Even though the decentralized finance industry attracts a lot of attention, there is a growing need for insurance. More specifically, many things can go wrong when committing finances to smart contracts and protocols. Even though there are various insurance providers, their TVL shows there is still more work to do.
Insurance Matters In DeFi
The DeFi industry has grown into a business segment that spans nearly $200 billion in Total Value Locked (TVL). That is a remarkable amount, considering the vast number of hacks, issues, thefts, and rug pull the industry has undergone since day one. Nevertheless, it appears investors remain keen on farming liquidity by any means, even though everyone still puts their funds at risk in one way or another.
To counter those concerns, there are various options for developers. One solution is to undergo audits, although that has not proven to be that popular yet. Moreover, teams need to have code audited every time something is changed, added, or removed to ensure that everything will work adequately. Unfortunately, most DeFi protocols are unwilling to go through that process, as innovation and competitiveness are essential in this ever-growing segment.
Thankfully, there is an alternative option: using dedicated insurance protocols. Unfortunately, it is a novel concept, which explains why the insurance protocols’ TVL remains incredibly low. However, per DeFiLlama, there are thirteen protocols capable of providing such a service. That is a positive development, although it shows there is still much room for future improvements.
The Armor insurance protocol is the “top dog” in DeFi as of today. It resides solely on the Ethereum blockchain, the go-to ecosystem for most decentralized finance purposes. The protocol has $607 million in TVL, which is not as high as one might want it to be. However, there is a positive note: TVL has increased by over 14% in the past week.
Nexus Mutual (NXM)
Some DeFi enthusiasts may be familiar with Nexus Mutual, as the insurance provider builds a solid reputation in the space. It too is native to Ethereum only, although that is always subject to change. With $551 million in TVL, the protocol is moving up the rankings. Additionally, Nexus Mutual notes a weekly TVL increase of over 14%, confirming the demand for these services is rising.
Another contender for DeFi insurance on the Ethereum blockchain is Unslashed. The tea protects against multiple types of risk, including exchange hacks, smart contract failure, stablecoin pegs, and more. Although the website claims to secure over $500 million in assets, the DeFiLlama rankings indicate $91.6 million in TVL today. The recent 14.7% increase may help move things along.
As a relatively new risk management protocol for decentralized finance, Sherlock primarily focuses on smart contract exploits. Through its native staking protocol providing high risk-adjusted returns, the team can ensure a continual operation. Although the protocol has barely $31,2 million in TVL today, it is good to see new entrants come to market. There is still a dire need for proper insurance solutions where decentralized finance is concerned.
The final DeFi insurance protocol on this list is not just native to Ethereum. It is a cross-chain solution that works across Polygon and Binance Smart Chain in addition to Ethereum. InsurAce claims to protect several dozen protocols today, which is a good start. The team offers a mix of low portfolio premium and sustainable investment returns. Whether one aims to insure a smart contract or let users secure their investments, insurance provides the tools. The weekly 3.84% TVL increase brings its total value locked to just over $30.5 million.
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