An insurance product for virtual asset operators is set to launch next week.
With the implementation of the looming virtual asset user protection law, it is worth watching whether the coin markets will benefit from this new development.
Starting on the 19th, the user protection law requires exchanges to set aside a reserve fund equivalent to 5% of user asset value or enroll in insurance of equivalent value. Due to financial constraints, coin markets have mostly considered insurance enrollment as an alternative due to difficulties setting aside reserve funds.
Insurance for virtual asset operators, soon to be launched
Industry sources reported on Friday that three major casualty insurance companies, including Samsung Fire & Marine Insurance, recently reported to the Financial Supervisory Service for a review of the general terms and conditions of the insurance product for virtual asset operators. If the financial authorities approve, they can launch the product before the 19th, which is when the user protection law takes effect.
This product guarantees quick compensation for incidents like hacking or computer failures, minimizing customer damage. It is specially designed for virtual asset operators and exchanges.
Insurance for virtual asset operators is necessary because the user protection law has related provisions.
According to the enforcement decree of the virtual asset user protection law, virtual asset operators must either enroll in insurance with a compensation limit of more than 5% of the value of the virtual assets stored in the hot wallets or set aside the corresponding amount as a reserve fund.
The financial authorities have also set a minimum standard for the insurance compensation limit or reserve amount.
Exchanges with smaller user assets must either enroll in insurance with a compensation limit of at least 3 billion won (approximately USD 2.6 million) or set aside an equivalent amount as a reserve fund. Coin markets must secure a minimum of 500 million won (approximately USD 360,000) for either option.
Currently, coin market exchanges that are financially strained must allocate at least 500 million won as a reserve fund or secure equivalent insurance. Given their nearly zero revenues, 500 million won represents a significant sum. Consequently, most exchanges have been gearing up for the law’s implementation by opting for insurance.
Coin market exchange, still undecided…insurance rate variable
It remains unclear whether the exchanges preparing to enroll in insurance will choose insurance over setting aside a reserve fund, as the insurance rates may be higher than expected.
Insurance companies have sent letters to the exchanges asking them to share their business status to determine appropriate insurance rates in consultation with the Financial Supervisory Service.
A Flybit official mentioned, “Although we are preparing for the implementation of the law with the principle of enrolling in insurance, we will decide after seeing the final decision as the insurance rate may be high.”
Similarly, a Foblgate official said, “We are considering enrolling in insurance, but we will judge after seeing the information of the final product to be launched.”
This uncertainty has led some to speculate that the demand for insurance enrollment may be lower than expected. Major exchanges like Upbit and Bithumb have no demand to enroll in insurance as they have already set aside reserve funds, and coin market exchanges are still deliberating between enrolling in insurance and setting aside reserve funds.
An anonymous exchange official pointed out that some cryptocurrency market exchanges have essentially ceased operations yet claim they will renew their virtual asset operator registration. The official also mentioned that the insurance premium cost can be quite burdensome.