Captive Insurance Strategies for Crypto Asset Custodians

 

A four-panel educational comic titled 'Captive Insurance Strategies for Crypto Asset Custodians'. Panel 1: A woman asks, 'What is captive insurance?' while a man holds a folder labeled 'Insurance'. Panel 2: Another man answers, 'It’s self-insurance!' next to a board listing 'Tailored Policies, Reduce Costs, More Control'. Panel 3: The board expands with 'Crypto Custodians: Cyberattacks, Mismanagement, Regulation'. Panel 4: Two men agree, 'That increases our resilience!' while smiling." 2/2

Captive Insurance Strategies for Crypto Asset Custodians

As digital assets move deeper into the mainstream, the role of crypto custodians—firms responsible for safeguarding client funds—has never been more critical.

Yet many face limited options for affordable, comprehensive insurance coverage due to the perceived volatility and regulatory uncertainty surrounding crypto.

Captive insurance offers an innovative alternative: a self-insurance structure designed to reduce costs, tailor coverage, and improve resilience.

📌 Table of Contents

What Is Captive Insurance?

Captive insurance is a form of self-insurance where a company creates its own licensed insurance entity to cover risks that are either too costly or unavailable from the commercial market.

This approach is widely used by Fortune 500 companies, and it’s gaining traction in crypto, where traditional underwriting is often limited or prohibitively expensive.

Captives can operate in onshore or offshore jurisdictions, offering flexibility in how risk is managed and reported.

Why Crypto Custodians Need Captive Strategies

Crypto custodians face several unique risks:

- Cyberattacks and hot wallet breaches

- Regulatory investigations

- Mismanagement of client funds

- Third-party service provider failures

Captive insurance allows these firms to build tailored policies, respond to emerging threats, and demonstrate compliance maturity to institutional clients and regulators.

Structure Models for Captive Programs

Common models include:

- Single-Parent Captives: Fully owned by the custodian, covering internal risks

- Cell Captives: Shared infrastructure across multiple crypto firms with segregated risk cells

- Rent-a-Captive: Plug-and-play solutions for smaller custodians or startups

- Protected Cell Companies (PCC): Popular in Bermuda, Cayman Islands, and Guernsey

Benefits and Risk Management

Benefits:

- Tailored, crypto-specific coverage (e.g. staking slashing events, bridge exploits)

- Capital retention and investment income from unused reserves

- Lower long-term insurance costs

- Enhanced credibility with institutional partners

Risks:

- Upfront setup and regulatory costs

- Ongoing governance and audit burden

- Potential conflicts with broader jurisdictional licensing rules

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