Overview
DeFi insurance lets users buy coverage against smart contract failures, hacks, or stablecoin depegs. Protocols pool premiums and pay claims for covered losses. It provides a safety net for a risky ecosystem.
How It Works
Users buy coverage for specific protocols, and insurers stake capital to back the coverage while earning premiums. When a covered incident occurs, claims are assessed and paid from the pool. The model is permissionless but requires careful risk assessment.
Why It Matters
Insurance reduces the downside of DeFi participation and can restore confidence after exploits. It also creates a market for pricing protocol risk. Its challenges include claims assessment and capital efficiency.
Related Concepts
DeFi Insurance protects against risks in Smart Contracts, Lending, and Stablecoins. It relates to the broader risk-management layer of Web3.