As crypto-asset losses continue to rise, the industry is taking steps to protect clients and investors through insurance. Crypto-exchange and custody provider, Gemini Trust Company, LLC (“Gemini”), recently launched its own captive insurance provider, Nakamoto, Ltd. Captive insurance is an alternative to self-insurance whereby a company creates a licensed insurance company to provide coverage for itself. According to a statement from Gemini, Nakamoto is “the world’s first captive to insure crypto custody” and allows Gemini “to increase its insurance capacity beyond the coverage currently available in the commercial insurance market” for cryptocurrency wallets not connected to the internet, commonly referred to as “cold storage.” According to Gemini, this move makes Nakamoto the world’s most insured crypto-asset cold storage solution, which signals an expectation of increased demand in the crypto market.
Nakamoto is a collaboration between Gemini and insurance brokers Aon and Marsh. Aon helped Gemini incorporate the captive insurance company in Bermuda, the world’s largest jurisdiction of licensed captive insurers, and will act as Nakamoto’s captive manager. Marsh brokered excess insurance to Gemini, which will act as a cover against losses over and above that provided by Nakamoto.
Typically, cryptocurrency users that fall victim to cyber-attacks and have their funds stolen have no recourse because most insurance companies either refuse to offer high coverage limits for cryptocurrency or refuse to insure the risks altogether. Nakamoto is welcome news to the cryptocurrency market, which has eagerly awaited an insurance option to reduce investors’ risks and encourage widespread adoption of cryptocurrency.
Companies considering the use of captive insurance as a means of mitigating risk in the cryptocurrency industry, among others, should seek advice from experienced insurance professionals, including experienced insurance coverage counsel, who can help navigate the varied laws and regulations governing the use of captive insurance.