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In a the NFT (non-fungible token) market, where hacks are rife, the idea of insurance seems like a godsend. But it’s hard to imagine who would be willing to provide adequate insurance in such a volatile space.
NFTs are blockchain-based cryptographic tokens representing one-of-a-kind, digital or physical assets. As they represent an increasingly large share of collector and investment portfolios, the need for digital asset insurance and risk management for NFTs will only increase as well.
But conventional insurance coverage that could conceptually cover such assets, such as property, crime, and cybersecurity policies, have fallen short when it comes to NFTs because an NFT lives on an intangible blockchain and is unable to suffer direct physical loss or damage.
But Hong Kong virtual insurer OneDegree has just expanded its cryptocurrency coverage to NFTs, making it the first in Asia to offer such a service.
With more attention being paid to the metaverse and digital assets, a growing number of coverage providers are considering expanding their [underwriting] capacity for these sectors,” Alvin Kwock Yin-lun, OneDegree’s co-founder and CEO, told South China Morning Post.
OneDegree’s NFT insurance is only being offered to clients such as firms dealing with NFTs, asset managers and banks. But what about regular NFT collectors, who constantly have to deal with hacks and scams?
Earlier this month, an NFT collector lost over $550,000 in NFTs, including two Bored Ape Yacht Club (BAYC) NFTs and a Mutant Ape Yacht Club (MAYC) NFT, in a fake swap transaction, The Block reported. Closer to home, even sophisticated users and whale collectors, like Defiance Capital’s Arthur Cheong and rapper Yung Raja, have fallen victim to scams in the NFT space.
In March, Cheong had US$1.7 million in various NFTs stolen from his crypto wallet. He said in a Twitter post that he was “pretty careful and stuck with only using hardware wallet on PC until I start trading NFT more regularly. Hot wallet on mobile phone is indeed not safe enough.”
The same month, Yung Raja revealed that he had fallen victim to a phishing scam after clicking on a fraudulent link on Twitter, losing over 20 ETH worth of NFTs (currently worth about US$58,000) from his crypto wallet as a result.
“The biggest fear is getting your wallet drained because of signing a malicious contract with MetaMask,” an NFT collector who did not want to be named told Blockhead.
“If there is a solution that reasonably priced and covers the common exploits, then sure I would consider insuring my collection,” added, noting that there are safeguards collectors can take, like getting a hardware wallet.
Whatever the case, NFT collectors and prospective buyers should educate themselves about the technical risks that participating in the market might entail, as well as the steps to take to properly ensure the safety of their digital assets, such as with a multi-signature wallet or cold storage.