Exchange Insurance: What Is Actually Covered

Custody insurance is a real product and it is routinely described in ways that overstate what it does.

What is typically covered

Theft from cold storage resulting from an external attack or physical compromise.

Employee dishonesty, in some policies, subject to conditions.

Physical loss or destruction of key material.

What is typically excluded

Losses arising from an employee with legitimate access acting within their authority. This is a common exclusion and it covers a meaningful share of realistic scenarios.

Compromise of an individual customer’s account credentials. Insurance covers the custodian, not the customer’s password hygiene.

Insolvency of the firm. Insurance is not a guarantee of the business.

Losses in hot wallets, in some policies, or covered at lower limits.

Protocol failures and smart contract exploits.

The limits

Policies carry a per-incident limit and an aggregate limit. Both are frequently well below the total assets held.

A platform describing itself as fully insured is making a claim that deserves a question: insured against what, to what limit, with what exclusions.

What the customer actually has

In most cases, no direct relationship with the insurer. The policy covers the custodian’s losses, not yours. Whether a recovery reaches customers depends on the custodian’s own arrangements and, in an insolvency, on the priority of claims.

This is the gap between what customers assume and what the arrangement provides.

What matters more than insurance

Segregation. Whether client assets are legally separate from the firm’s own and bankruptcy-remote. This determines what happens in the failure case that insurance does not cover.

Regulatory supervision. Capital requirements, reporting and the ability of a regulator to intervene.

Custody arrangements. How keys are held, how many parties must approve a movement, and whether cold storage is genuinely cold.

All three are more consequential than a policy whose limits and exclusions you cannot see.

What to ask

Whether client assets are segregated and bankruptcy-remote, which is stated in the terms of service.

What the insurance covers and to what limit, which most venues describe in general terms and few quantify.

Which entity holds the assets and where it is regulated.

Venues publishing all of this, including a platform serving European retail customers, make the assessment possible. The answer is never that a balance at a venue is risk-free, which is why the working balance should be sized as though it might be lost.