We did extensive research on the existing insurance products, they are designed in different ideas and methods which can be categorized into 3 types with further comparisons listed in table below:
· Mutual insurance, such as the Nexus Mutual;
· Financial derivatives, such as the Opyn (convexity protocol); and
· Prediction market, such as the Augur.
In spite of the development of existing DeFi insurance projects, we note that mutual is still the mainstream of DeFi insurance, however there are still a few common issues that need to be addressed.
(1) Limitations of Product Accessibility
There are some limitations on product accessibility for existing products, such as:
· High premium: especially for the protocols with less staked pool;
· KYC-based membership: which contradicts the free and open ethos of DeFi;
· Limited cover capacity: which often frustrates customers when they need to buy covers for their intending protocols;
· Lack of coverage for new protocols: which is often lagged behind the industry pace and unable to support the latest protocols;
· No cross-chain coverage: which limits the protection capability to DeFi protocols on other public chains;
· Lack of protection diversity: which is limited to cyber security protection only compared to the wide coverage of risk types in traditional insurance landscape;
(2) Capital Inefficiency
Capital efficiency constitutes the cornerstone for any insurance company, which benefits both the insurers and the insured in a systematic manner. However, low capital efficiency is another pain point for existing DeFi insurance products, such as:
· Low reserve utilization: the capital injected into the insurance platform is often not well managed, leading to the low utilization of the reserved fund which can be employed in a more delicate way;
· Unsustainable investment return: similar to traditional insurance business, customers are always expecting to gain sustainable investment return on the money they place into the insurance company.
(3) Lack of Underlying Risk Management
Risk management lies at the core of any insurance business, however current DeFi insurance products still have a lot of room to enhance their risk control capabilities, such as:
· Cyber security of the insurance protocol per se: what if the insurance platform itself is hacked?
· Concentration risk: the capital pool is often highly concentrated on a few major protocols, and the platform is solely relying on Ethereum;
· Claim assessment: the existing claim assessment is handled in a gross manner with a Yes/No judgement only, without quantified evaluation of the loss;
· Operation / Credit / Market Risk evaluation: those risks are not well evaluated and taken into account for the platform design and operations.
We have seen the market demand for more insurance projects to enhance the risk management infrastructure of the DeFi ecosystem, as well as seeking for improvements to address the above-mentioned challenges.
Therefore, we are working on this new insurance method, the InsurAce , with our unique value creations to address these challenges.
InsurAce is a decentralized insurance protocol, aiming to provide reliable, robust and carefree DeFi insurance services to the DeFi users, with very low premium and sustainable investment returns. InsurAce’s highlights include “0” Premium, Enriched Product Line, SCR Mining and Sustainable Return. InsurAce’s mission is to redefine DeFi insurance and protect users from security risks with user-friendly product accessibility and capital efficiency.
Telegram Community: https://t.me/insurace_protocol
Telegram Announcement: https://t.me/InsurAce_Channel