The value of insurance funds held by top cryptocurrency exchanges has soared by over $1 billion due to the ongoing bull market in cryptocurrencies. Binance, one of the leading exchanges, reported that its Secure Asset Fund for Users (SAFU) now holds over $2.03 billion, compared to the initial $1 billion it had in January 2022. Similarly, Bitget’s protection fund, which started with $300 million in November 2022, has now grown to $612 million. This surge in value is mainly due to the appreciation of Bitcoin holdings, which have experienced a 136% gain in the past year.
While many exchanges have insurance protection for their users, only Binance and Bitget have disclosed their on-chain addresses. In contrast, Huobi, now known as HTX, announced in 2019 that it had a reserve of 20,000 BTC (worth $1.32 billion at that time) in an independent address to handle extreme security incidents. It remains uncertain if the exchange still holds this balance. HTX and its group of companies faced several hacking incidents, resulting in significant financial losses in the past year.
Another exchange, OKX, has a program called “Risk Shield” with a $700 million fund dedicated to user protection. The composition of this fund, whether it includes tokens, stablecoins, fiat funds, or a combination, is unclear. Some exchanges, like Coinbase, provide insurance coverage based on the customer’s geographical location and whether their funds are held in fiat or crypto. The decision by exchanges to not disclose their on-chain addresses can be due to concerns about cybersecurity threats or, in some cases, deceptive practices. For instance, the former CTO of FTX revealed that the exchange’s $100 million insurance fund in 2021 was fabricated and did not contain any FTX tokens (FTT), as claimed.
It’s important to note that on-chain addresses only provide a partial view of an exchange’s assets and do not include information about off-chain liabilities. Authorities in certain jurisdictions, such as Hong Kong, have required cryptocurrency exchanges to provide insurance that covers up to 50% of users’ fiat and crypto assets. This move aims to enhance user protection in the event of losses or security breaches.
