Global Parameters
Insurance can be seen as somewhat of a boring subject for many of us in DeFi. That’s because the DeFi space naturally attracts risk-takers. However, insurance is a niche that needs filling and there is massive potential here. If someone loses their money in DeFi it’s not like they can pick up the phone and call their bank manager. And if the goal is to onboard mainstream users, there needs to be a way to assure them that some of their risks can be mitigated.
​DeFi users participate in one of the most exciting but untested areas of cryptocurrency. The nature of smart contracts and decentralized protocols makes them subject to exploits and hacks, occasionally leading to significant losses for affected users. As we have covered in a previous blog, these include flash loan hacks that exploit weaknesses or β€˜loopholes’ in the smart contracts that govern protocols, allowing canny actors to drain millions of dollars from their liquidity pools.
As such, DeFi users are no doubt comforted by the fact they can now insure themselves against these types of losses. The number of providers now offering so-called DeFi insurance is growing, with the largest - Nexus - already boasting a market cap of just under $342 million according to CoinGecko [Sourced 26.1.2021] despite having launched in July 2020. Meanwhile, competitors Etherisc and Cover Protocol have around $60 million in market cap between them.
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