Why is Crypto Insurance Exploding in 2022 and Beyond?

Insurance isn't the sexiest business, but it's undeniably big business. Much like traditional finance, traditional insurance can be influenced by the cryptocurrency industry as insurance due to unprofitable and misguided incentives.

Cryptocurrency-based insurance is still in its infancy and has a total market capitalization of around $1.2 billion. However, this industry will grow rapidly over the next few years and can expand by simply providing crypto-insurance coverage for various types of insurance.

What is Crypto Insurance?

Crypto insurance works much like traditional insurance, which includes insurers paying premiums to receive payouts in the event of a particular emergency. The difference, however, is that crypto insurance paves the way for the health insurance industry by allowing individuals to join as both insurers and insurers.

Crypto Insurance Examples for Yearn Finance Smart Contract Failure Policy

Suppose holder A now has an asset of 1 ETH, as promised to Yearn Finance.

Insurers fear that the risk of non-compliance with the Annual Funding Agreement will lead to the loss of all or part of their assets.

To address this risk, A enters cryptocurrency insurance platforms (such as Nexus Mutual or Unslashed Finance) and purchases the Yearn Finance smart bond policy. To take out this insurance, A pays 0.02 ETH (this price depends on the risk of the insurance) depending on the premium. If the Yearn Finance smart contract fails, payment A is incurred (up to 1 ETH).

Insurance from the insurer's point of view

Individuals can also become insurance providers and sign up for cryptocurrency insurance. In general, insurance platforms allow individuals to volunteer (that's ETH) in two ways.

Direct purpose of special insurance policies (e.g. Yearn Finance smart contract failure policy)

with general insurance

In the image above, the insurer directly closed 0.6 ETH by the non-compliance of the Yearn Finance smart contract and 0.4 ETH by the general insurance.

Insurance companies receive fees from insurers (e.g. 0.02 ETH deductible fee on the platform) and receive a portion of their capital return during ETH shutdowns.

If the Yearn Finance smart contract fails and the insurer loses all ETH, the direct funds will be used first. If the balance is not paid in accordance with the law, the general insurance cover applies. Directly in this example, if there is only 0.6 ETH in the financial policy, the remaining 0.4 ETH in the general insurance group will be used to cover the loss of the insured policy.

Measurement request

The main questions posed above are: who is responsible for measuring 1 ETH of a lost insurance claim and deciding whether or not to pay the insurance?

In traditional insurance, this is done by central service providers who are encouraged to refuse coverage. In crypto insurance, applications are typically processed by platform token holders who vote to accept or reject payment. Generally speaking, there are appropriate incentives for insurers who vote only on the substance of the proposal.

The type of cryptographic security matters

Generally, there are three types of cryptocurrency insurance.

1. Smart contract vulnerabilities

It often compensates the loss caused by the failure of smart contracts, including hackers using incorrect numbers of smart contracts, completion of smart contracts, performance malfunctions, business design issues, etc.

2. Stability Coin Price Decoupling

Hedge the loss of a stable separation in an asset/currency.

3. Loss of storage / exchange

It compensates for the loss of assets held by the trustee/exchange. Generally, withdrawals from exchanges may be delayed for some time (usually 30-90 days) due to theft/theft of assets by escrow/exchange, or certain circumstances (e.g. political or administrative interference).

In addition, other types of policies exist, and other policies will emerge as the industry evolves.

Crypto Insurance Project

Nexus Mutual ($NXM) and Insure DeFi ($SURE) together account for 80% of the total cryptocurrency exchange cap. Although both have similar insurance standards, the main differences are:

1. Nexus Mutual has a unique structure in the cryptocurrency market, and holding $NXM tokens allows you to become a legal member of operations that require KYC certification.

2. Insure DeFi requires users to purchase $SURE tokens and open insurance to receive insurance, and any losses are incurred in $SURE.

There are also cryptocurrency stocks in the market, such as Unslashed Finance, Armor.Fi, etc., according to Coiningecko.

Coiningecko's Top 10 Crypto Insurance Projects

Unslashed Finance analyzes the costs and outsources them to a decentralized third party, circumventing the problem revived by the voter token.

Why Crypto Insurance is growing faster

The cryptocurrency-based insurance industry offers a new way of insuring compared to traditional insurance. Crypto insurance will soon grow in the future for the following reasons:

1. Development must prevent the risk of holding crypto assets

2. Cryptocurrency insurance is considered an investment level.

Insurance as a type of investment has become an attractive type of business as it is always unlimited due to the particular rules and regulations of insurance companies.

As cryptocurrency insurance continues to grow, more and more people are likely to invest their money as return insurance providers. For example, you may decide that the risk of USDT decoupling is minimal and you decide to fund the insurance policy. This will allow you to get a refund from this policy.

3. First in existing insurance industry

Currently, the cryptocurrency insurance business only provides cryptocurrency risk insurance. However, crypto insurance has the advantage of lower costs, more reasonable costs, and the elimination of negative advantages compared to the traditional insurance industry. , and as the market grows, the crypto insurance model will expand into the traditional insurance industry.