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Crypto Insurance – Fertile ground to be explored

Bởi Vinh Tien 08/09/2022
Crypto Insurance – Fertile ground to be explored

For the traditional financial market, Insurance is one of the oldest and most important industries. But in the Crypto market, it seems that it is still quite new with the mining potential still very diverse. It is estimated that the Insurance industry in Crypto is currently worth around $900M – a very modest number when we put it next to the traditional insurance industry, as well as when compared to DeFi, Gaming in the Crypto market. .

  • Current Cap of Insurance Industry (Traditional Finance): $5800B USD.
  • DeFi Cap in Crypto : ~$117B
  • Metaverse Market Cap in Crypto: ~$20B
  • Capitalization of Insurance in Crypto: ~$900M

According to a Bloomberg report, crypto insurance is poised to become a “huge opportunity.” A spokesperson from Allianz, one of the largest insurance companies in the world, said that the company is exploring product options and coverage in the crypto market as cryptocurrencies “become more and more popular. more relevant, important and pervasive in the real economy”.

What is Decentralized Insurance?

Decentralized insurance will help reduce the risks in case you get hacked. You will receive compensation when your crypto wallet is hacked.

The Necessity of Insurance in the Crypto Market

The growth rate of the insurance sector in the traditional financial industry is gradually increasing, it is estimated that the growth rate in 2022 will be about 20% more than 2021 (according to US Cyber Insurance's statistics). When compared to the $5800B USD of the insurance market, the insurance industry in Crypto accounts for less than 0.15% – a very modest number.

Besides, the Crypto ecosystem also has many risks and instability. Currently, Crypto projects are the victim of cyber attacks, affecting users who do not manage or understand the risks involved in DeFi. There have been many hacks with losses of tens, hundreds of millions of dollars. Especially hacks in DeFi when security has not really received much attention compared to their importance.

It is estimated that in 2021, projects have lost $2.4B USD in hacks that occurred in the Crypto market. Some examples of DeFi hacks in 2021: Poly Network was hacked for 611 million USD in October 2021 or Flash Loan cases in 2021 with victims like CREAM, BurgerSwap, Belt Finance or Pancake Bunny .

Cream Finance was hacked for $100 million on October 27, 2021 in the Flash Loan attack (This is the 3rd time this protocol has been hacked)

Besides hacked projects, individual users are also extremely in danger. The following are some of the risks users may face when participating in the Crypto market:

  • Technical Risks: risks when Smartcontract is hacked, code errors, ...
  • Liquidity Risks: when Defi products lose the liquidity.
  • Admin Key Risks: where the private key for the protocol can be compromised.

With those difficulties and risks, the requirement for the appearance of insurance companies/services in Crypto is very urgent.

Risk sharing model

In traditional insurance, we always have two parties: the first party is the person who buys insurance, the second party is the agent, the insurance seller, who looks at the risk analysis and will pay compensation to the user when the risk occurs.

In DeFi, we want a decentralized, decentralized way, so we will have 3 parties: Buyer, risk assessor, claim assessor. These 3 parties will coordinate with each other and share risks in the entire insurance system. Each decentralized insurance product will have its own implementation, but will generally work according to this model.

1.The Buyer

Those who want to protect themselves from the risks of participating in the crypto space, or Defi related products. They will buy related insurance, if something goes wrong, they will be compensated according to the contract that is pre-coded in the Smart contract.

2.  The risk assessor

Those who believe in Defi-related systems or products. They spend money to insure others. When the buyer spends money to buy insurance, this money will be divided among these insurers.

3. Insurance protocol

Is the party that evaluates and issues insurance types and encodes it in smart contract in their system. These systems are usually DeFi applications in the insurance sector such as Bridge Mutual, Nexus Mutual, etc.

These three components will work together as follows:

For example, you are an insurance buyer, you spend 1 ETH and buy insurance for the MakerDAO system, with the ratio 1:300, ie if MakerDAO crashes you get 300 ETH, otherwise you lose 1 ETH. Insurers who believe in the sustainability of MakerDAO will insure it by buying insurance shares, and they will be divided by 1 ETH that you buy according to the percentage of shares they hold. And the insurance protocols will do the responsibility of coordinating all of your insurance activities, distributing it to the insurer, paying you insurance if the risk occurs, etc.

About Nami Insurance

Nami Insurance is a decentralized insurance protocol developed on the Ethereum Blockchain to provide a reliable and transparent decentralized insurance service, minimizing the risk of losing users' property value in the market. market with strong price fluctuations.

With Nami Insurance, users have the right to choose the type of property to be insured, the insurance deposit in accordance with the price to be insured and the insurance term. In return, they receive a corresponding insurance payout when the asset hits a previously set price.

In addition, users can hold project tokens to receive preferential benefits such as:

  • Share up to 50% of total profit from Nami Insurance business based on stake ratio in Governance Pool
  • Participate in the voting on product decisions
  • Preferential benefits when using the product, such as increased insurance payout ratio, increased insurance term, etc.
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