What Custody Insurance Covers: A Reference

Entry last verified August 2026. Policies are private; this describes common structures rather than any specific arrangement.

Typically covered

Theft from cold storage by external attack. Physical loss or destruction of key material. Employee dishonesty, in some policies and subject to conditions.

Typically excluded

Losses involving an employee acting within their authority. A common exclusion covering a meaningful share of realistic scenarios.

Compromise of an individual customer’s credentials. Insurance covers the custodian, not your password hygiene.

Insolvency of the firm.

Hot wallet losses, in some policies, or covered at lower limits.

Smart contract and protocol failures.

The limits

Policies carry per-incident and aggregate limits, frequently well below total assets held.

A platform describing itself as fully insured is making a claim that requires three questions: insured against what, to what limit, and does a recovery reach customers.

The customer’s position

In most arrangements there is no direct relationship between the customer and the insurer.

The policy covers the custodian’s losses. Whether a recovery reaches customers depends on the custodian’s own arrangements and, in an insolvency, on the priority of claims.

That gap between what customers assume and what the arrangement provides is the point of this entry.

What matters more

Segregation. Whether client assets are legally separate and bankruptcy-remote. This determines the outcome in the failure case insurance does not cover.

Regulatory supervision. Capital requirements, reporting, and a supervisor able to intervene.

Custody controls. How keys are held and how many parties must approve a movement.

All three are more consequential than a policy whose terms you cannot read.

The questions to ask any venue

Which entity holds the assets and where is it regulated. Are client assets segregated and bankruptcy-remote. What does the insurance cover and to what limit.

The first two are answerable from the terms of service and the public register. Venues publishing both openly, such as a regulated European platform, make the assessment possible in twenty minutes.

The third is rarely quantified anywhere, which is itself the answer.

The conclusion that follows

No custodial arrangement is risk-free, insurance included.

That is why the working balance should be sized as though it might be lost, and why long-term holdings belong somewhere the question does not arise.