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How insurance functions in DeFi right now
Inherent Risk in DeFi
From hack-prone Ethereum smart contracts and fluctuating cryptocurrency prices, to attacks that game the system, blockchain users are at constant risk. DeFi users are particularly vulnerable to the failure of a stablecoin to maintain price stability and the failure of a protocol, such as Curve or Alpha Homora.
Insurance in DeFi
Mirroring the real world, certain kinds of decentralised insurance have emerged to combat these kinds of risks. Two common ways of doing insurance in DeFi are through risk pools and credit default swaps. Risk pools are like liquidity pools, where insurance can be purchased like one might purchase travel insurance—a bet or a deposit can be insured over a specified amount of time for a premium. In a credit default swap, an underwriter agrees to assume the risk of some contract or financial derivative in exchange for a premium. Even when done peer-to-peer, these can be cumbersome if one wants their investments to be meaningfully insured.
Gro
PWRD represents a chance to earn high yields on your money in a low-risk, protected way. The protection that backs PWRD uses similar principles to those used by risk pools and credit default swaps, but is fundamentally a novel product.
Last modified 4mo ago
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