Why dApps require decentralized insurance
Decentralisation enabled many sectors to develop scalable and practical solutions. This revolutionary change comes with pros and cons. While decentralisation is being viewed as a disruptive movement challenging the impracticality of traditional and centralised applications, it also has unique issues that require solutions emerging from within. Why? We will come back to this later.
DeFi or Decentralised Finance is a collective term that emerged via the adoption of blockchain technology by the finance world. It serves as a gateway for financial products and services to be accessed by anyone with an internet connection. Typically, Decentralised Finance is blockchain-based, utilizing smart contracts, and can be applied to a wide range of industries ranging from banking and borrowing to insurance.
Such decentralised protocols develop decentralised applications to deliver their services to their users and provide them with the ease of use they need. A decentralised application or dApp is an application built on a decentralised network that combines a smart contract and a frontend user interface for convenience.
For dApps to maintain a level of trust that is mandatory for them to connect with their target audience and expand their user base, they require insurance protection given the increasing number of DeFi hacks resulting in permanent loss of billions of dollars worth of assets.
Traditional insurance is not meeting the requirements of decentralised applications as it has been widely cooped up with the power of control lying with a few conglomerates.
Additionally, traditional insurance lacks the agility to respond to the claims submitted by the insured in a timely manner. It takes up to 6 months to underwrite claims depending on the risk whereas, in DeFi insurance, claims can be almost instant thanks to the unique consensus mechanism of blockchain. Also, traditional insurance premiums are more expensive for emerging technologies such as digital assets, creating a huge underserved user base.
DeFi insurance on the other hand is the better-suited response to the security issues within DeFi space. To begin with, for the sake of DeFi platforms to keep their advantages over traditional platforms, decentralisation should be maintained. Involvement of a centralised insurance provider in DeFi means giving power to the singular bodies of authority, damaging decentralisation. DeFi insurance is also known for its more affordable rates due to removing intermediaries. When it comes to adjusting premium prices, DeFi insurance platforms are winners of that competition too as they can always get external real-time data from oracles to adjust their prices accordingly.
Claims, administration, and underwriting can be impacted by the use of blockchain. Also,
through DeFi insurance protocols, both insurers and customers find a transparent, irrefutable, and responsive way of doing business through smart contracts. Claims and contracts are recorded on the blockchain and validated in the network to make sure that only valid contracts are executed and only valid claims are honored.
Decentralised finance’s mainstream appeal is getting stronger every passing day. By changing the financial landscape positively, DeFi offers advantages to the insurance industry as well. The most obvious benefit of DeFi insurance is its accessibility compared to traditional finance.
DeFi insurance protocols are aiming to provide DeFi space participants with the solution they seek; insurance for crypto assets and the only practical way to do that is through decentralised protocols.
A DeFi insurance aggregator, CoverCompared offers a wide variety of insurance policies that can be purchased at affordable rates and with zero gas fees levied. We take pride in being a one-stop-shop for users to get the most beneficial insurance coverage for their assets in a few clicks.
CoverCompared is the First DeFi insurance marketplace for the global crypto ecosystem. We aim to lower transactional and administrative costs of insurance policies and coverage while providing high-value, cost-effective insurance products bought using a host of cryptocurrencies.
Our platform will be connecting users with multinational insurance providers for all global insurance products such as crypto-related protection, health, life, and travel policies. The platform will include a frictionless insurance marketplace experience that incorporates next-generation blockchain technology and tokenized incentives.