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Twins, the U.S. exchange run by the Winklevoss twins, reportedly launched its own proprietary insurance company today.
The next generation of crypto exchange insurance?
The Press release Accompanying the announcement, it claims that it is the largest crypto custodian in the world, with coverage of up to $ 200 million for offline storage.
Licensed by the Bermuda Monetary Authority (BMA) is the name of the insurance company Nakamoto Ltd., the pseudonym of the anonymous creator of Bitcoin. The company worked with insurance brokers Aeon and swamp Nakamoto Ltd. in Bermuda, a common location for corporate insurance companies due to favorable tax conditions.
It’s the latest in risk mitigation, Gemini that has gone to great lengths to ensure compliance with American regulatory authorities and keep their customer base safe.
Gemini offers its customers the option to purchase additional insurance for segregated crypto assets as well as hot wallet coverage for the funds held online.
US dollars held on Gemini’s platform are funded by the Federal Deposit Insurance Corporation (FDIC) Pass-through deposit insurance for up to $ 250,000 per customer. Passage Insurance is an American federal insurance policy that covers all eligible accounts.
Aon acts as captive manager, while Marsh’s Digital Asset Risk Transfer (ARROW) worked on the brokerage of excess insurance in the commercial markets.
It’s true that auto insurance funds are becoming more common on crypto exchanges and this is a welcome development as it gives users some peace of mind that their funds are safe from theft. Binance, for example, redirects part of its trading fees into a self-managed insurance fund called SAFU, which was used to cover individual losses after the market closed chopped last year.
In contrast, the company’s own insurance works separately from the company it works for. Captive insurance companies are typically set up by larger companies to formalize auto insurance. Instead of taking out insurance policies through a third party, a company can insure itself against losses by setting up a fund.
The parent company – in this case Gemini – forms a subsidiary that provides risk mitigation services to the parent company by covering financial losses not dissimilar to an outside insurer.
Because of their experience in the field, it is common for an outside company like Aon to manage in-house insurance.
Captive insurance offers an additional level of security compared to an auto insurance fund. This is because a proprietary insurance company is subject to government oversight, which means that the parent company has no way of siphoning off funds or treating it as an asset.
Blockchain researcher Hasu has allegedly in the past that BitMEX, for example, treated its insurance fund as an asset on the balance sheet. If so, there is little preventing the company from using the fund for any purpose.
If other exchanges choose to follow Gemini’s model, it will mark a maturation of the risk management approach within the crypto exchange sector.
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