Celsius Network Self-Insurance Plan

Would you consider crypto insurance that covers assets loaned to institutions and exchanges? It’s coming to Celsius Network!

One of the most exciting announcements by Celsius Network this year is the upcoming launch of a self-insurance plan. It’s crypto insurance for counter-party risk. Many Celsius users often ask: but aren’t my deposits and assets covered by insurance? Doesn’t Celsius Network provide an asset insurance policy? The simple answer is both yes and no. Let’s explain…

Fireblocks Insurance Plan

Fireblocks is the current custodian for Celsius Network (it used to be BitGo). A crypto custody company is essentially a 3rd party provider of storage and security services for cryptocurrency assets. Their services are mainly aimed at institutional investors, such as large crypto companies and hedge funds, who hold large amounts of bitcoin or other crypto assets. However, Fireblocks does NOT insure against Celsius’ counter-party risk.

Fireblocks provides insurance on digital assets held by Celsius in cold storage and hardware wallets only. However, any asset generating yield and income for Celsius are deployed from these cold wallets, and therefore are NOT covered by Fireblocks’ insurance policy.

Celsius Insurance Policy

Unfortunately, Celsius does not provide an insurance policy for users’ assets other than those that are kept in cold storage through their custodian, Fireblocks. This represents a small fraction of the total assets under management (AUM). There is no insurance for crypto counter-party risk.

Since Celsius Network generates yield and income by deploying assets to lending programs, DeFi and other income generating sources, those assets that are deployed are NOT insured.

Essentially, when assets are deployed, they are not in control by Celsius. Therefore, they can’t be insured by Fireblocks. This is called “counter-party risk“.

In order to mitigate risk for both the company as well as the users, Celsius requires borrowers to post collateral of up to 150% in most cases. What this means is that a borrower borrowing from Celsius will need to give the company an alternative asset as collateral for the asset they are borrowing. On all occasions and for loan approvals, Celsius will do an incredible amount of due diligence into the borrower’s financial wellbeing as well as ability to repay the loan. However, assets that are lent out are not currently insured. Currently, there is no crypto counter-party insurance with Celsius Network.

Upcoming Celsius Self-Insurance Plan

Here comes the exciting part! Celsius is launching a crypto self-insurance plan for its users to protect against counter-party risks. What this means is that users will eventually have the ability to opt-in or opt-out of a crypto self-insurance plan that will insure their cryptocurrency assets that are not insured by Fireblocks (assets that are stored in cold wallets). So think assets (counter-party) that are lent out to DeFi platforms, lending protocols, farming etc. They can all be insured using the new Celsius self-insurance policy. This is an absolute game-changer! The estimated launch for this Celsius counter-party risk insurance plan is for Q4 2021 to Q1 2022.

You asked for it and we listened. We will be launching a self-insurance plan for all Celsius users that will cover all your coins, it will take us a few months but it will insure coins lent out to institutions and exchanges. No one else has such insurance today.

As Alex Mashinsky (CEO, Celsius) noted in his above tweet, the Celsius self-insurance plan is truly unique. No other company or platform or exchange offers such insurance policies to protect users’ counter-party risk. Obviously, this new self-insurance plan is a risk management tool whereby both Celsius and Celsians can opt to insure part or their entire asset portfolio from unforeseeable hacks or losses.

In addition, users can opt against third-party insurance firms like Nexus Mutual where the premiums can sometimes exceed expected losses (they are not cheap and usually not worth it!). These 3rd party insurance products also protect against crypto counter party risk, but they are seen as too new, unestablished and expensive for the current market place.

The Celsius self-insurance program will need to set aside a certain pool of funds. These funds will be topped up by Celsius itself, as well as users who opt-in to the program. It is yet to be determined how much this will cost the individual user, but there have been talks that a certain % of weekly rewards will be paid into the self-insurance pool (as weekly rewards are almost directly related to a users’ total portfolio value).

Alex Mashinsky noted on a previous AMA that users who opt into the crypto counter-party risk insurance will pay approximately 0.5 to 1.0% of their weekly rewards that will be accumulated in the insurance pool. It will likely be around 0.5% (rather than 1.0%). In addition, the total assets within the Celsius insurance pool will be published. All Celsians will be able to see and reference exactly how much insurance there is. Celsius will be fully transparent about the insurance pool totals.

The Celsius insurance pool will be used for emergencies such as hacks and loss of assets. This ‘rainy day fund’ will cover unexpected losses that could affect the assets of Celsians.

How do you Opt-In for Self-Insurance
(and Opt-Out)?

As soon as a self-insurance product was on its way, Celsius updated their mobile app to allow users to opt-in and opt-out of this program. By default, you are opted-out. You can switch between opting in and out at any time (as we’re sure many Celsians may change their mind once more information and details come out).

Here are the steps to opt-in and out of the upcoming Celsius self-insurance plan. Please note that you can only do so on your mobile app (not available on desktop):

  1. Navigate to the main menu (Celsius logo on bottom right corner) and click on ‘Profile
  2. Select ‘Insurance‘ (the bar that has the umbrella for ‘rainy day fund’)
  3. Select either ‘Opt-in‘ or ‘Opt-out‘ (orange button at the bottom)

The Self-Insurance screen on the mobile app reads as follows:

“We are building a self-insurance feature to protect you from counter party risk. Opt-in below to be added to the waitlist and get exclusive updates and other news about this feature. We will contact you again at the launch of this feature to formally opt-in to receive insurance protection.”

Self-Insurance Plan Questions for Celsius

Even with some information leaked, the community still has many questions:

  1. How much will it cost an individual user to insure their assets?
  2. How will this opt-in self-insurance policy cost be charged (ie. from weekly rewards, one-time fee, monthly payment etc.?)
  3. What % of a users’ portfolio needs self-insurance (ie. how much is currently held in cold storage and insured by Fireblocks?)
  4. What type of losses will be insured by the Celsius self-insurance policy?
  5. Will the self-insurance plan be available to all users in all locations/jurisdictions?
  6. Will the new Celsius insurance product be available to all supported assets or just some or a few?
  7. Can a user opt-in for only assets of their choosing? Or is the self-insurance product all or none?
  8. Will more loan options with higher loan-to-value (LTV) be launched?
  9. What will happen to those who opt-out of this self-insurance plan?
  10. Will opting-out affect a users’ reward rates on their crypto assets?
  11. Will higher Loyalty Levels get a discount in the Celsius self-insurance policy payments? For example, will Platinum Level users get a 25% discount on payments much like loan interest APR?
  12. Can users pay the self-insurance plan costs in CEL tokens (for a discount) or in any asset that they choose?
  13. What does this mean about Celsius’ security measures for lending in the future? Will they continue to do their due diligence?
  14. Why provide a crypto insurance plan if Celsius is so adamant that security is their top priority? Is the team not confident in their own abilities?
  15. When is the product launching?