Curriculum·J312 Insurance, Hedging, and On-Chain Risk Transfer·about 33 min
What can and cannot be insured
By the end of this lesson you can
- →State the four conditions a risk must meet before anybody can insure it
- →Explain why correlated losses break the mechanism that makes insurance work
- →Compute the reserve a pool needs under independence against the reserve it needs under correlation
- →Classify a given crypto exposure as insurable, partially insurable, or not insurable at all
Junior · enrolled learners
This lesson opens with Voyager Digital and the FDIC, 28 July 2022.
- What happened
- Voyager Digital and its executives made statements indicating, directly or by implication, that Voyager itself was FDIC insured, that customers investing through its platform would have their funds insured, and that the FDIC would insure customers against the failure of Voyager. On 28 July 2022 the FDIC and the Federal Reserve Board issued a joint cease and desist letter, stating they had reason to believe those representations were false and misleading and violated 12 USC 1828(a)(4), and demanding immediate corrective action. What actually existed was a deposit account held by Voyager at Metropolitan Commercial Bank, which was itself FDIC insured. That insurance covered the failure of the bank holding the account. It did not cover the failure of Voyager, and it did not cover any crypto asset at all. Voyager had filed for bankruptcy earlier that month.
- The decision point
- Every word in the marketing was attached to a real insurance scheme. The scheme insured a different party against a different event. Insurance is defined by the event it names, the party it names and the payer behind it, and none of those three was what customers understood themselves to have.
What you will be able to answer
- →What are the four conditions?
- →Why does correlation break insurance?
- →How much more reserve does correlation require?
- →What is never insurable?
Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.
It is free. We do not sell the list and there is nothing to buy at the end of it.
Sources and review
- https://www.fdic.gov/resources/regulations/laws/section-18a4-of-fdi-act/letters/2022-07-28-voyager.pdf
- https://www.federalreserve.gov/newsevents/pressreleases/bcreg20220728a.htm
- https://www.dechert.com/knowledge/onpoint/2022/8/fdic-issues-cease-and-desist-letter-to-voyager-digital--llc--fac.html
- https://docs.nexusmutual.io/overview/claims-history/ftx/
Confidence high·Volatility low·Reviewed 2026-08-06·Owner unassigned
Contested
The reserve arithmetic in part two is a standard model shown with its assumptions on the page, being 1,000 policies, a 1 percent independent claim probability and a $10,000 loss. Real pools face partial correlation somewhere between the two extremes, and the point is the size of the gap rather than either endpoint.
F107 owns exchange failure as a counterparty risk and F102 owns the claim structure. This lesson owns insurability as a property of a risk. Keep the split and route custody questions to F103.