospective custodians based on the technical merits and integrity of the custodial architecture. Moreover, custodians are understandably reluctant to provide transparency of their custody solution for fear that disclosure will increase the exposure to loss events.
As a result, a time honored customer and service provider dynamic has been introduced into this rapidly evolving landscape: customers want to ensure their assets will be protected in the event of loss, and service providers want to be able to demonstrate that they have the financial viability to not only withstand a loss event, but help make their customers whole again if a loss were to occur.
Digital asset investors are seeking more tangible reference points to determine the integrity of custodians. Meanwhile, custodians are seeking alternative means by which to provide validation of the soundness of their custodial offering, not only for the benefit and comfort of investors, but also as a competitive imperative to continue growing digital assets under management. Additionally, from a governance and risk control perspective, stakeholders of the custodian need to know that the company has prudently taken steps to preserve business continuity by protecting company assets in the event of loss.
In light of the above, Relm provides a two part solution aimed at (1) achieving risk management and commercial objectives of the custodian; and (2) providing individual depositors of insured custodians with account specific policies to provide an extra layer of comfort and protection.
The custodian policy provides a blanket limit per occurrence and in the aggregate for all accounts under custody. In the event of a covered loss, Relm indemnifies the insured subject to the terms, conditions and limits of the policy. Thereafter, it is the insured’s responsibility to reimburse affected clients. If the severity of loss exceeds the policy limit, it’s the insureds responsibility to proportionally reimburse affected clients.
The client policy will be a follow form excess policy that adopts the exact same terms and conditions of the underlying custody policy. This policy provides a separate limit of coverage on a per occurrence aggregate basis specific to the client’s accounts held with the insured custodian. Coverage will only be triggered in the event that a covered loss exhausts the underlying limits.
Who is the insured?
The digital asset custodian
While the custodian’s depositors/customers are not insureds under the policy, the insured may designate in writing that a customer receive direct payment under this policy.
Alternatively, the customer may approach Relm for individual coverage that’s triggered in the event the limits of the insured custodian’s policy are exhausted. This policy will come with its own dedicated limit and premium for which the insured (the depositor) is responsible.
What is covered?
The loss, theft or damage to cryptocurrency private keys owned by the insured, or for which the insured has accepted legal liability, or for which the insured has accepted responsibility for the care, custody and control.
Indemnification is also provided for costs, fees and salaries, labor costs, taxes, customers and excise duty and similar charges directly resulting from a covered loss, subject to a predetermined sublimit.
Coverage can be provided for both multi-signature and single-signature addresses pending
Relm can also elect to agree to provide sublimits for warm storage and/or hot storage exposures to the extent acceptable.
How is valuation determined?
The value of the unrecoverable cryptocurrency will be determined based on the blended United States
Dollar “Price” as detailed on https://coinmarketcap.com/all/views/all at the time of the loss.
What is excluded? (examples of exclusions – not meant to be exhaustive)
Claims arising from actual or alleged fraud, dishonesty or criminal misconduct
Claims based upon gaining a profit or advantage to which you were not legal entitled
Claims arising out of prior acts
Claims based on any actual or alleged money laundering
Claims based on a loss of market value
Claims based on any loss or damage directly or indirectly caused by:
– War or civil war
– Nuclear, chemical, biological, bio-chemical, or radioactive causes
– Cyber attack