According to a March 21st report published by decentralised finance analytics firm OpenCover, DeFi insurance companies paid out $34.4 million in claims in 2022. In context, only $36.9 million of such claims have been paid out since OpenCover began tracking the data. Notable payouts include $22.5 million during the collapse of the Terra Luna ecosystem in May 2022 and $4.7 million from the collapse of crypto exchange FTX in November 2022.
Despite the surge in payouts, OpenCover said only $231 million worth of funds in DeFi protocols had been insured as per its data, representing just 0.5% of the total value locked in the DeFi industry.
According to a report by Cointelegraph in January, DeFi security exploits rose by 47.4% yearly in 2022 to $3.64 billion. Global blockchain-related crimes, excluding financial crimes, amounted to $13.7 billion during the year, wrote Chinese blockchain security firm LianAn Technology.
The report stated: “At the time of writing, the total value of underwriting capital pools tracked by OpenCover amounts to $286 million (186k ETH) with a low of $210 million and high of $394 million in the last nine months. The current value is 26% lower than the period maximum in USD terms.”
DeFi insurance a growing space
Detailing ways to protect crypto investments, stated a recent post by Breach Insurance – an insurtech that provides cyber insurance and risk management solutions for crypto: “Personal crypto security hygiene is an important strategy to ensuring your crypto is safe, but it doesn’t mean that your email, account log-in credentials, or wallet are 100% safe from being compromised. It’s similar to the cyber security issues that businesses face on a daily basis.
“As part of their cybersecurity strategy that includes a number of best practices, policies, and procedures, businesses also purchase insurance as a backstop, because hacks are inevitable. Similarly, insurance is something that individuals should consider as part of their overall personal crypto security strategy.
It contunued: “While insurance coverage won’t stop the hack itself, it will help individuals recover financially if their crypto is stolen through a cyber hack. Before 2022, very little or no insurance coverage existed for consumers to protect themselves against crypto being stolen from hacks.”
More risk tracking is required
DeFi insurance has expanded to eight major categories: protocol loss coverage, stablecoin depeg coverage, yield toke coverage, custodial account coverage, audit (smart contract bug) coverage, slashing coverage for professional validators, and other customised coverage. OpenCover said in the past nine months, the mean daily leverage ratio of active policy amount to underwriting capital was 1.07 times across different providers.
Despite DeFi insurance industry growth, OpenCover says more needs to be done regarding the ability to scale. “Ultimately, scaling these innovations to a meaningful size will depend on the robustness of DeFi risk assessment frameworks — of which there are currently very few,” the firm wrote.
Source: Cointelegraph
