Blockchain-based insurance protocols have managed to become an independent sector, although their fortunes follow the overall crypto market. Nevertheless, an increasing demand for insurance services for crypto products can be expected in the long term.
Conventional insurance is a $4.5 trillion market projected to reach $224.34 trillion by 2028. While the industry is dominated by big players like Allianz, Prudential and Axa, blockchain uses a new approach to protect against a variety of risks.
In particular, decentralized insurance protocols allow users to insure against multiple types of risk using blockchain-based smart contracts, with networks managed by communities.
In this article, we will discuss the most active decentralized insurance protocols and examine the opportunities for long-term crypto investors.
Overview of the insurance protocol industry
Insurance is one of the key use cases in decentralized finance (DeFi) – the blockchain trend that aims to bring all financial services to community-run decentralized infrastructures.
At this point, insurance protocols hardly compare to larger DeFi subsectors like lending and decentralized exchanges (DEXes) in terms of market cap and Total Value Locked (TVL). Still, insurance projects offer some great benefits that could fuel their growth for years to come.
Thanks to blockchain’s unique properties of decentralization, transparency, and lack of intermediaries, insurance protocols can address several key challenges faced by traditional insurance companies. For example, blockchain technology can be used to reduce fraud, increase the speed of transactions, and improve risk management.
Judging by the performance of Nexus Mutual (NXM), Etherisk (DIP), and InsurAnce (INSUR), the native tokens of three popular decentralized insurance protocols, the sector has suffered throughout the crypto winter, with DIP and INSUR down over 90% . , while NXM lost more than 85% in 2022.
DeFi insurance protocols can offer the same solutions as their traditional counterparts, such as B. Auto insurance and health insurance. Decentralized insurance projects can also be used to protect against potential fund losses (due to hacks or bankruptcies) on both centralized and decentralized exchanges.
Top blockchain insurance projects
investment work
Today, most decentralized insurance protocols focus on insuring DeFi users by mitigating potential risks related to hacking attacks and other capital losses. This is a significant opportunity.
DeFi has seen tremendous growth through 2022, attracting both retail and institutional investors. However, the rapid adoption of DeFi has also led to a proliferation of protocol vulnerabilities. According to Chainalysis data from late October, hackers stole over $3 billion from investors in 2022, roughly the amount in 2021.
Source: Chain Analysis Twitter
This increasing demand for protection from DeFi hacks means that insurance protocols are likely to become a priority in the coming years due to the increasing demand for risk mitigation mechanisms.
Aside from the DeFi space, we also expect that many insurance protocols will focus on covering centralized exchanges like Binance and Coinbase, as these are essentially “blockchain banks” but without FDIC insurance.
Investors can gain access to insurance logs in a number of ways, e.g Purchase of the native token that drives the ecosystem (like buying the stock), Supporting the team behind the protocolor Providing liquidity for insurance coverage.
Who invests: Institutional support
There are some large insurance protocols in existence today, and most of them have secured capital from institutional investors or venture capital firms.
In the second half of 2021, Nexus Mutual raised nearly $3 million from a pool of institutions including Blockchain Capital, Collider Ventures, 1kx, Dialectic, 1Confirmation, Version One and Delphi Digital. (Collider, 1kx and Delphi are also invested in Ease, another DeFi insurance solution.)
Elsewhere, insurance secured funds from Singapore-based Signum Capital and Hong Kong-based IOSG Ventures and HashKey.
(The notorious Alameda Research was invested in all of the above insurance protocols but filed for bankruptcy due to the solvency crisis of its sister crypto trading firm FTX.)
![Nexus Mutual logo]()
Nexus Mutual (NXM)
Nexus Mutual (NXM)Nexus Mutual is a DeFi insurance protocol that covers both DeFi and centralized platforms. Nexus’ flagship product is the Smart Contract Cover, which offers protection against bugs and hacks related to smart contracts.
The newer products also help customers protect against hacks and halted withdrawals on central exchanges or depot wallets, as well as failures on interest-bearing token depeg events.
For example, in August 2022, crypto lending platform Hodlnaut announced that it would be ending withdrawals, token swaps, and deposits. Nexus members who purchased Hodlnaut Custody Cover were protected from having their payouts blocked for more than three months. As a result, Hodlnaut Custody Cover holders began filing claims in November, and Nexus paid over $1 million to affected members.
The Nexus ecosystem is powered by its native token NXM, which also acts as a governance token giving holders voting rights in the Nexus Mutual DAO (like shareholder votes).
Nexus is currently the most desirable DeFi insurance protocol, making it one of the best investment options for those looking to gain exposure to the DeFi insurance market.
While NXM is only available on the native platform, the Wrapped NXM version (WNXM) is available on centralized and decentralized exchanges. Only NXM members can wrap and unwrap the token on Ethereum. The price and performance of the two differ, but show a high correlation.
Social proof:
- Twitter followers: 41,100
- Discord members: 9,100
- Telegram: 2,400
Insurance (INSUR)
Launched in early 2021, InsurAce has quickly become the second largest DeFi insurance protocol after Nexus. It is integrated with Ethereum, Polygon, Binance Smart Chain, Solana, and NEAR.
It protects users from common DeFi risks, including hacks and smart contract bugs that can lead to token loss. Additionally, it provides protection against losses of assets held on centralized exchanges, wallets, and stablecoin depeg and IDO events.
Click here to watch the incredibly amateur InsurAce explainer video
The InsurAce ecosystem is powered by the native token with the ticker INSUR, which acts as the governance token. The token will also be used to reward members who provide capital to underwrite risks in the underwriting pool with $INSUR tokens. Despite the bearish pressure, INSUR appears to be here to stay as DeFi and crypto market participants will continue to look for efficient solutions to mitigate risks.
Social proof:
- Twitter followers: 42,600
- Discord members: 6,300
- Telegram: 8,700
Ethereal (DIP)
Etherisc was launched well before the launch of DeFi in 2020. The Ethereum-based decentralized insurance platform offers a wide range of insurance products, including crop insurance, flight delay insurance, hurricane protection, crypto wallet insurance, and social security, among others.
Click here to watch the Etherisc explainer video
The Etherisc ecosystem is powered by the DIP token used for all transactions on the platform. To ensure a high standard of insurance benefits, service providers must deploy DIP tokens, which may expire in the event of non-performance.
DIP is trading near record lows at the time of writing, but the token has the potential to rally thanks to Etherisc’s wide range of insurance products, including those that mimic traditional coverage.
Social proof:
- Twitter followers: 11,200
- Discord members: 516
- Telegram: 3,333
Investor Takeaway
Decentralized insurance protocols offer a new approach to protecting against a variety of risks, particularly those related to crypto transactions, crypto custody, smart contracts, and yield farming operations.
Since the sector is relatively new, insurance protocols’ native tokens can be more volatile and responsive to the overall sentiment in the crypto space. Nonetheless, insurance will still be necessary in both DeFi and centralized finance (CeFi).
It might be early to make any big investments in this space, but it’s worth keeping an eye on the leading companies mentioned above, especially Nexus Mutual. (Other notable mentions include Solace and Unslashed.)
Warren Buffett is known to have made much of his fortune from insurance. Watch this space closely: Crypto offers the same opportunities.
Subscribe to the Bitcoin Market Journal to discover more blockchain investment opportunities!
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
Comments are closed.