$36 million Upbit hack revives the quiet truth about hot-wallet ‘insurance’

When Upbit detected unauthorized withdrawals of roughly $36 million in Solana tokens from a sizzling pockets on Nov. 27, CEO Oh Kyung-seok went on file inside hours. He stated:

“The whole quantity will likely be lined by Upbit’s holdings, with no impression on buyer belongings.”

Six years earlier, Upbit stated the similar factor after shedding 342,000 ETH, price round $50 million at the time, to North Korea-linked hackers. Both instances, clients noticed no losses, and each instances, the alternate absorbed the hit from its personal treasury.

This is the sizzling pockets insurance coverage mannequin, the place exchanges warehouse counterparty threat in order that platform-level breaches don’t haircut customers.

The system might need three kinds: self-insurance from company reserves, devoted emergency funds like Binance’s SAFU, and third-party crime insurance policies with named limits.

The mannequin has change into commonplace observe at Tier 1 centralized exchanges, turning what would have been Mt. Gox-style insolvencies into operational losses that reopen inside days.

But “customers don’t lose” doesn’t imply markets don’t react. Even when deposits are finally protected, immediacy and liquidity aren’t. Hacks nonetheless freeze withdrawals, collapse order-book depth, widen spreads, and set off reflexive pullbacks by market-makers.

The insurance coverage mannequin modifications who eats the loss and how briskly platforms can credibly reopen. It doesn’t erase counterparty threat.

Upbit: self-insurance from hacks as a company steadiness sheet

Upbit’s strategy is, in impact, self-insurance with no express coverage restrict. The promise relies upon completely on the alternate’s solvency and entry to capital.

In each the 2019 Ethereum hack and the 2025 Solana breach, Upbit handled hot-wallet losses as operational bills absorbed by Dunamu, its mother or father firm.

The 2025 incident moved quick. Around 4:42 a.m. native time, roughly 54 billion received in numerous tokens from the Solana ecosystem tokens drained to an unknown tackle.

Upbit froze all Solana deposits and withdrawals, shifted remaining belongings to chilly storage, and froze a portion of the stolen LAYER tokens on-chain.

The alternate stated it was working with tasks and legislation enforcement to freeze much more of them, however the core dedication was fast: no buyer losses.

That dedication is credible as a result of Upbit is giant and liquid. But it’s not a statutory assure. There is not any exterior insurer backstopping the promise, no deposit insurance coverage scheme, and no formal reserve ratio that regulators audit.

The mannequin works till it doesn’t: till a hack is giant sufficient relative to fairness that full reimbursement strains or breaks the steadiness sheet.

Binance and SAFU: a formalized inner fund

Binance created the Secure Asset Fund for Users in July 2018, diverting about 10% of buying and selling charges into devoted publicly seen chilly pockets addresses.

Binance has repeatedly stated SAFU is supposed for “sudden excessive instances” resembling main hacks. As of press time, the fund was valued at round $1 billion.

When Binance suffered its May 2019 sizzling pockets breach, leading to the lack of 7,000 BTC, it paused withdrawals and introduced that every one affected accounts could be made entire from SAFU, with no person losses.

Internal figures point out that solely about 2% of whole alternate funds are in the compromised sizzling pockets, making it possible to socialize the loss throughout the SAFU pool quite than push it to clients.

SAFU is an inner insurance coverage fund: ring-fenced, pre-funded from charges, with an implicit dedication to cowl giant platform-level hacks, nevertheless it’s not a statutory assure.

If a breach exceeded the fund steadiness and Binance’s fairness, clients would take losses. But the public visibility of the fund and the fee-funding mechanism make the promise extra clear than Upbit’s balance-sheet strategy.

Crypto.com: mixing self-insurance with third-party cowl

On Jan. 17, 2022, Crypto.com detected unauthorized withdrawals on a subset of person accounts and halted all withdrawals for about 14 hours.

Later disclosures put the loss at roughly $34 million in BTC, ETH, and different tokens, affecting 483 accounts. The alternate careworn that “no clients skilled a lack of funds” as a result of it both blocked the unauthorized withdrawals in time or totally reimbursed affected customers.

Subsequent communications highlighted a brand new safety program providing protection of as much as $250,000 per account in the occasion of sure third-party breaches.

Public reporting notes that exchanges like Crypto.com and Coinbase carry crime insurance policies that pay out if the platform itself is hacked, however not if a person loses funds attributable to their very own credential compromise.

The distinction issues. Crime insurance policies usually cowl platform-wide breaches, insider theft, or fraudulent transfers involving the alternate’s personal techniques. They don’t cowl phishing, SIM-swaps, or customers shedding non-public keys.

Coverage is finite and conditional, with named limits and exclusions that may depart clients uncovered if a breach falls outdoors coverage phrases or exceeds the restrict.

Third-party insurance policies and captive constructions for hacks

Coinbase has lengthy disclosed against the law insurance coverage coverage with a $255 million restrict on its sizzling pockets balances, positioned by means of Aon with Lloyd’s syndicates.

The coverage is designed to cowl platform-wide breaches however explicitly excludes losses from somebody compromising a person person’s login.

Gemini took the captive route, launching “Nakamoto Ltd.” in Bermuda to supply $200 million in protection for Gemini Custody, topping up what the industrial market would supply.

Newer regulated exchanges now market “100% sizzling pockets insurance coverage” as a promoting level. HashKey Global says person belongings are protected by complete insurance coverage, together with 100% sizzling pockets insurance coverage, with 90% stored in chilly storage.

The spectrum runs from implicit guarantees backed solely by fairness and retained earnings, to ring-fenced inner funds, to formal insurance coverage contracts with named limits and exclusions.

The market is maturing: latest analysis estimates the crypto alternate sizzling pockets insurance coverage section at about $1.4 billion in 2024, with projected development to roughly $12 billion by 2033 as exchanges, custodians, and regulators push for extra formalized loss mitigation.

Markets nonetheless react when customers don’t lose

Even when customers are made entire, hacks change how merchants worth counterparty threat. Bybit’s February 2025 $1.5 billion hack illustrates this completely.

Bitcoin market depth on Bybit collapsed from regular ranges to about $100,000 instantly after the incident, then recovered to roughly $13 million by the finish of the first quarter, according to pre-hack situations.

Spreads widened throughout BTC and the high 30 altcoins, solely to tighten once more over a number of weeks as market-makers returned.

Coinlaw knowledge from November 2025 famous that even a technical KRW switch suspension on Upbit coincided with an estimated 70% drop in liquidity and a pointy fall in Upbit’s share of world high 10 volumes, highlighting how shortly capital can step again from a single venue.

The sample is constant: frozen withdrawals, wider spreads, thinner depth, and a reflexive liquidity supplier pullback. Even when deposits are finally protected, immediacy just isn’t.

Traders who want to maneuver capital or hedge positions face hours or days of illiquidity. Market-makers who present depth pull again till they’re assured the platform is secure.

What the mannequin does and doesn’t resolve

Hot pockets insurance coverage significantly reduces the odds {that a} single alternate hack wipes out buyer cash. It modifications who eats the loss and how briskly platforms can credibly reopen.

Upbit, Binance, and Crypto.com all absorbed platform-level breaches from reserves or inner funds and reopened inside days, avoiding the years-long insolvency proceedings that adopted Mt. Gox.

But protection is finite and conditional. It typically applies solely to platform-level breaches, to not phishing or SIM swaps.

A sovereign assure doesn’t again it, the means financial institution deposits are. And it does nothing to cease the short-term fallout that truly strikes markets: frozen withdrawals, wider spreads, thinner depth, and a reflexive pullback of liquidity.

The lesson is that sizzling pockets insurance coverage is actual and purposeful, nevertheless it’s not deposit insurance coverage. It is determined by the alternate’s solvency and liquidity, the adequacy of inner funds or exterior insurance policies, and the platform’s willingness to honor guarantees when reserves are examined.

For customers, the mannequin means counterparty threat is decrease than it was in the Mt. Gox period, nevertheless it’s not zero. For markets, it means hacks nonetheless dominate headlines and worth motion even when each buyer finally ends up entire.

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