Example: John owns 1 BTC and an equal amount (in value) of Umbrella-BTC. Bob owns 1 BTC. Both are held on Exchange XYZ. Exchange XYZ fails and declares bankruptcy protection. John opens up a claim to the CDIC and gets his Umbrella-BTC returned to him. John is still out 1 BTC, but not completely wiped out by the exchange collapse. On the other hand, Bob has lost all his money and has no where to turn for help. He posts a sympathy thread on reddit hoping for donations :-(
You forget Jack. Jack hold 2 BTC. He keep 1 BTC on Exchange XYZ. Unlike John he never heard about Umbrella-BTC. So he keep another 1 BTC in his own wallet (outside the Exchange XYZ). The Exchange close. Jack lost exactly 1 BTC. He is mad but at least he now he still hold 1 BTC. Meanwhile, John is worried. John is not sure if his claim for the lost Umbrella-BTC will be accepted. Also he has no idea of it's value. He wonder if he lost more than 1 BTC.
Yes, this is a very good example of risk mitigation. We would encourage everyone to be like Jack! For those who aren't, they can use Umbrella to help mitigate some of the risk. We never said this system was perfect, but if I am already mining Bitcoin, Litecoin, Vertcoin or Darkcoin then it costs me nothing to merge-mine Umbrella. There is no reduction of hash-rate on the primary coin you are mining.
Any way you slice it there is no Cryptocurrency offering what Umbrella can. What if Jacks laptop crashes, gets hacked, stolen, his private keys get lost..? Oh, and the exchange happen to skip town. You hear about these types of events on a daily basis. We are not here to convince anyone to use our Cryptos. Like we stated, we are here for the long haul and look forward to bringing some value to the community.
Thank you