Distressed crypto markets might finally give DeFi  insurance a chance to flourish, but only if it can overcome some headwinds.  At the moment, less th

Are DeFi Degens in Good Hands? Insurance Companies Want to Help

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2023-01-25 13:00:25

Distressed crypto markets might finally give DeFi insurance a chance to flourish, but only if it can overcome some headwinds.

At the moment, less than 1% of all the assets in the $47 billion DeFi ecosystem are covered by a policy that’ll help replace them after a hack or code error. That was also true last June, in the aftermath of Terra Luna’s algorithmic stablecoin , TerraUSD, losing its peg and wiping out $40 billion in the process. For the rest of the year, and arguably even now, the effects of that black swan event worked their way through the industry, taking down other companies.

In its wake, tens of millions of dollars worth of DeFi insurance claims were filed as users tried to recoup their losses. Roughly 68% of the claims filed since June have been paid. Now that the companies selling DeFi cover, the preferred term in the industry for this type of insurance, have survived their baptism by fire, they’re optimistic about keeping the momentum going.

“DeFi cover” is a catch-all term for insurance that covers blockchain-related activity. It uses the same basic principles as traditional insurance: Policyholders pay a premium and receive a payout if and when they file a claim for a covered event. Those events are where the products really depart from traditional insurance: stablecoins losing their peg, crypto assets being stuck on a platform, hacks, or code errors causing smart contracts to behave erratically.

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