FDIC-like Crypto Insurance vs Private Crypto Insurance

Government-guaranteed protection: Up to $250,000 per depositor, per institution, backed by the full faith and credit of the U.S. government. This matters for institutional treasuries and risk-averse retail seeking an absolute safety net against bank failure. Coverage is automatic, no application required.

Narrow scope of coverage: Only protects against the failure of the insured depository institution (e.g., Custodia Bank, Protego). It does NOT cover:

• Losses from smart contract exploits (e.g., Euler Finance hack).
• Private key theft or self-custody errors.
• Depeg of stablecoins (e.g., USDC depeg in March 2023).
• Protocol insolvency (e.g., Celsius). This matters if your risk exposure extends beyond the bank's balance sheet.

Customizable, on-chain protection: Policies from providers like Nexus Mutual, Unslashed Finance, or Evertas can cover specific risks: smart contract failure, custodial hacks, or stablecoin depegs. This matters for DeFi protocols, DAO treasuries, and sophisticated investors holding assets in active protocols like Aave or Compound, where technical risk is the primary concern.

Limited capacity and cost: The total coverage pool is market-driven, leading to high premiums (often 1-5%+ annually) and coverage caps per protocol. Claims require manual assessment and voting (e.g., Nexus Mutual's claims assessment). This matters for large institutions needing billions in coverage, as the private market may be insufficient and economically prohibitive.

Mandatory, non-discriminatory coverage: All participants in a protocol or chain are automatically covered by a shared pool (e.g., a treasury or slashing mechanism). This creates systemic stability and reduces adverse selection. This matters for base-layer security and mass adoption, as seen in models like Cosmos Hub's slashing insurance or Solana's proposed validator insurance fund.

Slow, political claims adjudication: Payouts require governance votes (e.g., DAO proposals), leading to delays of weeks or months. Coverage caps are often low relative to TVL. This matters for protocols requiring rapid recovery from hacks, as seen in lengthy MakerDAO governance processes for covering shortfall events.

Rapid, actuarial-based payouts: Providers like Nexus Mutual, Unslashed Finance, and InsurAce use smart contracts for near-instant claims assessment against predefined conditions. This matters for DeFi protocols and custodians needing deterministic recovery, enabling services like coverage for smart contract bugs or exchange insolvency with clear parameters.

Limited capacity and coverage gaps: Total coverage is constrained by staked capital from individual underwriters, leading to low penetration (e.g., <2% of DeFi TVL insured). This creates adverse selection where only the riskiest protocols seek coverage. This matters for large institutional deployments where required coverage amounts often exceed market capacity.

Government-backed guarantee: Up to $250,000 per depositor, per bank. This matters for regulatory compliance and consumer trust, providing a familiar safety net for fiat on-ramps held by regulated custodians like Coinbase or Kraken.

Excludes crypto assets: Coverage only applies to USD deposits, not Bitcoin, Ethereum, or DeFi positions. This is a critical gap for protocols holding native assets or treasuries, leaving the majority of on-chain value unprotected.

Covers on-chain risks: Policies can be tailored for smart contract failure, custodial hacks, and oracle manipulation. This matters for DAOs, custodians, and exchanges needing protection for assets like wBTC, stETH, and protocol-owned liquidity.

Capacity & Cost Constraints: The global crypto insurance market is estimated at ~$6B in capacity (vs. trillions in traditional markets), leading to high premiums (1-5% of coverage) and coverage limits. This is a bottleneck for large institutions with $100M+ treasuries.