Insurance is a strategy of risk management where an individual gets reimbursement or protection from an insurance firm against financial losses in the event of an adverse incident.
Insurance is commonly purchased by individuals on homes, cars, life, and health. But could insurance be decentralized for DeFi?
As a result of the huge potential payout possibility of smart contracts, all of the locked tokens are potentially exposed to exploits. While codebases of most projects have been audited, we are still uncertain of the true safety of smart contracts and the possibilities of hacks exist which may lead to losses.
The need for procuring insurance is emphasized by the risks, particularly if one is handling huge funds within DeFi. Different decentralized options of insurance will be discussed subsequently.