September 1. Decentralized Finance, or DeFi, has recently emerged as a hot topic in the insurance industry. The crypto industry is inundated with articles attempting to explain what DeFi is. Although the DeFi community rarely mentions insurance, it is one industry that has a significant opportunity to provide investors with confidence and protect their assets. Insurance is a risky finance industry that necessitates methods and strategies to protect businesses from risk. The industry is currently worth billions of dollars and is riddled with shady practices.
The main idea is to return trust from insurers to the community while maintaining contract integrity and eliminating any form of risk and steady state finance. This shift would imply that what was previously done by a trusted party is now done using equally trusted techniques. Above all, that autonomous code will work for the mutual benefit of each participant and community contributor, using specific incentives or cost reductions.
One of the advantages of decentralized insurance is that it protects most deposits against loss. DeFi is regarded as secure, and thus as a solution to hacking, particularly on exchange platforms. The operation of so-called “autonomous” smart contracts has proven difficult. This is due to the lack of upgradeability and the use of smart contracts. Smart contracts use decentralized insurance as an operating system.
Decentralized insurance is self-sufficient. Intermediaries are exempt, so there are no middleman fees. As a result, using decentralized insurance becomes a simplified and low-cost procedure. Decentralized insurance is also transparent, immutable, and allows for the liquidation of crypto-backed assets.