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What is decentralized insurance? Introducing Defi Insurance

Perhaps for the first time in 2018, the term DeFi was used; No one thought that this concept would become so valuable. The DeFi industry is expanding rapidly, with new protocols and applications emerging every day. Currently, more than 255 billion dollars in assets Decentralized protocols (DeFi), are locked down. However, this industry is struggling with serious challenges such as widespread hacking attacks. One of the most attractive solutions for this problem is decentralized insurance or DeFi. To better understand this, we suggest you read the article What is DeFi on Valax blog.

What is DeFi?

Familiarity with DeFi will be an introduction to decentralized insurance. DeFi is short for Decentralized Finance or decentralized financial system. Instead of financing through traditional centralized methods, this system offers peer-to-peer financing through blockchain-based decentralized technology. Decentralized DeFi applications work quite differently from traditional financial applications.

You don’t need to get permission from any person or organization to use these apps. You can use DeFi products only with internet access. Concepts such as digital currency, smart contract and various types of decentralized applications are defined as part of the DeFi industry. Since this industry faces risks and damages such as widespread hacking, fraud, etc.; A type of insurance called decentralized insurance (DeFi Insurance) has been created to serve digital currency users. In the following, we will discuss the full definition of this insurance.

What is meant by decentralized insurance (DeFi Insurance)?

Decentralized insurance has a concept similar to conventional insurance. In short, insurance in DeFi means insuring digital currency holders against losses caused by hacking attacks, fraud and various incidents that occur in the DeFi ecosystem. For example, suppose you have locked up some digital currency in a decentralized exchange, as you know, hacking or asset loss is possible for various reasons in the digital currency market. To avoid this unpleasant problem, you can resort to decentralized insurance or DeFi.

For this, you just need to pay some cryptocurrency assets as premium to the insurance provider to be covered. The amount of the insurance premium depends on factors such as the type of coverage, the insurance provider and the required time of the insurance. Also, it is better before getting insurance, about the incidents that Difay insurance supports and how it is; find out


In this section, we are going to address the question of what is the use of DeFi Insurance? As you know, this insurance is seriously defined against traditional insurance; But it has special uses that it is better to get familiar with. Among the common uses of decentralized insurance, the following can be mentioned:

Digital currency insurance

Digital currency users are always looking for a way to help them prevent large losses from digital currency fluctuations as well as cyber attacks and theft. Crypto Defy insurance is one of the best and most guaranteed ways to compensate for losses. For the importance of this insurance, it is enough to mention the example that in 2018 alone, in one case of theft, the amount of 500 million dollars of digital assets was stolen.

Covering smart contracts

Extensive hacking of smart contracts, has worried users a lot. To solve this problem, some networks, such as the Ethereum network, benefited from an insurance coverage to reassure their users.

Wallet protection

theft from Digital currency wallets, has increased so much that most users agree that wallets should be covered by insurance. This can be considered a great application of decentralized insurance.

Advantages and disadvantages of decentralized insurance

Advantages and disadvantages of decentralized insurance

This type of insurance, like other insurances, has advantages and disadvantages that we should familiarize ourselves with. However, DiFi’s problems cannot be hidden; But in relation to decentralized insurance, talking about disadvantages is a bit unfair. This is because Defy Insurance is very nascent and still has a long way to go to develop and perfect. Experts believe that in the future, with the development of DeFi programs and increasing their security, decentralized insurance will definitely improve and develop.


  • Reducing fraud, avoiding paying extra fees and not requiring direct intervention of people
  • Automation of insurance processes, with the help of automatic payment of claims and determination of insurance conditions with the help of smart algorithms
  • increasing speed in insurance processes; Payment of compensation without delay
  • Providing the best risk management methods and accurate risk assessment in the transaction

weak points:

  • About 98% of the DiFi industry is still not covered by DiFi insurance.
  • Decentralized insurance requires a centralized provider (digital currency user).
  • The risks and dangers of DiFi are still changing and there is uncertainty in the field of possible damages covered by DiFi insurance in the future.

How is this insurance different from traditional insurances?

In traditional insurance, there are many bugs, including a lot of paperwork, lack of transparency in the performance of insurers, and slow processing of claims. All these features are annoying. Many people who use traditional insurance do not know exactly what formula and model the insurance company follows to calculate risk and price. How are rates and premiums calculated in these insurances? These are some of the challenges seen in traditional insurance. Precisely because of these problems in traditional insurance, decentralized DeFi insurance was created.

How does DeFi Insurance work?

How DeFi insurance works

How DeFi insurance works is based on two concepts Insurance provider (Receiver) and User covered by insurance Is. An insurance provider is any user who locks up some of their assets in decentralized pools. To this user who is a type of insurance liquidity provider; It is also called an underwriter.

In decentralized insurance, underwriters insure the insured’s property in return for a premium. These users can vote on what types of damages are covered by the insurance. Once the type of coverage is determined, claims are approved or denied with the help of automated methods such as artificial intelligence algorithms or voting from insurance providers.

Technical and economic risks in DeFi insurance

In order to develop effective insurance models in DeFi, the different types of risk must be well understood. There are various risks in the world of DeFi. In general, these risks can be classified into the following 2 groups:

Technical risk

Technical risk means the possibility of tampering with smart contracts, as well as the high probability of hacking attacks and failure of smart contracts. Also, some malicious code (Exploit), such as Nomad, Wormhole and Cream, are among the well-known exploits in the DeFi market that cause irreparable damage. These risks are the main reasons for creating decentralized insurance.

Economic risk

Economic risk is one of the main reasons for reducing the desire of many people to enter the digital currency market. Many users always lose a large part of their assets due to the failure of some DeFi projects or the irrational fluctuations of some cryptocurrencies. In order to avoid these problems, Defai insurance is recommended.

10 of the best DiFi insurance projects

The best DeFi Insurance projects

To choose a decentralized insurance, it is better to first see what damages this insurance supports. Carefully check the ways in which the insurance in question is going to cover your losses. See which tokens the insurance supports. Also check how much time and effort it takes to prove a claim or what incentives and benefits are offered to insurance providers. These are all things that you should consider before choosing your decentralized insurance. After considering these things, choose the best insurance. Below is a list of 10 popular DeFi insurance projects:

  • Nexus Mutual
  • InSure DeFi
  • InsurAce
  • Etherisc DIP
  • Bridge Mutual
  • Tidal Finance
  • Armor
  • Yam
  • Unslashed Financed
  • Cover Protocol

The future of decentralized insurance; light or dark?

Considering that DiFi projects are constantly being developed and updated; The future of decentralized insurance is definitely very bright. Currently, the concern of many investors in the DeFi industry is to protect users’ property and increase confidence and security in this industry. They seek to find ways to reduce the risk of investing in the world of decentralized applications. One of the best methods is to use decentralized insurance.

What is decentralized insurance? Introducing Defi Insurance for the first time on Wallex blog. appeared.


hello my name is amir; i love bitcoin and dogecoin 🎯

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