DeFi Insurance: What they are and how they work

DeFi insurance, or decentralized finance insurance, is a way to protect our cryptocurrencies on decentralized platforms by creating smart contracts. These smart contracts work like traditional insurance, covering the risks associated with investing in crypto assets on decentralized platforms. Let's see what they are, how they work and which ones we can highlight.

What is DeFi insurance?

DeFi insurance, or decentralized finance insurance, is a way to protect our cryptocurrencies on decentralized platforms by creating smart contracts. These smart contracts work like traditional insurance, covering the risks associated with investing in crypto assets on decentralized platforms. Unlike traditional insurance, which is managed by a single centralized entity, DeFi insurance is managed in a decentralized manner using blockchain technology. This way the risk of fraud and corruption is reduced given that there is no single entity responsible for insurance management.

How does DeFi insurance work?

DeFi insurance works through the use of smart contracts that allow the creation of DeFi insurance. Smart contracts They guarantee us that the conditions established in the contract are met. In the case of DeFi insurance, these contracts establish the conditions for risk coverage and payment of claims. To contract DeFi insurance, users must deposit assets into a smart contract. These assets are used to cover claims in the event of an event covered by the insurance, as was the case with the collapses of the Terra protocol or of FTX centralized exchange. Users also pay fees that are used to pay administrative costs and to cover risks not covered by the assets deposited..

Main advantages of DeFi insurance

DeFi insurance is a great innovation in the decentralized finance sector since it offers us a series of very interesting advantages:

• Flexibility: DeFi insurance allows us to customize it so that it can adapt to the specific needs of each user.
• Transparency: By operating through the use of blockchain technology and smart contracts, it allows users to verify and understand their operation since they are public and transparent.
• Accessibility: This type of insurance is not subject to regulations or restrictions like traditional insurance, which allows it to be more accessible to different users.
• Agility in processes: Through the use of blockchain technology and smart contracts, DeFi insurance works in an automated and fast manner, allowing possible payments and claims to be managed more quickly than traditional insurance.
• Low costs: By automating processes through the use of smart contracts, DeFi insurance involves lower expenses compared to traditional insurance.

Top DeFi Insurance Protocols

The ecosystem of DeFi insurance protocols is quite recent and does not have many projects, but little by little new ones are being born that allow us to protect our crypto assets against events that could compromise the security of our wallets. The most notable protocols in the DeFi insurance ecosystem are:

Nexus mutual

Nexus is arguably the most popular DeFi insurance protocol. With a capital fund of over $230 million and claims paid to the tune of over $9 million, the service is community-owned and managed by a decentralized autonomous organization (DAO). The platform works by having risk advisors stake the platform's native NXM token on various platforms. This share constitutes the various insurance pools, known as “Coverage,” that will be distributed to claimants should one of the covered scenarios (such as a hack exchange) occur. You can purchase insurance for different events by specifying the contract address for which you would like Coverage and specifying how much Coverage you would like as well as the period for which you would like to be covered.

Insure DeFi

inSure DeFi is a community-based crypto asset insurance ecosystem, where users can secure their crypto portfolio by purchasing SURE tokens with fiat currency and other cryptocurrencies. inSure is designed to spread the risks of cryptocurrency ownership across a liquidity pool, with insurance premiums determined by a dynamic pricing model leveraging Chainlink. The capital required to support risks at any time is based on the market price of SURE tokens as well as community demand for crypto wallet insurance. A decentralized support system called inSure DAO is also used to diligently process all insurance claims, in which voters ensure that fraudulent claims are flagged and only valid claims are fulfilled. inSure DeFi is a decentralized insurance ecosystem trusted by thousands of community members to protect their crypto wallets from scams, exchange closures, and drastic devaluations. inSure DeFi provides insurance solutions for the crypto space to stabilize and protect crypto and DeFi wallets.

Etherisc

Etherisc has a grand vision of reimagining the entire insurance field as a peer-to-peer network of insurers and claimants. The project provides peer-funded groups for several different insurance use cases, including more traditional uses such as crop insurance, flight delay insurance, and hurricane insurance. There are also a host of cryptocurrency-specific insurance products in the works, such as cryptocurrency wallet insurance and collateral protection for cryptocurrency-backed loans. Like other insurance protocols like Nexus Mutual, Etherisc crowdfund pools serve as funds for insurance payments. Etherisc also has a native token, DIP, which can be staked to provide collateral for insurance pools and help keep the service online. According to Etherisc, DIP can be used for insurance licensing, claims processing, venture capital monetization, and more.

InsureAce

InsurAce is a decentralized peer-to-peer insurance protocol that has made significant progress in recent years. The protocol works by collecting funds from users and distributing them as payments whenever adverse events such as hacks or unlinks occur. InsurAce really shines in its cross-chain coverage. The protocol maintains contracts for more than 140 protocols on more than 20 chains. This allows InsurAce to offer a single portfolio coverage product that covers multiple protocols across multiple chains, despite their unique risk profiles. The governance token of the InsurAce protocol is INSUR, and it allows holders to participate in community governance voting for the evaluation of claims and new proposals for the protocol itself. Having INSUR also grants us capital provision rewards and makes us eligible to earn fees generated by the protocol.

Bridge mutual

Bridge Mutual is a DeFi insurance protocol that provides coverage for stablecoin decouplings, smart contract exploits, and even issues with centralized exchanges. The platform allows anyone to commit funds to the coverage of any smart contract or exchange, thereby maintaining thousands of coverage pools at any given time. The native token of the Bridge Mutual platform is called BMI. We can stake BMI to help secure the protocol and provide coverage for insurance contracts. While BMI tokens are staked, we will receive derived stkBMI tokens. This grows in value over time as the performance of unused contracts is returned to stakeholders.