The increase in value of the fund’s Tether, TrueUSD, BNB, and Bitcoin balances is the reason for this spike.
The value of insurance funds held by leading cryptocurrency exchanges has increased dramatically in the midst of an ongoing bull market, rising by over $1 billion.
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From $1 billion in January 2022 to over $2.03 billion today, Binance, a well-known cryptocurrency exchange, has more than $2 billion in the Secure Asset Fund for Users (SAFU).
The increase in value of the fund’s Tether, TrueUSD, BNB, and Bitcoin balances is the reason for this spike.
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Bitget, an additional exchange, has reported that the value of its protection fund has increased from $300 million in November 2022 to $612 million. This growth has been driven by the notable increases in the value of Bitcoin, which has increased by 136% in the last year, as well as a 79.36% increase in BNB.
While most cryptocurrency exchanges offer some insurance protection to their users, some, like Binance and Bitget, have made their on-chain addresses visible to the general public.
A significant reserve of 20,000 BTC ($1.32 billion) was announced by Huobi (now HTX) in 2019 for extreme security scenarios; however, the specifics of this reserve are not currently available.
Additionally, HTX experienced multiple security breaches in the last year that cost them a significant amount of money.
For user protection, OKX manages a $700 million “Risk Shield” fund; however, it is unclear how much of this fund is made up of fiat money, stablecoins, or tokens.
Exchanges take different approaches to insurance. For example, Coinbase bases its insurance coverage on the customer’s location and the type of assets they own—crypto or fiat.
The transparency of insurance funds is a crucial problem because, as was the case with the now-defunct FTX, some exchanges are reluctant to reveal on-chain addresses because of cybersecurity worries or possible fraud.
The possibility for misinformation was demonstrated when Gary Wang, the former chief technology officer of FTX, told authorities that the exchange’s promised $100 million insurance fund in 2021 was a hoax.
Moreover, off-chain liabilities—a crucial factor in determining an exchange’s financial stability—are not included in on-chain addresses, which offer little information.
The increasing focus on investor protection in the cryptocurrency space is evidenced by the introduction of regulations in certain regions, such as Hong Kong, requiring cryptocurrency exchanges to insure users’ assets, covering up to 50% of both fiat and crypto holdings.
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