Crypto Crime Costs More as Insurers Rethink Risk and Recovery
In 2025, while crypto crime persisted, it notably became more costly. According to source, over 200 notable crypto security incidents occurred worldwide last year. Chainalysis reports that crypto theft for the entire year of 2025 reached a staggering $6.75 billion, marking an all-time high. Even with years of progress in the crypto space, the fundamental risk profile of digital assets continues to pose challenges for insurance coverage. When crypto defenses falter, losses tend to be irreversible. The current landscape has significantly influenced the insurance market. While coverage is available, it comes with high premiums, low limits, and frequent exclusions. For insurers, the challenge lies not in detecting risk but in pricing it accurately. Most crypto systems provide minimal capacity to mitigate damage once an attack is underway, compelling underwriters to brace for the worst-case scenarios. This month, Circuit has launched a system to evaluate if that assumption remains valid.
The emphasis in crypto security has largely been on prevention. Technologies like multi-party computation, multisignature wallets, and hardware security modules are designed to thwart unauthorized access right from the outset. While these strategies have mitigated specific types of attacks, they have not addressed the fundamental challenges that insurers continue to encounter. Once a valid transaction is initiated, it is generally irreversible. This stands in contrast to conventional financial systems, where mechanisms for fraud detection, transaction holds, and reversals help to mitigate losses, even in instances where controls may falter. Those containment capabilities are precisely what render financial crime quantifiable and insurable. Blockchain analytics firms such as Chainalysis and TRM Labs have enhanced their capabilities in post-incident investigation and recovery efforts; however, these tools come into play only after funds have already been transferred. From an underwriting perspective, visibility without containment provides minimal value.
Circuit has introduced its newly launched Response system, which is founded on a distinct premise. Rather than accepting that loss is unavoidable once an attack commences, it focuses on the short period between detection and the finalization of transactions. The system employs preauthorized fallback transactions alongside automated broadcast mechanisms to swiftly relocate assets to safety upon the detection of any suspicious activity. Circuit states that Response can function in less than two seconds across major blockchains such as Bitcoin and Ethereum. The company has successfully wrapped up the Lloyd’s Lab Accelerator and garnered initial support from the Lloyd’s Central Fund, highlighting the insurance market’s curiosity about the potential for this approach to transform the pricing of crypto risk. Lloyd’s stands as the premier insurance and reinsurance marketplace globally, delivering cutting-edge insurance solutions designed to safeguard individuals, enterprises, and communities across the globe. “We’re proud to have backed Circuit through the Lloyd’s Central Fund,” stated Rosie Denée, Head of Innovation and Commercial Education at Lloyd’s. “We anticipate witnessing this bring genuine value to the market.” Circuit reports that institutions utilizing Response could be eligible for insurance premium reductions of as much as 15 percent. The data generated is more significant than the discount itself. Real-time containment yields quantifiable results, including response success rates, partial loss avoidance, and recovery probabilities. Those metrics are crucial for the underwriting process. As digital assets advance into regulated markets, recoverability is evolving into a necessity rather than just an added benefit. Boards, regulators, and risk committees are progressively anticipating systems designed to prevent total loss in the event of failure.
There are skeptics who question whether real-time containment effectively addresses the insurance issue. Critics highlight the imperfections in attack detection and caution that response mechanisms could falter in challenging network conditions. Blockchain finality differs across various chains, and advanced attackers might try to circumvent or outstrip automated defenses. Governance questions arise regarding pre-authorized transactions and the mechanisms in place for their control. Competitors are tackling the issue from related perspectives. Custody providers like Fireblocks, BitGo, and Anchorage Digital are actively working to minimize the chances of attacks by enhancing their governance and access controls. Monitoring firms highlight the importance of rapid detection and the sharing of intelligence. None, however, provide native on-chain containment once a transaction is underway. The future of Circuit’s approach, whether it evolves into a new category or stays a niche solution, hinges on its performance as time progresses. Insurers will demand ongoing proof that losses can be effectively contained, rather than merely hypothetically diminished. Nonetheless, the trajectory indicates a wider transformation. Crypto security is evolving from mere stronger locks to a focus on survivability. If losses can be quantified and managed instead of being viewed as absolute, the insurance market might finally establish a viable framework to operate within. For the crypto space to achieve institutional scalability, it is essential that failure remains a survivable aspect. This represents a significant effort to enable that for the crypto space.
