Jeffrey Wade
Gemini is a leading digital asset exchange that provides a platform for users to buy, sell, and store digital assets. The company has placed a high priority on security and protecting its users' cryptoassets. While Gemini is not a bank and therefore does not provide the same level of financial protection as traditional financial institutions, it has secured insurance coverage for the digital assets it holds on behalf of its users. This insurance coverage is designed to protect against certain types of losses, such as theft resulting from a direct security breach or hack of Gemini's systems. The insurance coverage varies depending on whether the assets are stored in a hot wallet or cold wallet, with the majority of assets held in the more secure, offline cold storage system.
| Characteristics | Values |
|---|---|
| Insurance coverage | Coverage against certain types of losses for crypto held on behalf of users in the online hot wallet |
| Insurer | Aon PLC, a London-based global professional services firm |
| Insurance amount | $75 million |
| Insurance type | FDIC "pass-through" deposit insurance |
| Coverage | Theft of digital assets from exchange's hot wallet due to a security breach, hack, or theft by a Gemini employee |
| Exclusions | Theft by third parties, account takeover, fraudulent transactions |
| User responsibility | Managing and maintaining the security of user account login credentials and other authentication methods |
| Regulatory compliance | Gemini Payments UK, Ltd. regulated as an EMI by the FCA; Gemini Intergalactic UK, Ltd. approved by FCA as a registered crypto-asset firm |
| Security | Segregated, offline storage solution; majority of assets held in cold storage |
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What You'll Learn
Gemini's insurance coverage for certain losses
Gemini maintains insurance coverage against certain types of losses for the crypto that it holds on behalf of its customers in its online hot wallet. This insurance is subject to limitations, which are outlined in the Digital Asset Insurance section of the Gemini User Agreement.
The company's policy insures against the theft of digital assets from its exchange's hot wallet, which may result from a direct security breach or hack of Gemini's systems, or theft by a Gemini employee. However, it does not cover theft by a third party due to an account takeover, a hack of a third party's systems, or a fraudulent transaction initiated by the user.
In addition, Gemini's policy does not cover any losses resulting from unauthorized access to a user's account. Users are solely responsible for managing and maintaining the security of their account login credentials and other required forms of authentication, including API keys.
While cryptoasset transactions are not covered by the DGS, FSCS, or ICS schemes, Gemini's insurance coverage extends to its crypto custody and crypto exchange services. The company has also secured $75 million in insurance coverage for its cold wallet, the largest limit of insurance coverage purchased by any crypto custodian in the world.
For customers with U.S. dollars in their Gemini Accounts, these funds may be held at State Street Bank and Trust Company or JPMorgan Chase Bank, N.A., and may be eligible for FDIC "pass-through" insurance.
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Cryptoassets not covered by the Investor Compensation Scheme
Cryptoassets are not covered by the Investor Compensation Scheme ("ICS") as it is administered by the Central Bank of Ireland ("CBI") and protects clients of an investment firm that goes out of business. Investment firms, credit institutions, financial institutions, insurers, collective investment schemes, pensions, retirement funds, and government authorities are not eligible for investor compensation. Cryptoassets are not considered a security and are therefore not covered by the ICS.
The ICS was brought in following the Investor Compensation Act of 1998, which requires all firms offering investment services to have an investor compensation scheme for clients. The directive on investor compensation schemes, adopted in 1997, protects investors by providing compensation if an investment firm fails to return the investor's assets. Claims under the directive typically arise in cases of fraud or other administrative malpractice, or when an investment firm is unable to fulfil its obligations due to operational errors.
The Financial Services Compensation Scheme (FSCS) is another safety net that has been put in place by regulators to protect investors. However, the FSCS also does not cover cryptoassets as they are not regulated and are therefore not eligible for protection. The FSCS covers the mis-selling of products and bad advice, which causes investors to lose money.
While cryptoassets are not covered by the ICS or FSCS, certain crypto exchanges like Gemini maintain insurance coverage against certain types of losses for the crypto that they hold on behalf of their customers in their online hot wallet, subject to limitations. Gemini's policy insures against the theft of digital assets from their exchange's hot wallet that results from a direct security breach, hack of Gemini's systems, or theft by a Gemini employee. However, it is important to note that users are solely responsible for maintaining the security of their accounts, and any losses resulting from unauthorized access are not covered.
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Gemini is not a bank
One key difference between Gemini and a bank is that Gemini does not offer the same level of insurance coverage for its users' funds. While banks typically insure deposits through government-backed deposit insurance schemes, Gemini's insurance coverage varies depending on the specific services used and the jurisdiction in which it operates. For example, in the United States, Gemini users' fiat funds (U.S. dollars) are eligible for Federal Deposit Insurance Corporation (FDIC) insurance. However, it is important to note that this insurance coverage may not apply to all types of assets held on the platform, such as cryptocurrencies.
Gemini has taken steps to provide insurance coverage for its users' digital assets, recognizing the importance of consumer protection in the crypto industry. In 2020, Gemini launched its own insurance company, Nakamoto LTD., to provide coverage for customers using its crypto cold storage service, Gemini Custody. This captive insurance subsidiary is wholly owned by Gemini and insures against losses due to insider theft, collusion, and natural disasters that may destroy private keys. Additionally, Gemini has arranged insurance coverage through a global consortium of industry-leading insurers, including Aon PLC and Marsh & McLennan, providing further protection for its users' digital assets.
It is worth noting that while Gemini prioritizes security and has implemented robust measures to protect its users' assets, it is not immune to the risks associated with the crypto industry. Users should understand that their funds may not be covered by insurance in certain scenarios, such as theft of digital assets by third parties or unauthorized access to their user accounts. As such, it is essential for users to carefully review Gemini's insurance policies, user agreements, and security practices to understand the extent of their protection.
In summary, while Gemini is not a bank and does not offer the same level of insurance coverage as traditional financial institutions, it has taken significant steps to protect its users' funds and assets. Through a combination of captive insurance, external insurance providers, and robust security measures, Gemini strives to provide a safe and secure platform for users to engage in digital asset exchanges. However, users must also take responsibility for maintaining the security of their accounts and understanding the limitations of the insurance coverage provided by Gemini.
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Gemini's insurance policy exclusions
Gemini maintains insurance coverage against certain types of losses for the crypto that it holds on behalf of its customers in its online hot wallet. This coverage is subject to limitations.
However, there are several exclusions to Gemini's insurance policy. Firstly, it is important to note that Gemini is not a bank, and Electronic Money Institutions (EMIs) do not participate in the Deposit Guarantee Scheme (DGS). EMIs are also not covered by the Financial Services Compensation Scheme (FSCS). Therefore, e-money accounts are not deposit accounts, and e-money and cryptoassets held in Gemini accounts are not covered by these schemes.
Additionally, Gemini's insurance policy does not cover losses resulting from unauthorized access to user accounts. Users are solely responsible for managing and maintaining the security of their login credentials, API keys, and other authentication methods. The policy also does not cover theft or loss of digital assets by a third party due to an account takeover, a hack of a third party's systems, or a fraudulent transaction initiated by the user.
While Gemini maintains insurance coverage for cryptoassets in its online hot wallet, the majority of assets are held in an offline cold storage system, which is not covered by the insurance policy. This cold wallet storage solution is designed to provide maximum security for cryptoasset holdings, with only a small portion of assets held in the online hot wallet.
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Gemini Insurance Fund mandate
The mandate of the Gemini Insurance Fund is to protect the integrity of the platform by providing an additional layer of protection to customers. The fund is designed to significantly reduce the likelihood of an Auto-DeLeveraging (ADL) event by providing capital to manage positions that cannot be closed on the public order book.
All Liquidation Fees are paid into the Insurance Fund to ensure it has the required capital to manage the expected risk from customer derivatives' positions. The fund is not designed to make or lose money.
The fund complements existing FDIC "pass-through" deposit insurance that fiat funds (US dollars) are eligible for. It covers against the theft of digital assets from the exchange's hot wallet resulting from a direct security breach, hack of Gemini's systems, or theft by a Gemini employee.
It is important to note that the fund does not cover any losses resulting from unauthorized access to a user's account. Users are solely responsible for managing and maintaining the security of their login credentials and other authentication methods, including API keys.
Additionally, the fund does not cover theft of digital assets by third parties resulting from an account takeover, a hack of a third party's systems, or a fraudulent transaction initiated by a user.
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Frequently asked questions
Gemini is not a bank and therefore your money in Gemini is not covered by the FSCS. However, Gemini maintains insurance coverage against certain types of losses for the crypto that it holds on your behalf in its online hot wallet, subject to limitations.
The Gemini Insurance Fund is designed to protect the integrity of the platform by providing capital to manage positions, when necessary, that cannot be closed on the public order book. It is an additional layer of protection designed to significantly reduce the likelihood of an Auto-DeLeveraging (ADL) event.
Gemini's insurance covers against the theft of digital assets from its exchange's hot wallet resulting from a direct security breach or hack of Gemini's systems, or theft by a Gemini employee.
Gemini's insurance does not cover theft of digital assets by a third party as a result of an account takeover, a hack of a third-party’s systems, or a fraudulent transaction initiated by a user. It also does not cover any losses resulting from unauthorised access to your user account.
Gemini's cold wallet has $75 million in insurance coverage, the largest limit of insurance coverage purchased by any crypto custodian in the world against certain types of losses.
