// GLOSSARY -- DEFI

What is DeFi Insurance?

1 min read Updated

DeFi insurance provides coverage against smart contract exploits, stablecoin depegs, and protocol failures — using decentralized underwriting pools and claims assessment to protect DeFi users.

WHY IT MATTERS

DeFi insurance addresses the 'code is law' risk. If a smart contract is exploited, traditional insurance doesn't cover it. DeFi insurance protocols (Nexus Mutual, InsurAce) pool capital from underwriters and pay claims when covered events occur.

Coverage types include: smart contract failure (bugs/exploits), stablecoin depeg, oracle failure, and bridge exploits. Premiums are typically 2-10% annually based on the risk profile of the covered protocol.

The market is still small relative to DeFi TVL — most positions are uninsured. As the industry matures, insurance coverage is expected to become standard practice.

FREQUENTLY ASKED QUESTIONS

How does DeFi insurance work?
Users buy coverage by paying premiums. Underwriters provide capital to the coverage pool. When a valid claim occurs, the pool pays out. Claims assessment varies: community vote (Nexus Mutual) or automated.
How much does DeFi insurance cost?
2-10% annually of the covered amount, depending on the protocol's risk profile. Well-audited, battle-tested protocols have lower premiums.
Is DeFi insurance reliable?
It's been tested — Nexus Mutual paid claims during various exploits. However, the market is small, capacity is limited, and not all events are covered. Always read the fine print.

FURTHER READING

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