In 2022, the decentralized finance (DeFi) space experienced a significant growth in the number of insurance providers offering coverage for users. The DeFi insurance sector now boasts almost two dozen providers, indicating a surge in demand for risk management solutions in the rapidly evolving DeFi landscape. DeFi insurance providers provide users with protection against various risks associated with decentralized finance, such as smart contract hacks, protocol failure, and market manipulation. With the increasing adoption of DeFi by investors, the demand for reliable insurance solutions is expected to continue to rise. As a result, the DeFi insurance market is poised for continued growth in the coming years.
The Rise of Decentralized Finance Insurance: A Recap of 2022
As Decentralized Finance (DeFi) continues to grow, so does the demand for DeFi insurance, particularly in the insurance sector. Last year saw a pivotal moment for the industry, with a new report revealing $34.4 million given out in DeFi insurance claims. The report, produced by OpenCover, also found that on-chain DeFi insurance providers sold 19,839 policies, with 552 claims and 379 payouts to date.
The increased demand for DeFi insurance can be linked to notable events in crypto such as the FTX collapse. In the last nine months, OpenCover tracked 3,434 cover purchases, with 80 new claims and 234 payouts. While the report found that 78% of losses came from protocol logic and infrastructure, the $34.4 million pales in comparison to the estimated $3.8 billion lost in various exploits and hacks from last year.
Despite the uptick in demand, only 151,000 ether ($231 million) worth of active risk cover was underwritten, constituting just 0.5% of the $48 billion total value locked (TVL) in DeFi. Furthermore, the value of potential claims decreased by 44% and 58% in USD and ETH terms, respectively, over the past nine months. This is noteworthy given that scams across crypto and DeFi have been occurring with greater frequency and more financial damage.
The DeFi insurance industry paid out a record $34.4 million in claims in 2022, led by claims stemming from the TerraUSD (UST) and FTX collapse. The report found that targeted attacks are seeing an uptick all over crypto. Insurance can protect users from risks beyond their control, with coverage providing cover losses due to hacks and other vulnerabilities.
The report’s data, available in full on the OpenCover website, was based on a consortium of industry DeFi insurance providers including Nexus Mutual, Unslashed Finance, InsurAce, Chainproof, Sherlock, Neptune Mutual, Risk Harbor, InsureDAO, and Ease. While the $34.4 million in claims is relatively small when compared to the losses from various exploits and hacks, the DeFi insurance industry could be a trend worth watching in the coming years.