DeFi world often encounters hacker attacks, causing investors to be on the edge. Therefore, there is continuous discussion about insurance solutions to reduce DeFi risks. This article aims to quickly introduce this emerging field to the readers.
DeFi insurance does not come from centralized institutions, but instead allows everyone to secure their capital against risks through decentralized liquidity pools. In exchange, insurance providers earn interest from the premiums paid, which is generated from locked capital, thus establishing a connection between premiums and protocol risk.
Insurance providers invest their funds in pools with higher returns than protocol risks. This means that individuals trade event outcomes based on their estimates of the probability of potential risks occurring. If the protocol covered by the insurance company experiences negative events, such as a hacker attack, the funds in the pool covering that protocol will compensate the insurance users for that specific event.
The ability for anyone to participate and the transparency of on-chain operations are often emphasized as the main advantages of decentralized insurance systems. As DeFi continues to grow, the demand for solutions to protect user funds becomes increasingly important.
According to Three Sigma Capital, DeFi insurance can cover the following categories:
Protocol Cover
Custody Cover
Depeg Cover
Yield Token Cover
Audit Cover
Slashing Cover
Bridge Cover
Excess Cover
What is Athena Ins?
What is ATEN?
Overall, decentralized insurance protocols are still a new track. This article only presents a brief overview of the service through Athena, hoping to see more projects continue to develop and provide a safer and more secure DeFi world in the near future.