The insurances of the future for the blockchain. For Adam Hofmann, CEO of Nimble, a company that wants to offer insurance for the crypto-currency sector (and in particular DeFi platforms), we must think about decentralized insurance built on a transparent and efficient blockchain while thinking of the community. in the first place.
Indeed, the crypto-currency sector is evolving extremely quickly, whether on the NFT, Metaverse, or even Web3 side. As a result, the environment must be completely secure and yet the attacks which have cost millions are increasing every day against this industry.
Would you be willing to put your savings into such projects if overnight you could lose everything due to theft and no insurance covers you against it? The answer is “no” and therefore, it is logical to think that many companies are not going to invest in DeFi platforms today for the same reason.
DeFi insurance
Many cases of phishing attacks or the exploitation of flaws on exchange platforms or even the blockchain have taken place. So decentralized insurance has many use cases that can help prevent such consequences.
The idea is therefore to offer coverage of digital assets with decentralization to the user who wants to be insured. The purchase of insurance comes from a pool of liquidity generated by those who construct the insurance.
In DeFi parlance, coverage can range from covering risks related to digital assets and smart contracts to protecting NFTs, and governance of DAOs and wallets for example.
Now, to go further imagine the following case. A user purchased coverage for their participation in another Defi project. He decided to participate in a project by providing a guarantee but bought insurance coverage in case of hacking or vulnerability of the project's smart contracts.
Thus, not only does he find himself protected against risks, but it also removes risks at the same time from the famous project. Put simply, this means that a community-based risk pool allows investors to build security around a project in the form of insurance.
The effectiveness of such a system
The effectiveness of such a system stems from the community approach that decentralized insurance allows. In the traditional world, if a company harms you, you usually seek damages.
You wait for a procedure to be triggered so that the insurance company investigates, and that you negotiate with it in order to obtain compensation. Of course, this can create a certain pressure both on the insurance company and on the company concerned.
On the contrary, in a decentralized insurance model, you will be able to mitigate the tensions. The company can thus negotiate and follow the various complaints, it can work hand in hand with its users in order to ensure that the complaints reach them directly without an intermediary.
This is not the only reason why a community based around DeFi is beneficial for such insurance. The traditional insurance industry is worth over $5 trillion and often puts profits before people, or so it seems.
With an insurance system on the blockchain, you work with like-minded individuals. With such a system, the process requires fewer intermediate steps so everything is faster leading to effective decisions for the good of all.
Benefits of Decentralized Insurance
According to research published in SAGE Open, the benefits of blockchain insurance can also impact this sector in more traditional ways. The authors of the article report the following:
"The insurance industry can benefit from the adoption of blockchain technology when operations span multiple countries and have many players, including the end user. The insurance industry can be connected through a decentralized network in which transactions are recorded on distributed ledgers.
Trust in transactions can be assured by members of the blockchain, eliminating the need for third parties. Insurance contracts can be registered electronically in the form of smart contracts."
A decentralized approach to crypto insurance is an important issue for the community to consider. Because of this, everyone benefits from the actions of other community members, everyone has a transparent view of the system and process, and everyone works towards profitability because everyone gets a piece of the profit pie. insurance.
Of course, there are risks in the world of decentralized insurance. No system is perfect and can find itself facing a security breach or even facing hackers wanting to damage such a project. Nevertheless, these risks can be limited because this is precisely the principle of insurance.
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