Decentralized Insurance: The Top 10 Protocols Safeguarding Your Crypto Investments
This comprehensive guide delves into the top 10 protocols that are changing how we think about risk and asset protection in the DeFi space.
Decentralized insurance has been a rapidly growing sector in the blockchain industry. According to a report by Allied Market Research, the global decentralized insurance industry generated $1.4 billion in 2022 and is anticipated to generate $135.6 billion by 2032 at a CAGR of 58.5%. The increase in demand for decentralized and peer-to-peer insurance products that offer greater transparency, lower costs, and faster claim processing times boosts the growth of the decentralized insurance market. In addition, the decentralized insurance sector is growing as a result of increased knowledge, adoption, and use of blockchain technology and smart contracts, which can automate insurance plans and claims.
Despite the growth of decentralized insurance, there are still challenges that need to be addressed. For example, the DeFi market has suffered massive shocks in the last few years, which have discouraged investment. Moreover, the regulatory environment for decentralized insurance is still uncertain, and there are concerns about the scalability of blockchain technology. Nonetheless, the potential benefits of decentralized insurance make it an exciting area to watch in the blockchain industry. In this article we highlight 10 decentralized insurance protocols. All there to help you protect your capital.
Nexus Mutual provides a range of cover options designed to protect against various risks. You can get Protocol Cover to safeguard against failures in individual protocols, ETH Slashing Cover to protect your ETH validators from penalties, and even D&O Cover and Real World Risk Cover, which are coming soon. The platform has underwritten $4 billion in cover, has $39 million in active cover, and has paid out over $17 million in claims.
But Nexus Mutual is not just about buying insurance; it's a community-driven platform. Members can create staking pools, manage risk, and even earn fees. The platform uses a unique token, NXM, which members can stake to provide underwriting liquidity. This creates a self-sustaining ecosystem where everyone, from the cover buyer to the risk assessor, benefits.
In a recent development, Nexus Mutual has expanded its reach by partnering with InShare, a specialist in alternative risk transfer. This partnership aims to provide cover for more than 5,000 small independent business owners in the UK. What's groundbreaking is that Nexus Mutual is using on-chain capital to cover traditional business risks like fire, theft, and accidental damage. This move not only diversifies the platform's offerings but also bridges the gap between crypto and traditional financial markets.
Uno Re is a decentralized insurance platform that aims to protect both institutional and individual clients from DeFi exploits. The platform offers a range of insurance products, including crypto, travel, health, and parametric insurance. At the core of Uno Re's offerings is its unique risk model, which focuses on providing affordable and custom coverage.
Uno Re has developed an all-inclusive security service called Uno WatchDog, which features continuous smart-contract audits, on-chain monitoring, and embedded insurance. This service is designed to offer an unmatched sense of security to its clients.
Recently, Uno Re announced a significant partnership with Nexus Mutual. The collaboration aims to expand the insurance capacity of Uno WatchDog through a quota-share agreement. With a 50% quota share, which is expandable to 90% in the future, Uno Re can cater to a broader clientele. At the same time, Nexus Mutual benefits by gaining a share of the premiums, creating a mutually advantageous partnership. This collaboration is expected to result in higher APRs within the Uno Re ecosystem, increased $UNO burns, and boosted brand recognition for Uno WatchDog.
Bright Union is a platform that aims to connect the decentralized insurance industry, offering a range of services to individual users and developers alike. The platform provides three main products: Insurance Liquidity, Aggregator, and Integrator.
Through its Insurance Liquidity feature, Bright Union allows users to earn stable yields of 15-25% APY on DAI by providing liquidity for DeFi insurance. The platform boasts diversified positions across more than 150 insurance protocols and pools, making it a stable investment option that's independent of general market conditions.
The Aggregator service enables users to insure their crypto assets against various DeFi risks. It offers a variety of insurance types, including protocol hack and failure insurance, custodian insurance, stablecoin depegging insurance, yield depegging insurance, and IDO event risk insurance. This makes it a one-stop-shop for managing a multi-chain insurance portfolio.
Bright Union's Integrator service allows developers to integrate insurance products into any app or wallet with just three lines of code. This provides an extra layer of trust for investors and users, making it easier for developers to offer comprehensive services.
Additionally, the platform has a loyalty program where users can stake $BRIGHT tokens to get up to a 20% discount on insurance premiums.
Neptune Mutual is a decentralized insurance protocol designed specifically for the Ethereum blockchain. The platform allows users to easily choose an insurance pool and enter their desired coverage amount. Once an incident is successfully resolved, users can collect stablecoin payouts immediately without the need for providing any personally identifiable information or evidence of loss.
The protocol offers two types of insurance covers: Dedicated Covers and Diversified Covers. Dedicated Covers are tailor-made policies created by projects for their specific communities, aimed at protecting them from security risks. On the other hand, Diversified Covers allow liquidity providers to spread the risk of their capital across multiple projects, thereby enabling Neptune Mutual to offer insurance policies for a broader range of projects in the DeFi, CeFi, and Metaverse spaces.
Neptune Mutual also provides a software development kit (SDK) that allows DeFi apps to integrate its insurance features directly. This means users can access all cover features, supply liquidity, and interact with decentralized cover pools without leaving their preferred DeFi app. The SDK is built on Typescript and works in both frontend and backend environments.
In addition to insurance, Neptune Mutual has ventured into the NFT space with collections like Neptune, Guardians, and Beasts, each having a unique identity. These NFTs are offered for free as part of the platform's commitment to democratizing access to blockchain-based collectibles.
Bumper Finance is designed to protect crypto assets from downside volatility and market crashes. Unlike traditional financial instruments like Stop Losses or Options, Bumper offers a more straightforward and transparent way to hedge against price risks. The protocol has two main participants: Takers and Makers. Takers are those who want to protect their assets from falling below a certain price, while Makers provide liquidity in the form of stablecoins to earn a yield.
Takers decide the amount of their asset, like ETH, they want to protect, the floor price, and the duration of the protection. They must also hold a minimum amount of BUMP tokens to use the protocol. Once they commit their assets, they receive a Bumpered Asset token, which has a guaranteed minimum value. Makers, on the other hand, deposit stablecoins like USDC and choose their risk tolerance level. They also receive an asset token representing their position.
The protocol uses its native BUMP token for various functions, including governance and utility. Both Takers and Makers need to bond a certain amount of BUMP tokens to participate. The protocol is built on the Ethereum blockchain and employs a complex multi-pooled architecture for efficient operation. It also places a high emphasis on security, including smart contract audits and full-stack security measures.
InsurAce is a decentralized insurance protocol designed to secure protection services to users in the DeFi space. It covers a wide range of risks, including smart contract vulnerabilities, custodian risks, and stablecoin depegging risks. The protocol is unique in offering a portfolio-based approach, allowing users to insure multiple assets across different chains in one go. This not only provides broader coverage but also saves up to 60% on cover payments and 50% on gas fees.
InsurAce operates on a mutual model, where risk is shared in two pools: the cover payment pool and the underwriting mining pool. These pools are governed by the community through the $INSUR token. The protocol's smart contracts handle the issuance of covers, eliminating the need for intermediaries. The claim process is also decentralized, relying on community voting and expert investigations for assessment.
The protocol also offers investment services, aiming to generate sustainable returns for investors. Users can stake their assets to earn $INSUR tokens and investment returns. InsurAce has a unique pricing model that optimizes cover costs and offers low prices, making it an attractive option for DeFi users.
Ease is a platform that focuses on providing coverage for digital assets. Unlike traditional insurance models that rely on premiums and minimize payouts, Ease aims to offer a more efficient and transparent solution. It builds upon the concept of "Uninsurance," which allows users to cover their assets without the burden of premiums. This makes it more cost-effective and flexible for users to protect their investments in DeFi protocols.
Ease's approach is an evolution of previous DeFi insurance solutions and even improves upon smart cover models like those introduced by Armor.fi. The platform offers coverage for a variety of popular DeFi protocols, including Sushiswap, AAVE, Compound, and more. Users can easily connect their wallets to the Ease application and choose the level of coverage they desire, all without the need for underwriters or complex systems.
The platform also offers yield-earning opportunities, making it beneficial for those who provide liquidity to the system. Ease has its own native utility token, and it frequently updates its risk ratings for various protocols, ensuring that users have the most current information to make informed decisions. Overall, Ease aims to make DeFi safer and more accessible, allowing users to secure their funds effortlessly.
Y2K Finance is a forward-thinking protocol that zeroes in on structured products tailored for exotic peg derivatives. Through these innovative products, market participants have the flexibility to either hedge against or speculate on the potential risk of pegged assets deviating from their perceived market value. At the heart of Y2K Finance are three standout products:
The Earthquake is a unique product that harnesses the ERC-4626 standard to craft fully-collateralized insurance vaults. These vaults serve as a platform for users to navigate the volatility risk tied to various pegged assets, be it through hedging, speculating, or underwriting. Additionally, token holders stand to gain from the trading fees amassed in this marketplace. Then there's the Tsunami, a cutting-edge on-chain derivative. It functions as a Collateralized Debt Obligation (CDO) driven lending market for pegged assets, fortified with MEV-proof liquidations. Lastly, Wildfire carves out a niche for itself by offering a bustling secondary market dedicated to the trading of tokenized risk. This on-chain RFQ orderbook facilitates the trading of Y2K risk tokens, ensuring both liquidity and the swift repricing of semi-fungible tokens in an ever-changing market.
A significant concern that Y2K Finance addresses head-on is the mispricing risk that shadows pegged assets. The team behind Y2K Finance is steadfast in their belief that the influence of stablecoins and similar pegged assets will only amplify in the future. To put it simply, think of Y2K Finance as a safety kit for your favorite toy that you're afraid might break. This kit offers various tools to ensure your toy remains intact, predict if it might break, or even swap parts with other similar toys. If you want to learn more about Y2K, you can read our deep dive here.
OpenCover is a platform designed to make DeFi safer for everyone. It offers affordable insurance coverage against various on-chain risks such as smart contract hacks, oracle failures, and other severe economic events. The platform is built to work across multiple protocols, including Curve, Uniswap, and Aave, providing a wide range of protection options for your crypto portfolio.
One of the standout features of OpenCover is its affordability. Premiums start at just $1.14 per week for $5,000 of coverage. This makes it easier than ever to secure your investments without breaking the bank. The platform also simplifies the process of purchasing and renewing coverage, making it user-friendly even for those new to the DeFi space.
OpenCover is backed by a range of reputable investors and advisors, adding credibility to its mission of making on-chain safety accessible to all. Whether you're an individual looking for basic coverage or an organization in need of bespoke protection, OpenCover is equipped to meet your needs. They even offer customer support to help you better understand your options.
Unslashed Finance is a platform that offers insurance coverage for a variety of crypto-related risks. Trusted by both institutions and individual DeFi users, the platform aims to secure assets against a multitude of threats such as validator slashing, smart contract failures, wallet exploits, and more. With over $500 million in insured assets and an average yield of 24%, Unslashed Finance has attracted more than 3,210 capital providers.
The platform operates on a decentralized model, relying on its DAO for protocol and policy parameters. It integrates with Enzyme for asset management and Kleros for independent claims assessments. Users can choose their level of engagement, whether it's supplying capital to earn yield, governing the protocol, or building on top of it. The platform also collaborates with well-known entities in the DeFi space, including Paraswap, Lido, and Kyber Network, among others.
Unslashed Finance offers a wide range of coverage options for various markets and protocols. Users purchase this protection, which is then backed by other participants who supply the necessary capital. The protocol is designed to cover all types of crypto risks, and it leverages integrations with other platforms for asset management and claims assessments. So, whether you're an institution looking for comprehensive coverage or an individual user seeking to safeguard your assets, Unslashed Finance provides a secure and efficient solution.
From a modest start, decentralized insurance can become a multi-billion-dollar sector, driven by the promise of transparency, affordability, and speed. While challenges like market volatility and regulatory uncertainty remain, the sector is undeniably a game-changer. The ten decentralized insurance protocols we've explored here each bring something unique to the table, from Nexus Mutual's community-driven approach to OpenCover's focus on affordability.
In a world where the lines between traditional finance and decentralized finance are increasingly blurred, these protocols are not just providing insurance; they're building trust. They're making it easier for people to engage with blockchain technology, secure in the knowledge that their investments are protected. As these platforms continue to innovate and collaborate, the future of decentralized insurance looks bright. It's not just about mitigating risks; it's about enabling greater freedom and participation in the financial systems of the future.
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