Most people take out insurance to protect their life, health, home, car, pets or travels, just in case things might go wrong. But not so many people know or pay attention to the insurance sector using Blockchain, and the ability to create trust in a trustless ecosystem through the use of public ledgers and cybersecurity protocols.
Insurance could also give us the security we need to invest or trade, as it protects us against losses. Trading bitcoins, particularly in DeFi, is a profitable activity that also needs insurance.
So what is DeFi insurance and why does it matter? In today’s article, we’ll give you a brief explanation for this new and hot term.
What Is Insurance?
Insurance is an activity through which an individual is entitled to a right of protection by virtue of an account contribution for himself or a third person in the event of a risk. This is a support through an organization, a middleman, which is responsible for all risks and compensations according to the methods of systematic statistics.
What Is DeFi?
DeFi stands for Decentralized Finance. This is a term used to refer to financial applications built on the Blockchain platform. DeFi has the following characteristics:
- Permissionless: open to everyone, for any area.
- Transparency: all activities are public.
- Trustless: does not depend on the beliefs of the parties involved.
What Is Decentralized Insurance?
While all services around Decentralized Finance (DeFi) such as Lending, Derivatives, Commodity Futures Trading (Futures), etc have become a hot topic, there is one area that is often not discussed but is of great importance, which is Decentralized Insurance. In the field of general risk accounts, it is imperative to have a mechanism to protect risks and threats. A decentralized insurance center is one of the concepts that can act as a safeguard for DeFi sectors.
There are many cases of exchanges being hacked: Binance, Okex, Mtgox, or recently Kucoin. Or the Dapps as service hack that rocked the Ethereum community in 2017 that led to the HardFork call for ETH & ETC. All of the above causes damage not only to users but also to exchanges. The number is in the billions of dollars.
A decentralized insurance center will help reduce risk in such cases.
What Types Of Decentralized Insurance Are There?
Crypto Wallet Insurance:
This format is quite simple. You may also be compensated when your electronic wallet is hacked.
Lending Cryptocurrency Insurance:
In case, when you borrow DAI cryptocurrency and collateralize it with ETH on Compound. If the collateral provided by the borrower is destroyed or marked, the loan will be repaid using the policy security.
Etherisc, along with several other companies such as Sweetbridge, Celsius, Nexo, Libra Credit, and several others has formed a consortium that protects and secures crypto-collateralized loans, a great application. an excellent counterpart of phi insurance center.
Mac McGary, President of the Sweetbridge Alliance said:
“In today’s volatile market, Crypto Loans Insurance (Lending) ensures to provide borrowers and lenders with a sense of security from crypto lending networks, which is an important step in blockchain push adoption. “
Smart Contract Cover:
Coverage will cover failure components if the address smart contract is identified only and used for manipulation, such as loss of funds from an investor’s account or if funds are transferred to an address. other not belonging to the original investor.
It also includes details where the money is lost forever and can no longer be recovered. As a result, investors and lenders can lend cryptocurrency on the exchange without worrying much about repayment or losses. Nexus Mutual is one of the companies that developed the Smart Contract Cover.
Benefits Of Decentralized Insurance
Decentralized Insurance products offer complete protection with DeFi deposits. Hedging against cryptocurrency fluctuations and crashes in price increases and decreases aggressively as well as providing security against the risk of upgrades and attacks on crypto wallets. It ensures users against any possible DeFi risks, protecting technical and financial risks, thus building a sense of security among investors.
Not only that, but the platforms also make the entire submission, claim, and processing, and payment process extremely secure, reliable, and transparent.
Here are 10 benefits of DeFi insurance:
1) DeFi Deposits Protection (Defi Deposits).
2) Protect against crypto volatility and flash crash (sudden devaluation e.g. when BTC drops 1-2k$, other altcoins lose 80-90%).
3) Get crypto-assets instantly.
4) Protection from theft and attacks on crypto wallets
5) Protect funds from being hacked on exchanges.
6) Technical and financial hedging
7) Instant payment when you request.
8) Trust and transparency.
Current Insurance Platforms
Nexus Mutual, a decentralized insurance platform built on Ethereum. A pioneer in smart contract insurance. Users who have lent money on exchanges like Compound or Dharma can opt for an insurance policy.
Etherisc, as we read above, has built some great crypto wallet insurance products as well as collateral crypto loans.
CDx is a platform that provides insurance against loss of funds that occurs due to exchange hacks.
Final Words: The Future Of Decentralized Insurance
Decentralized insurance is a promising area due to the transparency and security it offers investors.
There are only a few products available at the moment but it certainly has the potential to grow and expand in the future. DeFi and its applications like Decentralized Finance will continue to dominate the market for years to come.