A Deep Dive Into Defi Insurance

With a total market cap of over $352 Million, the DeFi insurance has attracted lots of investors but despite the huge loss the DeFi has incurred due to incessant hacks, the percentage of TVL insured is just 2% which suggest there is huge potential for growth of the Defi Insurance industry.

TL;DR

• Defi insurance protects Defi users from asset losses due to price fluctuations or vulnerabilities and hack
• Defi insurance underwriters provide the capital to run pools where investors insure their assets in and take a loss if any risk arises.
• Defi Insurance governance token holders vote on insurance policies.
• Claimants may recover their insured assets from the insurer if the risk they were insured against eventuates.
• Some top Defi insurance coverage providers include Nexus mutual, InsurAce, Unslashed among others.

What Is Defi Insurance?

DeFi Insurance is focused on protecting assets from future losses that can occur in the DeFi sphere. The system works against the risks of losing assets to scammers or the ever-changing price of cryptocurrencies and errors in the DeFi network . Through the use of different protocols, DeFi Insurance makes sure investors' funds are safe and if a loss occurs, they will be compensated if they have insured against the loss.

How Defi Insurance Works

Investors willing to insure their assets will have to buy "coverages" from insurance protocols. A coverage means paying a  premium to a DeFi insurer who covers the investor against certain risks. Exchange hacks, attack on DeFi protocols, failure of smart contracts and fall in prices of cryptos are all risks that can be insured against.

The DeFi Insurance allows investors to get insured based on different factors like duration, type of risk and who the provider is.

People Involved In The Process Of Defi Insurance

As a decentralized platform without a central authority, the community is in charge of ensuring  the smooth running of DeFi Insurance. However, members of the community play different parts. The foremost role is played by:

Underwriters

   Anyone can be an underwriter. They provide the capital to run pools where investors insure their assets in. Underwriters first of all assess a specific type of risk before providing the capital. They earn when investors pay premiums for coverages to insure their cryptocurrencies. They are also rewarded with governance tokens.

Should a risk occur, investors who bought coverages will be paid from the capital pool and this will lead to a loss for the underwriter.

Governance Token Holders

    Oracles are used to track events and share the result to the internet. Then platforms use the information to verify claims. But, holding a governance token also  gives the holder the right to vote on the protocol whose token they have. Since the platforms are DAOs (Decentralized Autonomous Organisations) they can vote on protocol policies and decide-by voting- if a claim is valid or void.

Claimants

The claimants are the investors who have insured against risks. Claimants choose from a list of risks. They purchase premiums and they are  granted coverages in return. If the risk insured against materializes, claimants can claim their insured assets from the insurer. After the claim is verified, they get paid.

Top Defi Insurance Protocols

NEXUS MUTUAL

NEXUS runs on the Ethereum blockchain. It was founded in 2017 by Hugh Karp.

Nexus Mutual offers Smart Contract Covers  which protects investors for "untented use of codes" that leads to a loss on a smart contract. The platform allows users to buy insurance with its native token NXM. Purchasers of NXM can buy insurance covers and partake in the voting process used to make vital decisions on the platform.

When purchasing Nexus Mutual smart contract insurance, you must indicate which token coverage you need, choose the amount, duration, and currency (Nexus Mutual accepts ETH or DAI). You will then get a quotation, and if favourable buy the coverage by approving the transaction using your Metamask wallet and paying with NXM, ETH, or DAI. A membership fee of 0.002 ETH is usually required and users need to go through KYC and AML screening.

With $186.08 million in TVL, it takes the spot as the first DeFi Insurance protocol.

UNSLASHED

Unslashed Finance was founded by Dimitriy Remerov, Marouane Hajji, Dominik Franek and Peter Uljvari. It is an Ethereum-based DeFi Insurance protocol. Unslashed prevents risks on cryptocurrency assets, exchange and smart contract hacks and oracle failures are . It also  tokenizes coverage to give  users the opportunity to use them as collaterals for loans. It has a stop feature where insurance buyers and capital investors can stop insurance at any time.

Unslashed uses "Buckets" to reduce capital investors' risk. The bucket serves as a pool for all the pools in the platform. It merges many pools together so capital providers do not have to provide too much.

It has a market cap of $22.11 million.

INSURACE

InsurAce is a platform where DeFi assets are insured. InsurAce provides services ranging from smart contract failures to securing investments risks and anything related to DeFi.

InsurAce compensated 155 TerraUSD Classic (USTC) victims with $11.7 million. InsurAce also handed out 8% of its USTC dividend in stablecoins, 60% in layer-1 tokens, and the other 4% in the platform's $INSUR coin.

The TVL insured on InsurAce is worth $12.1 million.

SHERLOCK

Sherlock's SHER token is used to purchase coverages and to govern the Sherlock protocol. To bolster its security, Sherlock has a security that can only be appointed by holders  of SHER tokens.

Sherlock has three major categories

• Protocols that wish to be covered
• security professionals who examine protocol code
• Stakers that provide money for recourse

Sherlock's TVL is $11.84 million.

RISK HARBOR

Risk Harbor operates a two-sided  risk management. It allows capital providers insure against the capital and also allows investors buy coverages for their assets. This new model ensures that nobody ends up on the losing side.

Your assets are algorithmically protected after you acquire Risk Harbor protection against a variety of threats, weaknesses, and assaults. If a risk event happens, you may report it, and Risk Harbor will automatically determine if it is genuine or not. If you are eligible, you will get payment relatively immediately, perhaps within 30 seconds.

Risk Harbor's TVL is  estimated to be $9.3million

GUARD-HELMET

Guard allows users to create an insurance  for any crypto asset on BSC or polygon chain in the market, safeguarding DeFi users against the never-ending price volatility.  Getting insured on Guard is based on the market and it does not use  complex mathematics. It employs an easy-to-understand approach that allows everybody-including beginners-to understand and successfully use the platform to carry out transactions hassle-free and without loss.

How to hold a Guard-Helmet insurance Policy

1. Purchase a Guard (Polygon) or Helmet token (BSC).

2. Navigate to the Guard or Helmet webpage.

3. Choose a token

4. Purchase a policy.

The platform's TVL sits at $9,267,550 million.

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EASE.ORG

Formerly known as ArmorFi, Ease.org  is an innovative DeFi Insurance platform. It veered from the normal way of using premiums to buy coverages. It allows users to protect their DeFi tokens without buying any coverage and it still adds interest to the insured tokens.

The  platform's goal is to “cover every dollar in DeFi,” and with the incentives it has given investors, it is only a matter of time before it shoots up to the first name on this ranking.

$7,136,804 million worth of TVL is in Ease.org's care.

BUMPER FINANCE

Bumper runs on Ethereum. Its operation is based on the pay-for-coverage model which nearly all DeFi Insurance platforms use. Bumper's ‘ exceptional protection preserves the worth of your cryptocurrency in the event of a price crash while still allowing you to profit if the market recovers.

The tokenized governance it uses allows investors to choose how the platform is run.

Bumper Finance's TVL is slightly lower  with a total of $6,487,689 million

TIDAL FINANCE

Tidal Finance makes DeFi safer by providing insurance coverage for multi chain assets. TIDAL is an insurance market created on Polkadot but quickly expanding to other chains including Polygon. It  allows users to pool capital for more than one asset.

To buy a cover, a user visits their app, connects the wallet and will get the quote for the percentage cost of each asset it covers.

Tidal has $2.5 million worth of TVL.

COZY FINANCE

With a TVL of $951,279, Cozy Finance is an open-source protocol that allows automatic protection markets to prevent users from incurring losses.

Cozy Finance allows users to Make a deposit, then borrow assets that are protected against vulnerabilities. As long as you are paying interest, you stay protected. If a vulnerability arises, and you lose your invested assets, you keep the borrowed assets and owe nothing.

Conclusion

The DeFi Insurance industry is in its nascent stage. But the billions of dollars it already controls only signifies that the industry has grown tremendously. Despite its growth, it should be noted that it has suffered from hackers and scammers.

For an industry in its infant phase, the DeFi Insurance has generated enough funds as well as controversies.

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