Key Takeaways
- Secure Asset Fund for Users, aka SAFU, is an initiative by Binance that allocates a percentage of trading fees to an emergency fund designed to protect users’ funds in extreme situations like hacks.
- The idea of SAFU originated from a meme, a lighthearted joke that evolved into a security measure.
- SAFU has set industry standards and inspired other crypto exchanges like KuCoin, OKX, and Bitfinex to adopt the concept and create similar funds
In a world where security and trust are usually the greatest concerns, especially in the crypto space, the concept of SAFU (Secure Asset Fund for Users) is a genius innovation. This guide describes the idea and how it’s impacting the cryptocurrency space.
What is a Secure Asset Fund for Users?
Anyone who’s been in the world of cryptocurrency investment knows how unpredictable things can be. The presence of occasional hacks and scams is a bitter pill that can propel an investor from having a thriving portfolio at one moment and news about stolen funds the next. That’s where the idea of SAFU comes into play.
SAFU is an acronym for Secure Asset Fund for Users. It refers to an emergency reserve fund designed to protect investors’ funds on the cryptocurrency exchange Binance. The money held in the fund acts as insurance to reimburse investors in the unfortunate event that they lose their digital assets due to hacking or any other incident at the exchange that can lead to the loss of user funds. You could call it a sort of crypto piggy bank.
The Origin of SAFU
The idea of SAFU came up after Binance suffered a major security breach. According to the founder and former CEO Changpeng Zhao (CZ), the fund would be used. “To protect the future interests of all users, Binance will create a Secure Asset Fund for Users (SAFU). Starting from 2018/07/14, we will allocate 10% of all trading fees received into SAFU to offer protection to our users and their funds in extreme cases. This fund will be stored in a separate cold wallet.”
Announced on July 3, 2018, the idea of SAFU didn’t originate in a company boardroom meeting. Funnily enough, the serious security measure arose from a joke. During the unfortunate hacking incident, CZ had tweeted “Funds are safe” during a maintenance exercise. A YouTube user turned the tweet into a viral video dubbed “Funds are SAFU.” Cryptocurrency exchange Binance played around with the joke that became a meme movement, turning it into serious business. Changpeng Zhao decided to keep the humor alive and adopted the phrase “SAFU” in later social media posts, and just like that, it became a serious security movement.
How Does SAFU Work?
Binance created the Secure Asset Fund for Users in 2018, at a time when crypto exchange hacks and user fund security were a serious concern. The initiative was designed to ensure that no matter what happened to the exchange, every user would be calm, knowing their funds or assets were insured. The fund allocates 10% of the exchange’s income in terms of trading fees to provide insurance against any potential security breach.
Binance stores the SAFU funds in secure hard wallets that would only be assessed during extreme emergencies. The fund aims to show that Binance is committed to securing users’ interests and, therefore, keeping their trust. For example, during a well-documented security breach on the Binance exchange in 2019, hackers made away with 7,000 Bitcoins worth at least $40 million at the time. The hackers used advanced techniques like malware and phishing to bypass Binance’s security and compromise their hot wallets. However, SAFU was activated and reimbursed every user, meaning that the exchange took care of the matter without customers feeling the pinch.
How has SAFU Influenced the Crypto Industry?
While an increasing number of enthusiasts are still entering the crypto space as digital assets become increasingly popular, there are not yet many cryptocurrency exchanges that practice the SAFU concept. In order to attract institutional investors who are joining the digital asset bandwagon, there’s talk within the industry for qualified custodians and insurance providers to create policies to cover the theft of cryptocurrencies. Some cryptocurrency exchanges have put in place policy frameworks to try and address such eventualities, but they fall short of the large amounts traded within the crypto ecosystem.
BitGo offers a $100M policy for hacks, while Coincover proposes a $200M policy covering security breaches. Apparently, there’s just about $1 billion in terms of insurance policies circa $300 billion worth of digital assets in circulation. As the insurance industry struggles with the concept of preparing policies relevant to the crypto sector, SAFU happens to be the stop-gap measure of the moment. After Binance introduced its Secure Asset Fund for Users, a few other crypto exchanges have come up with similar concepts. They include:
Bitfinex: The Bitfinex Insurance Fund covers user funds in the event of unforeseen losses. This happened following a major hacking incident in 2016.
OKX: Cryptocurrency exchange OKX runs a Risk Reserve Fund that ensures users’ funds are secured against market anomalies or security breaches.
KuCoin: Crypto exchange KuCoin operates a User Protection Fund that launched in 2020 after suffering a serious security breach. The fund extends financial protection to its users in the event of a hacking incident.
The few examples we have mentioned here are evidence that cryptocurrency exchanges are using the SAFU precedent set by crypto exchange Binance to provide accountability measures for their customers.
Are Crypto Exchanges Safe?
Besides being the leading cryptocurrency exchange in terms of trade volumes worldwide, Binance is currently regarded as one of the safest exchanges in terms of accounting for user funds. Crypto exchange security has come a long way and most of the leading platforms go out of their way to provide robust security features such as Two Factor Authentication (2FA). Considering that most exchanges have suffered at least some form of security breach, most of them take security seriously, and they go a step further to educate users on their asset security as they use their platforms. Since implementing SAFU following the 2019 security breach, Binance remains relatively safe and pledges to ensure users don’t cover any asset losses out of their own pockets. Like all other leading crypto exchanges, Binance states that they aim to provide state-of-the-art security measures so they never have to use SAFU on their users.
How to Keep Your Funds Truly SAFU
As crypto investment becomes increasingly mainstream, cryptocurrency exchanges have noted that cybercriminals are becoming more persistent and creative in their attempts to steal crypto assets. While that may sound scary, the truth is that a user can dramatically improve their digital security by following some easy steps.
Use a Password Manager
A string password should be at least 16 characters long, complex, and unique for different accounts. If that’s beyond your ability to create, consider using a password manager to help you create and remember passwords.
Use 2-factor authentication (2FA)
Using two-factor authentication (2FA) in addition to a strong password allows your organization to send an SMS or email to verify that you are the person logging in to your device or account.
Stay Smart
While you need to use all the right tools to secure your crypto account, some must always remain vigilant so you can identify smart criminals posing as support staff from your selected crypto exchange who ask for personal and sensitive account information.
Don’t Make Yourself a Target
Avoid bragging online about the fortune you have made trading cryptocurrency, just like you can never advertise if you inherited a big fortune.
Don’t Fall for Tricks
Your crypto platform will never ask or pressure you for account credentials like PINs, passwords, or 2FA codes for any reason whatsoever. Moreover, they will never ask you to create a test account elsewhere or provide ID or banking information.
Conclusion
Since the inception of cryptocurrencies, thousands of investors have reportedly lost millions of dollars in hacking and other related scams. Crypto exchanges are going out of their way to strengthen their security measures to ensure investor protection as the insurance industry looks for avenues to safely protect crypto practitioners and investors; exchanges like Binance have gone ahead and introduced SAFU to create a sense of safety in the market. As a crypto user, please don’t take all assurances that crypto projects are SAFU at their face value; always do your due diligence and DYOR to avoid falling for lies. Always remember that caution is the key to keeping your digital assets truly safe.
