Ensuring peace of mind is an indispensable part of funding. The multi-trillion dollar insurance industry grew out of this need and has operated on the basis of calculating risks down to fractional levels for hundreds of years.
With the advent of DeFi, an intriguing question arises: Can insurance be decentralized?
A company called Etherisc is trying by providing a platform for decentralized insurance applications. Hosted on the Ethereum blockchain, Etherisc aims to offer on-chain insurance, reduce insurance costs and democratize access to reinsurance.
The Origin of Etheric
Like many blockchain projects, Etherisc started as a hackathon entry in December 2016. A year later, in November 2017, Etherisc developers and co-founders Stephan Karpischek, Christoph Mussenbrock and Renat Khasanshyn published the project’s white paper.
The idea was to create an open source platform for insurance dApps. Since Etherisc runs on the Ethereum network, any private, for-profit or non-profit company can tap into its on-chain insurance market.
Leveraging peer-to-peer blockchain transparency, Etherisc automates and streamlines insurance products, resulting in faster payouts. In the blockchain world, such a decentralized service protects against three main risks: hacks (code exploits), theft and fraud. Additionally, Etherisc brings in the reinsurance business from the world of traditional insurance.
What is reinsurance?
Reinsurance, also known as stop-loss insurance, is a type of insurance coverage used by insurance companies. In return for part of the premium payments, a reinsurer assumes the risk for the policies of another insurer. That means the policy has to pay a severance payment, the reinsurance is on the hook.
How does Etherisk work?
Over the past 25 years, using air travel has proven to be extremely onerous and time-consuming. Now add flight delays to this standard service degradation. What is needed then is flight delay insurance that is carried out as conveniently as possible.
Etherisc’s FlightDelay Portal offers exactly this service. The dApp, which covers at least 80 airlines, used Gnosis Chain (formerly xDai) to process payments. Thats how it works:
- Etherisc token holders use their DIP tokens to generate an insurance risk pool. This is similar to liquidity providers on Aave depositing tokens in liquidity pools to allow borrowers to lend based on their collateral.
- But instead of borrowing, people can use Etherisc to automate risk conditions with smart contracts.
- They sign up for a policy that ensures their timely flight thanks to oracle networks online. The latter track real-world conditions to feed them to smart contracts (flight policies). In this case, Chainlink would feed in airport travel data.
- For example, if a flight is delayed more than 45 minutes, Etherisc users will receive a refund straight to their MetaMask wallet they used to sign up for the policy.
In other words, just as borrowers liquidate their collateral when a certain smart contract condition is met, Etherisc users receive funds when their insurance policy is met. At the other end of the insurance equation — the liquidity providers — they anticipate that there will be more conditions that will not be met, just like insurance companies.
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However, since there is no human/software/labor overhead with a blockchain protocol, Etherisc’s insurance automation is drastically leaner as it focuses on the core service. Although Etherisc DIP tokens are ERC-20, the Gnosis Chain for Flight Delay Insurance example shows that Etherisc can be integrated with other networks as well.
Etherisc specifically chose Gnosis because its blockchain network is 100x cheaper and 10x faster than Ethereum. Despite this, Etherisc is still largely in the development phase due to the lack of crypto-backed credit insurance. Instead, insurance premiums are paid in either stablecoin or fiat.
Etheric DIP Token (DIP) Tokenomics
DIP Token (DIP), short for Decentralized Insurance Platform, is the governance and utility token that powers Etherisc. Its total offering is limited to 1B DIP and is held primarily by the Etherisc Foundation.
Similar to ICOs, TGE refers to token-generating events designed to deliver more DIP tokens to registered Etherisc contributors at a set exchange rate. In addition to TGEs, the foundation participates in grants to expand Etherisc’s insurance ecosystem.
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In November 2020, Etherisc launched a 50 million DIP token grant program issued by the Board of Directors of Etherisc’s Decentralized Insurance Foundation. Developers use Etherisc’s Generic Insurance Framework (GIF) to create insurance products.
The purpose of the Etherisc grant programs is to encourage more development for open source insurance products. That’s because DIP tokens provide three important utilities:
- Staking in risk pools
- Commitment to quality and reputation
- Staking for governance
Similar to lending dApps like Aave or Compound, DIP token holders can use them in risk pools as collateral (bond) to provide liquidity for insurance claims. In exchange for this service, DIP stakers receive rewards according to the Etherisc staking model.
Etherisc’s African foray
One of the first historical use cases for insurance involved crops against volatile weather conditions. The need for such insurance is no different today. That’s why Etherisc has partnered with Chainlink and the Ethereum Foundation to launch ACRE Africa, a blockchain-based weather index crop insurance.
ACRE primarily targets smaller farmers in East Africa and offers microinsurance to expand insurance access in developing communities. As of October 2022, ACRE has onboarded over 1.7 million farmers with insurance premiums as low as 50 cents.
To power such projects, Ethereisc created Impact BV as a separate company within its ecosystem. Under the direction of Jan Stockhausen and Michiel Berende, Impact BV has been gaining a foothold in microinsurance in Kenya since 2021.
The Future of Etheric
In late 2022, Etherisc will focus on updating its existing key products such as FlightDelay. This includes not only adding cryptocurrencies for risk pools, but also creating policies in NFTs. In this way, even insurance policies could be tradable, since intelligent contract logic leads to optimal insurance.
Going forward, Etherisc plans to expand its partnerships in addition to existing partnerships with Mercy Corps Ventures, the Swiss Agency for Development and Cooperation (SDC), the Ethereum Foundation and the Climate Ledger Initiative (CLI).
Disclaimer for the series:
This series article is for general guidance and information only for beginners participating in cryptocurrencies and DeFi. Nothing in this article should be construed as legal, business, investment or tax advice. Consult your advisors for all legal, business, investment and tax implications and advice. The Defiant is not liable for lost funds. Please use your best judgment and exercise due diligence before interacting with Smart Contracts.
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