The Payouts in 2022: A Deep Dive
In the unpredictable world of decentralized finance (DeFi), 2022 saw insurance companies taking hefty hits, with a whopping $34.4 million paid out in claims. This number paints a vivid picture of the tumultuous year, primarily driven by notable catastrophes.
Among these payouts, the colossal $22.5 million payout during the collapse of the Terra ecosystem in May stood out, alongside a staggering $4.7 million due to the FTX exchange fiasco in November. These incidents have become cautionary tales for investors navigating the often treacherous waters of DeFi.
Insurance Coverage: A Drop in the Bucket
While those figures may sound dramatic, OpenCover reports that only $231 million worth of funds in DeFi protocols have been insured. This represents a meager 0.5% of the total value locked in the industry. In a sector where $3.64 billion was lost to security exploits alone, one has to wonder if it’s time for a bit more insured coverage, right?
Explosions of Exploits: The Unfolding Risk
Brace yourself: instances of DeFi-related security exploits soared by a whopping 47.4% year-over-year! As blockchain technology evolves, so do the tactics of those out to exploit vulnerabilities. In a sensational turn, global blockchain-related crimes (devoid of financial crimes) amassed a dizzying $13.7 billion in 2022. Talk about an expensive lesson in trust!
Categories of Coverage: The Expanding Universe
DeFi insurance isn’t just sitting idle either. It has branched out into eight major categories of coverage:
- Protocol loss coverage
- Stablecoin depeg coverage
- Yield token coverage
- Custodial account coverage
- Audit (smart contract bug) coverage
- Slashing coverage for professional validators
- Customized coverage options
This diversity is a sign of a maturing industry, ready to tackle specific risks head-on, rather than just a generic blanket of protection.
The Road Ahead: Scaling Challenges
Despite the strides in expanding coverage, OpenCover points out a crucial point: scaling these innovations to a prominent size remains a formidable challenge. As of now, they noted that the total value of underwriting capital pools tracked stood at $286 million. However, this number had fluctuated between a low of $210 million to a high of $394 million over the last nine months.
To maintain momentum and credibility in this space, stronger DeFi risk assessment frameworks are essential. Surprisingly, there are currently hardly any mechanisms in place to accurately evaluate the risks involved. Let’s hope they hurry up with those frameworks. After all, who wants to keep cutting corners at a time when we really could use a safety net?
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