Blockchains and crypto exchanges are buying insurance against smart contract hacks and data loss from DeFi insurance companies, and you can back their policies.
DeFi insurance companies provide insurance coverage for decentralized finance (DeFi) crypto companies and projects. Crypto projects and exchanges buy insurance policies to cover their contracts and their users' funds in the event of data loss or a hack.
Investors provide funding for the insurance policies by depositing crypto. When an insurance company sells $1 million of coverage in a policy to a blockchain project, the insurance company uses $1 million of investor funding to back the policy.
Investors earn the premiums paid by the policyholder. Often this is paid in the coin or token minted by the insurance company.
Many DeFi insurance companies are structured as decentralized autonomous organizations (DAO), where stakeholders in the project can vote on the company's decisions and initiatives. Frequently, the stakeholders vote on whether to pay out insurance claims.
The DeFi insurance market is immature and relatively unregulated. There is large variation between products. Generally, the companies fall into three categories:
- high-premium coverage providers that operate like traditional insurance companies
- low-premium coverage providers with policy premiums and claims decided by an algorithm
- "higher-layer" products that aim to integrate into insurance companies' product lines and offer the lowest premiums
DeFi insurance occupies a small segment of the greater crypto insurance space. Currently, the top 15 DeFi insurance companies have a combined market cap of roughly $1 billion, and only two companies are above $100 million: Nexus Mutual (NXM) and inSure DeFi (SURE). As the DeFi space matures and crypto transactions become more mainstream, it's possible that demand for ensuring data integrity and customer funds could increase.
Nexus is an early leader in the DeFi insurance market, offering primarily exchange hack and smart contract insurance. Nexus has no claims review board; members decide which claims are valid.
Small Companies with Traction:
Bridge Mutual (BMI), $40 million market cap, No KYC
Bridge Mutual allows investors to stake insurance policies for crypto contracts, stablecoins, and exchanges. Bridge Mutual is decentralized, and claims go through a 2-phase voting process. Bridge Mutual is likely the largest DeFi insurance company with no KYC requirements.
Launched in April 2021, InsurAce sells low-premium custom insurance policies to crypto projects, and they offer coverage on more than 50 protocols.
Unslashed is a growing, London-based insurance company with roughly 300,000 ETH, and 30 policies. Unslashed covers exchange and smart contract hacks, and their customers include Lido, Kyber Network, and Paraswap. Investors are currently earning about 25% on their stakes.