Update the Decentralized Insurance sector in the first 6 months of 2022
According to CryptoSec, only in the first 6 months of the year in the field of insurance and security, nearly $1.8B was stolen by hackers through security holes of projects. This has surpassed the record of $1.55B in 2021 and ~$516M in 2020.
Total loss of the first 6 months in 2022
In 2022, recorded major attacks such as Axie Infinity's Ronin bridge causing the largest damage ever up to $622M; Solana's Wormhole Bridge with $325M Damage. Besides, other hacked protocols such as Beanstalk Farms ($182M), QuBit Finance ($80M), or Fei Protocol/Rari ($80M) are also huge numbers.
On May 1, 2022, NEAR Protocol's Rainbow Bridge was hacked but failed, securing $1.3B TVL being traded on Aurora.
It can be seen that, along with the development of the Crypto market in general and DeFi in particular, the amount of money locked in protocols is a lucrative bait for hackers to target. This leads to the need for products that protect users from potential risks when entering the market.
The UST Depeg event and the collapse of the Terra empire were also prominent events during the first 6 months of 2022, which contributed to triggering a domino that caused many consequences in the market. At the same time, the event also made a mark in the decentralized insurance market in terms of how the product matched the needs and benefited investors when participating in the market.
The definition of decentralized insurance is the same as that of traditional insurance. In crypto, insurance basically refers to protecting you from financial loss and damage caused by hacking and mining incidents in DeFi. Insurance allows individuals to take on risk by socializing the cost of risky events.
For example, you have some money invested in a DeFi platform or protocol. You know that any failure in your DeFi infrastructure could cost you assets. So you can buy DeFi insurance against the possibility of losing money on the DeFi platform.
In case you lose money on the platform and want to get insurance, you can go to the DeFi property insurance company and get paid a certain amount. DeFi premiums will be determined by many variables including the type of coverage, the provider, and the term of the policy.
Importance and potential
This is an important risk management tool that encourages multiple users to participate. It's also crucial for DeFi to grow beyond its current subject.
With the current state of the crypto market, hacks and exploits are happening more and more in both the amount of money lost and the total number of cases, the insurance sector becomes more urgent than ever. Insurance products that come from quality projects and meet the needs of the market will grow strongly and bring peace of mind when participating in the market for investors, as well as contribute to helping investors for a growing market.
The total capitalization of the top 25 insurers in the traditional market amounts to $2000B.
Meanwhile, the total capitalization of the decentralized insurance industry is only $572M (according to Defilama).
Total key assets in DeFi protocols is ~$40B.
Total insured assets on NXM is 0.32%, NXM has TVL accounting for ⅖ of the entire decentralized insurance market. Therefore, the total insured assets of the entire DeFi market will not exceed 0.75% of insured assets).
This is an opportunity for a potential insurance project with the right capabilities and products to meet the huge needs of the entire Crypto market.
- Main products: smart contract vulnerabilities, custodial assets, stablecoin depeg
- Insurance market TVL: $559.7M (DeFiLlama) for 6 months -> the amount held in insurance protocols also decreased according to the general market situation.
- Insurance Market Cap: $470M (Coingecko) Similar to TVL
Nexus Mutual is a decentralized insurance protocol built on the Ethereum blockchain and launched on May 3, 2019. The platform uses blockchain technology to create a supportive, risk-sharing group to protect users from some financial loss.
Nexus Mutual was born with the purpose of solving smart contract vulnerabilities, in addition to providing insurance policies to prevent smart contract risks and technical risks in DeFi, as well as such as insurance for assets held on custodial exchanges like Coinbase, Binance, etc.
Nexus Mutual’s products:
- Yield token cover
- Custody Cover
- Protocol Cover
- Total active insurance: $247.4M -> More than 60% decrease compared to the beginning of the year, affected by the general Crypto market.
- Activity insurance amount per project: The highest is Enzyme v3 with $31.82M, followed by Anchor at $27.92M.
- Total Compensation Paid (to date): $8.32M (1546.43 ETH + 5,462,759 DAI). In 2022, there are 5 compensation consensus from Rari Capital, Perpetual Protocol projects about $5.4M
- Number of wallets: 4096, 3% increase from the beginning of the year -> Low user growth, combined with the UST – Luna event in May clearly shows that Nexus is still not attractive to users.
- The Nexus Mutual community voted to successfully extend the Bug Bounty program with Immunefi and raise the prize pool to $600k, from $200k previously in 2021.
The renewal and expansion of this program benefits Nexus Mutual users, DeFi, and the whitehat community at large. With the fund raising, aspiring hackers can invest time and effort in upgrading their skills so that they can receive rewards for reporting vulnerabilities.
- Nexus Mutual partners with Bancor to provide Protocol Cover for Bancor V3.
Protocol Cover is a comprehensive insurance policy that protects users against events that cause serious loss.
The goal is to be an on-chain risk marketplace that gives members more freedom to access flexible insurance policies, manage risk by launching and running an organization, etc. This new model will allow organizations to launch new protection products, for both crypto and real-world risks.
This on-chain risk marketplace will match risk and valuation expertise, and allow multiple people to share risk with each other.
InsurAce is a leading multi-chain decentralized insurance protocol that provides diversified, reliable and secure insurance products for Crypto users against the risks of investing and interacting in the Web3.
The product supply project is divided into two functional branches similar to traditional insurance companies, namely the insurance branch and the investment branch. Customers can both buy insurance and participate in profitable investment packages. The two branches of insurance and investment work together, to help reduce insurance costs, and increase the return on investment
Insurance products for various types of risks include: smart contract vulnerabilities, centralized intermediary asset deposit, stablecoin devaluation, and many more products in the pipeline such as wallet insurance focus, NFT…
The number of partners of the project has increased steadily despite the gloomy market situation in the first 6 months of 2022, serving the vision of multi-chain and diversified products on many protocols serving users.
The number of users and holders of the $INSUR token is still increasing steadily. Currently the number of users is 49460 and token holders is 11483.
The project's revenue grew quite steadily until May when both the market was affected by the macro and the UST Depeg event brought many consequences afterwards. InsurAce was also heavily affected, paying compensation to many insurance buyers during this event.
As the demand of both individual and institutional users when participating in the Crypto market for the security of their assets is increasing, the insurance projects in the decentralized market are few, the products are not diverse and meet the needs of users as well as many limitations.
- It is difficult for users to access the product: when the insurance premium is high, KYC is required, the insurance package is sold out, the insurance protocols want to buy, there is no product...
- Less use of capital: capital reserves used to pay for insurance events are empty or return on investment is poor
- Potential risks due to the insurance project itself being less secure (Cover is an example), or the complicated claim process, then the risk of concentrating insurance money on one or a few parties or the market price fluctuations…
In general, the development of rich and diversified insurance products and improving capital efficiency is an inevitable trend in the future. In parallel with the large-scale mining and hacking events taking place in the first half of 2022, users will gradually increase their awareness of risk management and the importance of insurance in DeFi.