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What is DeFi Insurance?

What is DeFi Insurance?

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The Decentralized Finance (DeFi) scene keeps on delivering innovations. If you don’t know what DeFi is, you can read more on ‘What is DeFi?‘.

The DeFi scene is not slowing down as there are more projects launched by decentralized exchanges and more. However, it is undeniable such projects are exposing users to high risks investments and potential scams.

Therefore, DeFi insurances are created to protect users’ funds from unexpected events.

The DeFi Insurance Platforms

Commonly, insurance providers are regulated by the regulatory body of a country. On the contrary, DeFi Insurance Platforms are run by smart contracts and governed by the community.

Typically, participants will be able to provide capital to the risk-sharing pool of a DeFi insurance project. By doing so, participants will receive staking rewards for providing funds to the project.

For example, a new DeFi Insurance Platform was launched called Project A. Project A introduced token A as the governance token and as the reward for staking participants.

Participants that provide capital into the risk-sharing pool will receive token A and will able to participate in the platform governance. One day, a proposal was made that Project A should cover a new DeFi project in the market. Participants with token A will be able to vote if Project A should provide insurance cover for the new DeFi project.

The Coverage

Interestingly, the DeFi insurance scene is rapidly growing and offering a wide range of products and services. The insurance coverage can be as basic as protecting your investment in a DeFi project to a more sophisticated option such as trading the insurance itself.

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However, it is all depending on the DeFi insurance platforms and which blockchain platform it covers.

Popular coverages are like:

  • Smart contract failures
  • Exchanges hack
  • Stablecoin defaults
  • Price fluctuations

The players

For now, there are still a few DeFi insurance plus the lack of interoperability between different blockchain platforms. However, as for the time of writing, these are the available and upcoming DeFi insurance platforms in the market;

  1. Nexus Mutual
  2. Cover Protocol
  3. Bridge Mutual
  4. Opium Insurance
  5. Armor.fi
  6. Etherisc
  7. Helmet Insure

Pretty sure that along the road there will be more projects that might offer a better and creative type of coverage. More room to grow!

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