(Bloomberg) --A long road lies ahead to repair
Stock brokerage accounts often come with some cover against outcomes like bankruptcy but digital-asset platforms provide
Investors seeking such policies face a tough task. Traditional insurers are wary and crypto-native solutions in decentralized finance — or DeFi — account for a fraction of the $1.1 trillion digital-asset sector. For instance, funds locked in DeFi insurance protocols amount to about $300 million, compared with more than $80 billion in DeFi services overall, according to data from DeFiLlama.
DeFi uses digital ledgers and automatically executing software programs known as smart contracts to deliver services, cutting out intermediaries.
'Very Difficult'
"Last year highlighted the importance of insurance but it seems a very difficult problem for DeFi to solve," said
The largest DeFi insurance provider is Nexus Mutual, a member-based service accounting for about
"One of the things we underestimated a bit was how correlated they were," said Nexus Mutual founder
Stablecoins, Bridges
Nexus Mutual's risk experts, did, however decide against offering cover for algorithmic stablecoins and software bridges that connect different blockchains. Both those segments incurred huge losses last year: the TerraUSD stablecoin ecosystem suffered a $60 billion wipeout, while
The spurt of recent bankruptcy-related claims led to payouts
Karp argues that DeFi insurance will play a bigger role as the digital-asset industry matures. Kaiko's Carey sees a lot of unmet demand that could be captured by new entrants, such as legacy insurers.
At the same time, Bitcoin and Ether reserves at centralized crypto exchanges have sunk since the unraveling of FTX — a sign that many investors have opted for the extra protection of retaining custody of their tokens offline, rather than on digital-asset platforms.