Crypto, NFTs, and Beyond: Why Digital Asset Insurance Matters

In America, the crypto asset market is already highly significant for the economy, attracting investors seeking opportunities in the digital sector.

With this growth, significant challenges arise, such as security, volatility, and risks associated with the ownership and trading of these assets.

It is in this context that digital asset insurance becomes increasingly relevant, offering an extra layer of protection against unexpected financial losses.

The Need for Digital Asset Insurance

Unlike traditional investments such as stocks and real estate, crypto assets operate in a decentralized ecosystem, usually without the involvement of institutional financial entities.

While this decentralization is one of the biggest attractions of blockchain technology, it also entails considerable risks.

Hackers, fraud, human errors, and custody failures can result in irreversible losses.

Cases of attacks and thefts are frequent, and since there is no central bank or regulatory authority capable of reversing these fraudulent transactions, investors remain extremely vulnerable.

How Crypto Asset and NFT Insurance Works

Digital asset insurance works similarly to other types of financial insurance.

Policies are designed to cover losses resulting from hacks, security breaches, operational errors, and, in some cases, extreme market volatility.

Here are the most common coverage extensions:

• Theft and hacking insurance: Protects against cyberattacks that result in the loss of assets stored on exchanges or digital wallets.
• Custody insurance: Ensures the security of assets stored by third parties, such as institutional custodians.
• Errors and omissions insurance: Protects investors from losses caused by operational failures or transaction execution errors.
• NFT insurance: Covers losses related to authenticity, theft, or significant devaluation of non-fungible tokens.

Who Is Offering These Insurances?

Many traditional insurers have already begun exploring the sector, alongside new companies that were born within this ecosystem.

Companies such as Lloyd’s of London, Coinbase, and Nexus Mutual are among those offering insurance options for crypto asset investors.

There are also blockchain sector startups creating decentralized insurance solutions, using smart contracts to automate claim processes and reduce operational costs.

The model known as DeFi Insurance is becoming an attractive alternative for investors seeking protection without relying on traditional intermediaries.

Benefits of Digital Asset Insurance

Here are the main advantages of purchasing digital asset insurance:

1. Financial protection: In the event of attacks or security breaches, insurance can partially or fully reimburse lost assets.
2. Increased market confidence: The existence of insurance increases institutional investors’ confidence, encouraging capital inflows into the sector.
3. Reduced volatility: While it does not eliminate market risks, insurance can help mitigate the financial impact of unexpected events.
4. Greater security for NFT collectors: For rare or high-value NFTs, insurance can guarantee protection against significant financial losses.

Challenges and Limitations

Despite its advantages, digital asset insurance still faces considerable challenges. Here are the main ones:

• Lack of standardization: Since the crypto asset market is still evolving, there are no standardized regulations for insurance in this sector, which is becoming increasingly necessary.
• High costs: Due to volatility and the risks involved, insurance premiums for digital assets can be high, particularly due to the lack of standardization.
• Difficulty in assessing risks: Since crypto assets are relatively new, insurers face challenges in accurately evaluating the risks involved.
• Coverage limitations: Many policies cover only specific types of incidents, leaving investors exposed to other risks.

The Future of Digital Asset Insurance

As the crypto asset and NFT market matures, the trend is for more insurers to develop specific products for this sector.

Additionally, clearer regulations may contribute to the standardization and reduction of insurance policy costs.

In the United States, the increasing adoption of crypto assets by companies and institutional investors has driven the development of new insurance solutions.

For investors, the key takeaway is that, as with any other financial market, asset protection should be a priority.

Crypto asset and NFT insurance does not eliminate all risks, but it can provide an extra layer of security in a sector that still faces significant challenges.

Moreover, expectations also extend to the need for regulation, with new mechanisms to control the sector and deliver a better experience.

Written by

Gabriel Gonçalves