The crypto market is valued at $3.97 trillion as of Q3 2025, yet with banks, fintech companies, and even governments experimenting with and adopting stablecoins, tokenized assets, digital treasuries, and more, industry looks poised for exponential growth in the near future.

While a focal part of crypto’s growth hinges on continued adoption into mainstream financial systems, many protections that traditional finance consumers and institutions alike have become accustomed to do not exist equivalently. Chiefly, insurance.

The Illusion of Protection

In traditional finance systems, insurance is an integral part of all foundations that institutions rely on. Losses can be reversed through chargebacks, indemnities, or claims processes, and if all else fails, reimbursed via insurance companies. The mechanics of protection make large scale, multi-billion dollar insurance policies feasible, protecting stakeholders and maintaining trust in the system when failures occur.

In contrast, the crypto industry offers none of these safeguards that enable broad insurability. Once a transaction is confirmed on-chain, it’s final. That finality, while critical to blockchain security, makes post incident recovery nearly impossible. This creates a fundamental problem for insurers: without recovery mechanisms, they cannot validate claims, price risk, or confidently underwrite policies. As a result, most of the market remains uninsured or underinsured, leaving both institutions and consumers exposed.

While options for crypto insurance do exist, policies (when companies can qualify for them) often carry high premiums and exclude the most common causes of loss, like internal breaches, infrastructure failures, or software errors. For the vast majority of platforms (exchanges, stablecoin issuers, and wallets), the lack of reliable, standardized recovery mechanisms makes it difficult for underwriters to reasonably assess risk consistently and affordably.

Closing the Coverage Gap

Over $400 billion in digital assets have already been lost due to compromised, misplaced, or  unrecoverable keys. The constantly developing nature of blockchain technology and corresponding threats makes it difficult for institutions to access coverage.

The first step toward making crypto more widely insurable is an industry-wide shift in focus from prevention to precaution. Unlike preventative key-based recovery, which can reintroduce points of failure and undermine the risk distribution that MPC was designed to protect, asset recovery:

• Is embedded as a precautionary failsafe into platform infrastructure
• Operates proactively using pre-signed transactions in the event of exploits or operational failures
• Ensures assets remain recoverable without introducing new points of failure, enabling a more consistent, predictable, and reliable measurement of risk

For underwriters, this response is necessary to confidently offer sustainable, affordable coverage.

Partnered with insurers like Native, and more, Circuit’s proprietary Automatic Asset Extraction (AAE) is the first to bridge the key vs. asset recovery. Acting as a layer between signing and settlement, it continuously monitors transactions as they are signed and prepared to intervene when anomalies, like suspicious patterns, unusual destinations, or compromised infrastructure, are detected. When triggered, it overrides threats, recovering and relocating assets to a secure pre-defined destination before transactions finalize on-chain.

The Path Forward

As more platforms adopt comprehensive precaution and recovery tools that allow for recovery mechanisms to act in real time, assessing risk will shift from an unpredictable event to a calculable function. This gives insurers the ability to model exposure more accurately and expand the scope of coverage they are willing to offer. For institutions, standardized recovery established immutable operational trust that mainstream institutions and everyday users expect, enabling wider market participation. 

To learn more, visit circuitsecurity.com and follow us on X for updates.

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