What Is OnChain Insurance?
Life is like a rolling dice, full of uncertainties and risks. On this principle, the concept of insurance was developed to step in to significantly cover for some of these unplanned eventualities.
Insurance offers a form of protection from financial loss and is often used as a hedge against uncertainties that are unplanned. Insurance is the bedrock for enterprise and historically, insurance companies have always operated side by side with financial powerhouses and financially intensive businesses.
Insurance concepts have been discovered amongst ancient Babylonians in the Code of Hammurabi and it was also utilized by the ancient Hindu religious texts like the Dharmasastra and the Manusmriti. In the modern era, insurance evolved to be a sophisticated tool to encourage enterprise and minimize the risks associated with doing business.
What Is Onchain Insurance?
The boom in blockchain technologies and cryptocurrencies has created a thriving ecosystem with more players coming into the scene with every passing moment. ICOs, DeFi projects, cryptocurrency exchanges, the development of dApps, and the recent innovation of Bitcoin ETFs have seen the crypto industry grow to be worth over $1.90 trillion.
The sheer volume of investments by millions of investors around the world has made it necessary for there to be Onchain insurance to hedge risks in the cryptocurrency space.Onchain insurance is still in its infancy and the pioneers are still forging a path through the nascent crypto and a DeFi space that is less than four years old.
Onchain insurance seeks to provide coverage against risks for the burgeoning crypto and decentralized finance sector which is now worth over $80 billion. Just like traditional insurance firms, people seeking cover for risks associated with DeFi and general crypto businesses will have to pay the premium which is the amount charged by the insurer or the underwriter.
Why Onchain Insurance?
Onchain insurance has become a necessity for the entire blockchain-based industry and the reasons advanced for OnChain insurance are encapsulated below.
A $93 Billion DeFi Market
The projects around DeFi and investments in the space have raised the market capitalization of the relatively new concept of decentralized finance to over $93 billion. Top DeFi projects like Uniswap, Chainlink, Terra, Aave, and PancakeSwap have attracted millions of users to their respective ecosystems within a short time frame.
Onchain insurance has a ready market to thrive as retail and institutional investors will be looking to safeguard their investments from uncertain risks that may wipe out their portfolios.
The Growth of NFTs
In 2021, the craze for Non-Fungible tokens reached an all-time high as several high-value NFTs were sold or auctioned in recent weeks.
Similarly, the first tweet of Jack Dorsey was sold as an NFT for over $2.8 million signaling the creation of a new financial ecosystem in the blockchain industry.
As more individuals scramble for digital collectables and assets in the form of NFTs, the need to protect the investments of individuals becomes more evident.
As a result of the hype around Non-Fungible Tokens, its market capitalization has risen by a stunning 1,785 percent as the top projects around NFTs record double-digit increases in their values.
A rise in Occurrence of Security Breaches
The digitization of assets and the rise of decentralized finance have led to an increase in cyber-attacks by hackers seeking to steal digital assets. Since the development of blockchain, billions of dollars have been lost to these unscrupulous elements through the 51% attack tactic or through compromised private keys or data breaches.
The apprehension of investors can be allayed through the presence of Onchain insurance to cover for the uncertain eventuality of a data breach or hack by cybercriminals. This will have the positive effect of increasing the amount of financial injection in the cryptocurrency industry.
What Are Some Examples of Onchain Insurance?
Although the DeFi industry is still in its early days, a few firms are braving the odds to provide insurance cover to a host of cryptocurrency and decentralized finance projects.
They provide insurance service to both institutional and retail investors seeking to invest in the cryptocurrency industry. A few of these firms offering OnChain insurance services will be briefly described below.
Nexus Mutual describes itself as a people-powered alternative to insurance that protects cover against the risks associated with the failures of smart contracts, DAO hacks, and or issues arising from parity multi-sig wallet issues. Nexus Mutual distinguishes itself from the other firms on this list by giving members the power to vote whether or not claims are valid.
Founded in 2017 by Hugh Karp, Nexus Mutual has seen its membership rise and has several high-profile clients like 1confirmation, Blockchain Capital, Version One, Semantic Ventures, Kinetic, and Collider Ventures amongst others.
The rights of members are represented by tokens and these tokens can be used to buy insurance cover and also take part in the voting procedures in claim assessments and governance. It is necessary to note that income generated from the sales of token all belong to the members.
Founded in 2019, Nayms is designed to provide cover for Crypto brokers, asset managers and verified investors. Nayms provides insurance cover for smart contracts and general risks associated with cryptocurrencies.
Recently, the company entered a partnership with traditional insurance firm AON to provide merge insurance with the ever-growing blockchain technology.
Speaking on the need for OnChain insurance, Dan Roberts, CEO of Nayms said, “As the digital asset space soars to $1 trillion, the need for the appropriate insurance protection to scale alongside that growth will be vital” for the sustained growth of the industry.
As a result of its intuitive offerings, Nayms has entered into high-profile partnerships with Velona, BREACH, SafetyWing, and CoinCover amongst others as it seeks to merge the insurance blockchain and financial industry.
Unslashed seeks to provide ease for cryptocurrency users and investors of crypto-based projects by providing insurance coverage that is reliable and efficient. Unslashed provides users with the functionalities of ensuring that your insurance cover is constantly collateralized and the decentralized model of settling claims makes it a transparent process.
Unslashed provides cover for smart contract hacks and breaches on exchanges, stablecoin pegs, and even extends onto oracle failure.
As an addition to its already impressive features, Unslashed provides users with the ability to earn on the platform by letting users underwrite risks to earn rewards. Unslashed has entered partnerships with Paraswap and Enzyme to provide impressive insurance services.
Opyn is a decentralized insurance platform that provides insurance services to users seeking to protect their investments in decentralized finance from unforeseen risks. Using the revolutionary Convexity Protocol, Opyn does not utilize claim assessors to determine the validity of claims.
The provision of incentives on the platform urges more users to adopt the platform in which users can earn yields by depositing Ethereum, minting options, and trading them on the market.
The non-custodial nature of Opyn, lower margin requirements, and protection for volatility are reasons for the preference of investors in choosing Opyn as their insurance cover.
Onchain Insurance is a real thing and it's here to stay. As the pioneering firms forge ahead in creating an insurance industry in the crypto and DeFi sectors, more investors will be buoyed to join the ever-growing space.
In a few years, the range of cover provided by these Onchain insurance firms will be wider, giving investors and developers peace of mind to create projects that have the potential to change the entire landscape for good.