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Lost a lot of money in the Terra crash? This is how you can insure your cryptocurrencies

 


Cryptocurrencies still belong to the asset class of high-risk assets. From hacks to unexpected market crashes, there are numerous ways investors can lose their coins - and therefore their money. Most recently, the collapse of the Terra network drove numerous private investors to ruin. To protect investors from a total loss, various service providers such as Opium Finance or the InsurAce.io Protocol now offer insurance that covers certain risks. The following is a brief overview of the risks against which investors can insure themselves.


1.) Protection against hacks on crypto exchanges

The majority of investors hold their cryptocurrencies on exchanges such as Binance , Coinbase or FTX. Although the trading places are considered safe and repeatedly emphasize that they are protected against various risks, investors can still protect themselves separately. The minimum sum insured and the term vary depending on the provider and asset.


If, for example, a crypto exchange is the victim of a hacker attack , the insurance company will take action and compensate investors if the exchange cannot compensate for the damage caused. In addition, some policies also include protection against payment freezes.

2.) Stablecoin De-Peg Insurance

In the volatile environment of the crypto market, investors value stablecoins for their stable value. The prices of the cryptocurrencies are tied to another asset – usually the US dollar – and represent it at a 1:1 ratio. Consequently, decoupling from the underlying asset is catastrophic for stablecoins, as the recent example of the Terra stablecoin UST proves .


But investors can also take precautions here to protect themselves against such a de-pegging event. There is the possibility of taking out insurance against the very decoupling from the underlying asset. If the stablecoin falls below a certain threshold (e.g. $0.92) for an extended period of time (e.g. 10 days), the insurance cover kicks in and compensates the insured with a 1:1 compensation.


Due to the Terra debacle, these types of policies are in increasing demand: all stablecoin insurances are currently sold out on InsurAce. According to its own information, the platform paid out around 12 million US dollars to victims in the course of the Terra crash.

Stablecoins like Tether, USDC and Co. are so safe.

3.) Protection against hacks on smart contracts

Attacks on smart contracts are still the order of the day in the crypto space. Most recently, the hack on the Ronin Chain - the blockchain behind Axie Infinity - made headlines. In total, the attackers stole over $600 million worth of cryptocurrencies.


To protect against loss through exploits and hacks, various crypto insurers offer policies that cover exploiting vulnerabilities in smart contracts. If the investor loses cryptocurrencies stored in the smart contract in the course of a hack, InsurAce, for example, reimburses compensation at the time of the loss - minus possible reimbursements through the smart contract protocol.


In addition, some insurers also offer individual packages in which several risks can be covered according to your own needs. The advantage: the insured has his insurance cover bundled in one contract. The disadvantage: In most cases, the minimum sums insured are significantly higher (at InsurAce, for example, from 500,000 US dollars).

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