Cryptocurrencies have attracted a lot of investor attention all over the world as a decentralized financial system. But it does come with its own challenges as it is not completely safe from hacks and thefts. On top of that, the crypto market is highly volatile and might cause sudden losses. This might make investors hesitant to participate in this decentralized financial system. SAFU steps in to solve this problem by creating a fund reserve to protect users from loss.
Curious to know more about it? In this article, let us dive in to understand what SAFU is and why it matters.
What is SAFU and How Does it Work?
SAFU (Secure Asset Fund for Users) is an insurance fund reserve that was popularized by the prominent cryptocurrency exchange, Binance in 2018. It is an innovative solution to keep users’ funds safe from hacks, thefts, and similar unexpected events.
Binance achieves this by setting aside 10% of all the trading fees collected from users, which is then deposited in a hardware wallet that is not connected to the internet. It acts as an emergency fund to reimburse users of the exchange in the event that it suffers a hack or theft.
SAFU is built on three main components – trust, integrity, and transparency. Traders and investors put a lot of confidence in centralized exchanges when they choose to invest in them, and SAFU provides added security by ensuring their funds are secure in case any unfortunate incidents occur.
So in essence, if Binance undergoes a security breach or users are at risk of losing their funds, then SAFU will be activated. This means users don’t have to bear the loss, since Binance replaces their funds with SAFU.
The origin of “SAFU”
SAFU has an interesting origin story. When Binance had to undergo an unexpected maintenance in 2018, its site temporarily went down. As users panicked, the exchange’s founder and former CEO Changpeng “CZ” Zhao reassured users by tweeting that their funds are safe.
Soon later, Youtube crypto content creator ‘Bizonacci’ tweeted that “Funds are SAFU”, misspelling ‘safe’, and the term went viral. SAFU is now commonly used within the crypto community to signify that crypto is safe from exploits.
Why does SAFU matter?
SAFU has come into use multiple times before. One example was in May 2019, when Binance suffered a major security breach during which hackers stole 7,000 BTC (approximately $753 million at press time).
The exchange used its SAFU fund to compensate all affected users, protecting them from a huge financial loss. Not only does SAFU act as an insurance fund, but it also helps the exchange remain stable during times of extreme market volatility.
How has SAFU influenced the crypto industry?
After Binance introduced SAFU, many other exchanges also followed suit and introduced similar programs:
- Bitifinex created a similar fund reserve to cover unpredictable losses and protect their users after they experienced a major hack in 2016.
- KuCoin launched the KuCoin User Protection Fund to provide financial protection for users after they experienced a hack in 2020.
- OKX launched a risk reserve to protect user assets during unexpected emergencies.
How to ensure your funds are safe
The popularity of SAFU has led to many other crypto exchanges adopting the program to safeguard their users and create awareness about the safety they provide. While many of these are legitimate, a few misuse the name to mislead users.
It is important to research and verify whether a project claiming to be SAFU is actually legitimate. It is best to use only trusted sources and stay wary of offers that feel too good to be true. Follow best practices like using a secure wallet with 2FA, diversifying your portfolio, and staying cautious about phishing links. In crypto, exercising caution is key to keeping your funds safe.
Final thoughts
The term “SAFU”, which originated as a meme, is now widely adopted by the crypto community as an intentional misspelling of “safe”, just like how “HODL” is used instead of “hold”, giving birth to the concept of “Hold on to Dear Life”.
As the crypto market expands, more exchanges are likely to adopt concepts similar to SAFU to protect their users. It ensures that crypto exchanges can also take measures at their end to protect customers from unexpected exploits.
Regulations are being put in place that mandate exchanges to create insurance or reserve funds to protect their users. It is important to note that the value of this fund is subject to market fluctuations because it is usually held in cryptocurrencies like Bitcoin (BTC), Ether (ETH), or BNB, which are highly volatile.