DeFi 101: How does DeFi Insurance work?

  • Smart Contract hacks or exploits
  • Wallet smart contract attacks
  • Collateralised loan failure — for when collateral sent by borrowers is lost, stolen or burned
  • Protocol attacks (includes oracle attacks, severe economic attacks, governance attacks, protocols on any chain, layer two components).
InsurAce provides cover on multiple chains including Binance Smart Chain projects
Some of the cover options available on Nexus Mutual
Purchasing cover on Nexus Mutual against Uniswap V3
  • While the rewards for being a ‘risk assessor’ and staking against smart contracts are extremely lucrative, they also come with risk. With many providers, risk assessor’s tokens will typically be lost in the event of a successful claim against the contract — making staking unattractive to many investors.
  • Capital is also limited by the fact that many investors don’t want to complete KYC. This means they may opt to purchase ‘wrapped’ tokens instead, such as $wNXM, so that they can take advantage of the investment opportunity, without actually participating in the ecosystem. In turn, they miss out on staking rewards.
  • Actually assessing the risk of a smart contract is an incredibly technical pursuit, and even then, anyone can make a mistake in their analysis. This makes ‘Risk Assessing’ unattractive to many would-be stakers.
Layer 2 solution providers like iTrust Finance are also playing a crucial role in increasing adoption and making staking more accessible to mainstream users, which in turn increases cover capacity for providers, allowing them to scale.

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