Insurance is a contract with conditions to prevent further losses when the projected risks become real. Insurance is purposely designed to confuse users so that they can purchase the insurance to believe they are financially hedged and in reality, they are not. It is a magic spell to try to presumably resolve issues but it will make it worse. We need real insurances to protect people.

TL;DR

Traditional insurance is a word game to confuse customers to buy products and refuse to fulfill the contract. Crypto insurance may change the traditional practice and minimize risks for users but not insurers.

Here is a 1 min summary of the article if you want to skip the reading.

Why Defi Insurance

Cryptocurrencies are insurances of themselves. They are volatile in price but they can possibly hedge the future financial system risks. At least, that was a narrative when Bitcoin was introduced. Crypto insurance is an insurance of insurance that makes it possible to offer the real promise of insurance policies since crypto has the potential to gain more profits that cover insurers’ risks while providing services to users.

What Is Insurance

Insurance is a financial game. Insurers want money for their investments to generate profits through calculated risks that are lower than financial investment risks so that they can continue profiting from customers while hoping risks will not become true.

How Defi Insurance Can Change Industry

In traditional insurance companies, they are operating like hedge fund managers to take high risks and high rewards insurance products. While they composed complicated terms and conditions on contracts to make customers hope they can compensate from risks which they cannot in the most of the time. Because the profit margin is narrow for insurance companies, they fight to save every penny they can. Crypto insurance can erase such attention on penny counting business and help insurers to have large profits while providing customers with insurance they purchased.

The Trend of Defi Insurance Adoption

Raising hackers’ attacks on crypto protocol and Defi projects makes the industry realize how the importance of crypto insurance. It allows insurers to provide compensations for loss through hackers’ attacks while providing sustainable earning potentials for insurers and customers to secure their funds.

The Downside of Defi Insurance

Crypto frauds are raising along with crypto mainstream adoptions. Regulations will come to regulate the crypto industry which may make crypto-insurance harder to make profits while offering customers large sums of compensation.

Own Insurance Policies

Cryptocurrency exchange platforms offer their own insurance program for users to cover any losses by hackers. They develop collective funds to help users who lost from attacks. Individual investors can also build a crypto-insurance by distributing assets through multiple wallet addresses to avoid single massive losses.

In Conclusion

Defi insurance offers a more flexible way to compensate and increases the chances to be compensated from losses. You can also create your own insurance without any policies through cryptocurrencies.

Stay tuned for the 2022 Prediction #7: NFTs-Based Communities - DAO 1.0