Topic: Winklevoss-Led Gemini Exchange Now Has Its Own Insurance Company (Read 535 times)

I am pretty sure there are time to time audits for future stuff and not the past stuff. Just to give an example if 2018 hot wallets are audited, it doesn't need to be audited again frequently, maybe just time to time, yet let say they got more money and now have a new hot wallet as well in 2020, they will have to get that audited, if they use the same hot wallet and change anything with it, they will have to get that audited as well.

All proper exchanges do have to have insurance one way or another because in case of something bad happens, they need that insurance to make sure they don't go bankrupt and even sued over it. I am not entirely sure if they need money to set aside, it says when there is regulated jurisdiction it is like that but on self-insurance you can have money set aside, so it is not a must but what they prefer.

This really has a positive effect on the professional traders. Because we have a large amount of capital, we can't put it in the same exchange because it has lots of risks. These days, when I hear that exchange exchanges are constantly hacked, I have to look for secure and protected exchanges. I appreciate Gemini now but being safe is not enough. Gemini exchanges need to list high and good marketcap coins so traders there have more choices.

Sorry, I totally misread your statement.
Yes, CBoE used to trade bitcoin futures until March 2019, when they shut down because they attracted tiny volumes compared to CME’s future.

Actually on the CBoE website I now see a BTCH0 future, and I am quite puzzled.

News about closure at CBoT
https://www.cnbc.com/2019/03/18/cboe-to-stop-listing-bitcoin-futures-as-interest-in-crypto-trading-cools.html

EDIT: the only explaination I have for this is that they decided to stop listing new series of bitcoin futures right after they started quoting the XBTHO (H0 means expiring March 20) that at the time was maturing in one year. Open Interest is neglibile. This is why I didn't think about CBoE, but yes alyssa85, you are technically right.

Chicago Board of Exchange (CBoE) is a different futures provider than the Chicago Mercantile Exchange (CME)

With this insurance company backing the exchange, people are going to flood to that particular exchange for their business without any fear about them losing their cryptos because they know they will be fairly compensated whenever the exchange is hacked and with this insurance it shows the security behind the exchange.

Actually CME is using CME CF Bitcoin Reference Rate for daily settlement and CME CF Bitcoin Real-Time Index for marking to market during the day (basically the same methodology, par some details).


So Gemini is only one of the 5 venue used to compute an average whose value is used to settle the future.

Regarding price setting, it turns out that the Chicago Board of Exchange is using the price on the Gemini exchange for their futures contracts:

https://fortune.com/2017/12/12/winklevoss-twins-bitcoin-futures/


If a whole eco-system is built up which uses Gemini for price-setting, they'll eventually get their ETF approved, also using Gemini for the price.

They opened a market also for insurance.
Of course first insurance contracts were basically "bets" on future negative events happening. As the demand for this insurance will rise, insurers will both start being more "competent" to analyse operations on exchanges thus requiring said level of operational security to be able to provide insurances (I am thinking about independent audits, ISO certifications etc). The relevant thing is that the cost for this insurances will be rapidly decreasing and the ultimate benefiter of all this will be the clients of exchganges.


As far as I know almost every exchange has some sort of insurance, but it is the case only for hot wallets (or online wallets). Insurance of cold wallet is something relatively new.
Again, this is something the private customer might not really be interested in (I mean someone is keeping her funds on the exchange only for the trading necessity).
This is instead needed for institutional clients, where there might be some internal rules to prevent them to deposit anything on an uninsured  venue (this is standard practice for traditional financial products, so I think it will be the case for crypto financial products as well).

They didn't mention if security audits will become a standardized practice to qualify for crypto insurance. It could elevate overall security standards and prevent disasters like Quadriga whose CEO passed away unexpectedly while being the only one able to access their funds private keys. It could also cut down on scams and inside jobs as insurers would be incentivized to investigate the disappearance and theft of capital before covering losses.




It appears other exchanges already carry insurance protection. Nice to know. It legitimizes the industry and will help alleviate concerns over the new and emerging technology. Banks in the USA having FDIC insurance and banks abroad having similar protection schemes in place may be somewhat inadequate and obsolete. But they do inspire confidence, which is important, I guess.




"The capital reserve requirements required by a regulated jurisdiction like Bermuda bring regulatory oversight to the captive."

This appears to indicate regulation requires them to have sufficient funds in reserve to cover their insurance policy.

The level of entrepreneurship of these guys should really be a subject of study in the entire industry because they see a spot and come in to make some real money. I don't understand how you can create an insurance to insure your own personal business which then means the exchange site would have to start paying insurance premium to their 'insurer' or find a way to transfer the cost to their customers and this money still goes to the pockets of the owners of the exchange site. Setting up an insurance company is not a joke like the way these guys have made it seem. Who decides their capitalization threshold, who decides how the premium will be calculated or how the customers will be indemnified. So far its meant for their exchange sites alone, its just another way to siphon funds...

Alow me to derail this thread for a second to understand, by comparison, how different Gemini is to other exchanges.

Brief Recap on Poloniex:


Source: Coin Metrics' State of the Network: Issue 34

The reported news is this one:

Poloniex Drops KYC for Withdrawals Below $10,000 Following US Exit



So basically Poloniex is going into the opposite direction of Gemini. Instead of seeking the big, fat Wall Street clients, they are luring the sleek,   thin and shady KYC avoiding clients. THose are the clients are ready to use different exchagnes because a 0.01% reduction in the fees. Not a smart choice in my humble opinion.
Also given the fact that, apparently, no one gives a f...k about KYC or privacy in bitcoin (big statement, don't discuss here, as really out of scope).



https://twitter.com/saifedean/status/1215759134726987786?s=20

I don’t think they are in the money yet with their investment: the twins are definitely realising the bar for the exchange ecosystem as they are interested in the clients with deep pockets: institutional institutional money committed paying higher fees to be serviced by a sound counterpart, dealing with all the nasty stuff like compliance, regulations, KYC/AML proofing all their clients etc. (Almost the opposite of the way retail customers reasons and operate).
Setting up this kind of operations has a huge initial cost, that can be very effectively be amortised as the client base expands (once you setup a decent KYC/AML procedure, you can easily scale to 10 or 100 clients with little increasing cost).
As I think they are aiming to be the number one broker in the street once bitcoin has gained momentum, I would be surprised Ifcthey had already broke-even.

I would love to know whether Gemini has actually made them any money yet. Banking charters, staff, development, legal costs and so on add up to a vast outlay.

They're fine of course due to their personal holdings but I wonder what their time frame is for recouping and making actual profit.

These guys started off as the guys who mark zuckerberg stole from and came such a long way from it, at least here. I know out there in the world many people know them as the twins that zuckerberg stole from to this day, but if you are in crypto world you have heard their names related to crypto for years now. They are one of the earliest rich people to actually end up into bitcoin, they could have done nothing and just waited and sold at peak 20k prices and would have enough money to be super rich forever (like at least 3 generations rich) if they were just contempt with what they have but they went out to do many other things.

Gemini is a great example of that, now they are adding insurance company to that and making it even bigger, I hope many many successful business to them because they believed in bitcoin when no other rich person did.

Yeah notify your customer, it’s what the KYC in crypto are setup, and do you wonder its fair to implement KYC in that manners? I bet nobody like KYC. Also Mt Gox is yet another superb example, they basically bend every single rules to not pay the amount you deserve, either you give up or they get screwed, they would drag as long as possible since they have the last say to every decision to be made. You can blame “scam, inequality, discrimination, racist, basic rights, cry to your mum lap, or threaten to expose their secret.”

Interesting but not surprising to me.  They're entrepreneurs at heart and their thing is to start businesses and be independent, but I have to say that breaking into the insurance business has got to be one hell of a challenge, since there's so much competition.  Though I admire their drive, I'm thinking it might have been smarter for them to purchase insurance for their customers instead of trying to make a new business out of it. 

Still, I think it's a really good thing that they're actually protecting their customers' money.  That's far more than can be said for many other exchanges.

Could be.  I don't know what they think about Warren Buffett, but he was always big into insurance companies.  They all get the cash up front and then only later do they have to pay anything out, which is smart.

Binance are throwing a mountain of shit at the wall and hoping something sticks. In a year or two their services might all be gone or look totally different.

Gemini are taking the opposite approach. They're being careful and methodical. They may take time to arrive in other places, they are in a few, but if they do it'll be rock solid.

You have to understand why Gemini was set up in the first place. The Winklevoss brothers bought bitcoin really early, and their initial idea as to set up an exchange traded fund with those bitcoins, and list it in the stock exchange so institutional investors could buy.

Their ETF idea was rejected by the SEC which gave them a long statement of reasons - chief among them was that it was difficult to set the price of bitcoin because most of the exchanges at the time were shady and opaque and manipulating both price and volume. In 2013 when they first tried for an ETF, 90% of the trading volume was Chinese on no-fee platforms, and it was clearly fake volume, which meant the prices were likely fake as well. And people were worried about Mt Gox, rightly as it turned out.

So the Winklevoss twins tried to address this by setting up their own regulated exchange. They spent millions getting a New York licence. They did everything by the book, complied with every single regulation that was in existence in the US. The thinking was that as regulations tightened, their exchange would gain in volume because they were already compliant, and at some point, the regulated exchanges would be the ones setting the price.

They're not there yet, and they have plans to open regulated exchanges in Europe:

https://bitcoinist.com/crypto-exchange-gemini-eyes-european-expansion/

But they are very much bent on doing this by the book - they want to be the dominant exchange in all regulated areas because they believe that regulation is going to spread. And at that point they'll open their ETF.

Binance by contrast takes a wild west attitude to things - but who knows how long they'll last?

Of course, their move certainly makes sense when it comes to institutional investors, they seek security above all, especially in something that is still pretty insecure or, better to say, very vulnerable in terms of various manipulations or exit scams/unfortunate circumstances (QuadrigaCX recently or Mt.Gox in past).

I know a few years ago that the news came out about a Japanese insurance company, but I do not know if this project succeeded in its intention. However, I think regular insurance companies are seriously analyzing the crypto market and want to get involved. Allianz spokesman says "the company was exploring product and coverage options in the space because cryptocurrencies were “becoming more relevant, important, and prevalent on the real economy.”

Therefore, it is possible that such services will be extended in the future the retail users, but maybe only when crypto becomes much more valuable than today in terms of total market capitalization (which by the way we know that doesn't make much sense). But it will be hard to ignore something worth $1 trillion (BTC at $50k), everyone will want their share of the cake.

Maybe Gemini safe and sound investment venue but definitely not for all the people across world. I wonder Gemini has been into exchange business but not willing to expand their business out of America. Binance comparatively started late but trying to cover almost all the continents for fiat options for crypto trading. I mean to say whatever development Genimi is achieving or going to achieve in future, will not have big impact into this crypto space as they are doing business only for USA people and not exactly for crypto community. Please remember USA covers less than 5% of crypto adopters.

If I were Winklevoss and I would have invested into bitcoin in millions by 2010/2011, I might have built a facebook rival platform or might be owning a business in crypto space which would be ranking top in sector after experiencing peaks in 2013 and 2017.

The point is more than that. Giving away airdrops or bounties does not make a coin grow. Listing on top exchanges does not make the coin attractive to investors either. What makes a coin really grow and be interesting to investors and the whole crypto community is the product, which is truly helpful and innovative and is addressing a problem in real life.

Created new coin is most easy but how to make many people want to invest and buy coin looks hard and not easy, without get investor you must pay out much fees for listing on exchange market although you have one way how to make your coin popular like giving with airdrop project but keep needed money when you want to list on exchange market.

Maybe it's also a super rapid way to get onto their exchange, but it also seems like a super rapid way for them to freeze your account too. I would've thought somewhere that uptight wants nothing to do with cash.

Ah well. No one comes out with a constant string of winners.

It's easy to create tokens. It's much harder to fool enough people into buying them.

They want to get where Tether is. But they are doing it wrong. I think that they just don't have enough patience.

No reason to do that. Scratching my head

And here's Gemini simultaneously coming up with the world's stupidest idea - https://twitter.com/Gemini/status/1218299327006810114

Who doesn't want to purchase Gemini's dollar with dollars to spend Gemini dollars in a handful of locations?

Awesome.

You are right, but it’s a very long way before a regulated fund can deal trough a DEX via smart contract. Keep in mind that now the can barely even touch real bitcoins (think of Bakkt volumes compared to CME, to have an idea).

An insurance contract has some terms, the terms of the payoff determine the premium paid.
If the terms are changed, in the jurisdiction where I live, this must be notified to you in adnvsnce, otherwise such changes are void.

The last scenario is fraud, hence is something illegal.
Remember those funds need to be  regulated and supervised if they want to be able to claim anything from Gemini.

Good luck dealing with insurance
The likelihood of them sticking to the terms of “pairing the value at the time of loss, paring the value to the market value you claimed the loss, pairing it to the time you buy it,  or whichever is lower among all options” is sky high, insurance would never ever give you a chance of profiteering. Say

value at time of loss $ 100,
value at the time claimed $ 110,
your purchase price $ 90,

insurance would compensate you $ 90 almost 99.9% of the time, out of three option,
And you can have no say when everything is stated on the tnc that’s not even there by the time you read that, they can modify the tnc at their wishes to best suit their position, that’s not an unusual practice to them, and it’s legal and incontradictible.

And I’m eager to see the time tested effect of this little experiment. Fund manager claim the loss, and prop up the value of BTC by buying from the open market? And loss again to the hack and claim the insurance and prop up the BTC again? And go back and forth for the third, forth fifth trials, to the point that someone gonna cry out loud “bitcoin is a fraud!”

I don't think it'll change much. Users already keep huge amounts of crypto in centralized exchanges, for various reasons, because most are thinking about hack that "it will not happen to me".
And insurance services offered by companies that understand crypto are needed imho.
Of course, some (like Binance) seems to do this more or less internally. So the question is indeed: will the twins "sell" this service or only use it for their own exchange?

Gemini are sending a message out to the world that they want the big
investors and traders to use their platform.

Providing a robust insurance backing will put the "institutional investors"
at ease.

You do have to hand it to the twins, they are persevering in the crypto
space after their attempts to apply for Crypto ETF back in 2017 and
2018 were rejected by the SEC.

Their positivity can boulster other peoples belief that Bitcoin and crypto
is most definitely a long term thing, a very long term thing

I presume it has to be that way. But that's how most insurance works. You get the dollar value of whatever is insured.

It would be interesting to see how clear they make this and the terms of any claim. Will the dollar value be frozen at the time of the loss?

As far as I know this is the first cold storage insurance. Full marks to the Winkies for sticking at it and continuing to innovate even if they may go against the beliefs of many.

I'd change that statement to: "better centralisation means better traditional exchanges." - institutional traders do need these insurance policies, but what if those can be met through well-written and audited smart contracts - and the auditors would hold the insurance for the smart contracts?

I strongly believe that in order to achieve a higher level of freedom & transparency we need decentralized services. Fortunately we do have the means for that - aka smart contracts. However if you look at the current DEXes in the market they are not completely decentralized thus the incentive to use them is not 100% if you know what I mean.

It is just a fraud!
Insurance are going to compensate you in USD.
Insurance will never ever going to compensate you in BTC
And look at the fine print hidden behind the wall of text of term and condition. It’s probably one of the plan Gemini intention to accumulate massive amount of BTC without buying it on the open market, and the idiot would fall for it.

This is I think the main point.
I think that for the moment better centralisation means better exchanges: a lot of present exchanges have subpar ores management, liquidity, security etc... so if higher centralisation is the price to pay I am ok with it. Also because I think it is a transition toward a more mature, hence competitive scenario for exchange: a lot of smaller exchanges have to die so the bigger one can compete in a more mature scenario, with users being the ultimate benefited of this.

Regarding holders remember that there are users, namely institutional investors that REQUIRE exchanges to be insured against every kind of mishaps in order to be used. So I think these are the subject the Winklevii has in mind when setting up all this, not the retail users.

Edit: will expand answer when RL duties settle a little bit!

It is a ground breaking approach and the Winklevoss brothers were planning to do something for a very long time and because of regulatory hurdle they kept on shifting their focus and i think they have done a great deal of service to the community to make the authorities understand about bitcoin and now you get the insurance for the coins in an exchange and that is the service we want, a security for our money invested in exchanges should have insurance and i am sure the rest of the exchanges will follow this path if not they will loose customers.

Security is something that should be good in any case, and in the case of something as sensitive as crypto it definitely gives additional security to clients. What may be a little unusual is that a company provides insurance on its own, through a company it founded. So the whole thing is actually related in the sense that they are actually guaranteeing money for insurance, which may not be a common business practice (although I may be wrong).

However, I agree that this move will encourage others to at least start thinking in that direction, which, if it becomes the standard, would mean a hell of a lot in terms of the security of the assets clients keep there.

But I will still wonder if this path leads to even more centralization in terms of coin hoarding (BTC) on crypto-exchanges? Given that we consider them insecure today (not our private keys - not our coins), and yet there are millions of BTC stored with them - will these figures increase further for added security in the form of insurance? One might wonder why anyone would risk having a desktop/mobile wallet or buying a hardware wallet if they could have a secure online option.

Guess they'd be at the forefront now, with such a big step they took with insurance backed exchanges. Not only that, it's a big insurance they have right there, pretty much overwhelming any other exchange out there, whether it be insurance backed or not. Not only that, they directly avoided competition ( for now ) from coinbase with them handling cold storage wallets.

In my view the Gemini brothers are making some very smart moves in the industry.  I think their exchange is the single one that offers such a big insurance. A $200M is a sum that a few can cover - thus making the Gemini exchange - one of the major institutional grade for cryptocurrency trading.

It's interesting that they've created an insurance company, instead of just getting insurance from Lloyds of London the way Coinbase did.

I wonder if the plan is to get their insurance company to start offering insurance to other exchanges in return for a premium. The way insurance works is you pool the risks, so the more exchanges that get insured with them, the safer the whole ecosystem is, while not breaking anyone's bank.

Gemini confirms himself as one of the most institutional money friendly exchanges, with a clear step in providing such client a safe ansd sound investment venue, providing them with an insurance for the funds held at the exchange.

Winklevoss-Led Gemini Exchange Now Has Its Own Insurance Company






I think this is big news, for a variety of reasons:

• Exchanges have been the weak link in bitcoin ecosystem for a long time. A lot of theft, hacks and losses have plagued exchange since Bitcoin inception, and a Darwinist push is a welcome news. Only exchange with state of the art practices should survive. And this is happening. The Vinklevii put some money, insight and long term vision in a relatively immature sector. They were well aware of the regulatory framework required by the big client: Wall Street. And the playbook is slowly resulting in a evolved framework to make them invest (safely invest, from a regulatory perspective) in Bitcoin.
• It is difficult for an exchange to insure himself. The big difference here is that the cold wallets are insured, as per industry standard, if any, only hot wallets are insured. So this is pushing the bar for the competition even higher
• This development is also helping the insurance market to open to this kind of business. Insurance of crypto assets is something that not every insurer can assess and price. With more and more players asking for those services, insurance companies must eventually come to a way to price such risks. Obviously a bigger and more competitive market means lower prices for exchanges to be insured, with client benefit.