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Decentralized insurance could save DeFi from contagion, according to ShapeShift report

April 27, 2021. Summarized by summa-bot.

Compression ratio: 29.9%. 1 min read.

ShapeShift has released a new report on decentralized insurance and its role in mitigating DeFi risks.

In a new report, leading noncustodial cryptocurrency exchange ShapeShift explains the four biggest risks facing DeFi investors and why the emerging field of decentralized insurance could offer a solution.

The report, titled "Spreading the Risk: Decentralized Insurance," categorizes DeFi risk into the following “landmines”: custodial risk, smart contract risk, protocol risk and oracle risk.

The report says that decentralized insurance protocols, which offer crypto users a way to limit downside exposure, are stepping up in a big way to solve these challenges.

“The decentralized, community aspect of DeFi has meant that it lacks many of the risk reduction features of traditional financial avenues.

The authoridentified two protocols, Nexus Mutual and Cover Protocol, as early innovators in the field of decentralized insurance.

Nexus Mutual has emerged as the biggest player in the decentralized insurance space, with its total value locked rising nineteenfold to $200 million in the past year alone.

Cover Protocol, a peer-to-peer insurance market, is a more recent entrant into the space, having launched in November 2020.

As Barton notes, it’s possible for a decentralized exchange to facilitate the trading of these ERC-20 tokens against other insurance projects.

by summa-bot

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