The State of DeFi Insurance 2023

Transcript

uh hey everyone I'm Jeremiah co-founder and CEO at opencover I'm also one of the lucky 280 or so oh oh is it this what I'm supposed okay sorry I'm also one of the 280 or so lucky people in the world that got wrecked by the Terra UST Depot but then got unwrecked because I had purchased insurance or more precisely uh d-pad cover and it was interesting because I had professional experience working with D5 Insurance protocols on a personal basis I had been using the product since like 2021 but it was the first time I had a

claim and it was also a kind of the first time that the the industry had a major stress test more more money was paid out in connection with the UST Depot than any other event before it um so it was you know like it wasn't perfect um but it worked so people got their payouts and it was a kind of fascinating fascinating moment to to or fascinating kind of experience to um to have in fact it was so fascinating that uh we decided to build the First Data aggregator for the defy insurance industry really the idea was to shed light on the different players the different approaches how much underwriting Capital there was

um and that's how we launched open cover long story short we've been collecting data for 12 months now a couple of months ago we released what we believe to be the first comprehensive industry reports on defy insurance it's on opencover.com if you want to check it out and really this talk is sort of sharing the top 10 things we've learned in the process so I guess the first thing um what we typically call defy insurance is actually oftentimes defy cover it is the sort of defy native on chain equivalent to Insurance it serves the same purpose as insurance but it is unregulated which means that it does work a little bit differently so for example payouts are typically

discretionary rather than contractual there's no onwards man or a course Etc we're seeing about uh or I should say at least um 15 teams working in the like working as insurers doing underwriting so there on the bottom you've got the the regulated players so the the ones offering sort of bonafida insurance and on top you've got the the on-chain ones offering the the cover the cover products and really there the um the main sort of difference or what are the important differences anyway between the the on-chain providers is in the claim assessment so they're different approaches there's Community voting there's uh parametric approaches where effectively you can claim a payout

automatically if a certain condition is satisfied on chain uh there is optimistic Oracle approaches or effectively new claims are considered valid unless they're challenged within a certain period if they're challenged there's an arbitration process and then there's the expert claims assessment approach which is more similar to the to the traditional um to the traditional one in terms of um the kind of standard categories of products that you could find on the market today you've got protocol protection which will protect you against things like smart contract bugs Oracle manipulation governance attacks you've got deepeg protection which is typically like stable coin defect

protection you've got a new one bridge bridge protection basically the idea there is that you pay a little bit more for your bridging transaction but you get a guarantee of the outcome within a certain certain amount of time and then you have the sort of non-retail ones the slashing protection for validators to protect them against slashing penalties or and or missed rewards and audit cover which is effectively kind of like a guarantee on an audit if a bug filters through an audit and then causes some sort of financial loss the protocol can claim from the from the protection provider moving to sort of uh the core metrics of the industry so here we're really

looking at the um the on-chain of providers mostly it's a bit harder to get data for off-chain providers so if we look at the top 10 on-champ providers and um the the associate underwriting Capital what we've seen in the last year is a drop of about 15 in the amount of underwriting Capital so that's the capital really backing the policy the stuff that gets paid out that gets paid out if um there's a valid claim that drop is in line with the overall drop in D5 TV also no huge surprise there but worth noting that 80 of this Capital comes from one provider which is Nexus Mutual if you've heard of them uh more surprising is the drop in active cover so we're seeing an 80 drop in

active cover in the last year so we're at about 45 000 ether which is something like 0.2 percent of d5's TBL at the moment even more surprising is that at the same time we've seen an increase in the number of covers purchased so the number of wallets that purchased cover for the first time um if you see there's like a little Spike there around November the FTX collapse and then between what's that like Feb and may there are also some spikes we think the latter is is due to airdrop farming I think arbitrum's airdrop was around there um but overall I think the the Insight is like the number of covers sold is in the low tens of thousands so all time uh

the number of unique wallets that have purchased these types of products are in the low tens of thousands and I think there's more than six billion wallets now that have interacted with D5 so we're looking at it like a really really low penetration it's still very very early um so I guess that's like 0.2 0.3 0.4 penetration if you look at the payouts um on the top 10 providers we've tracked 580 claims and that led to a bit over 40 million paid out as I said mostly around the UST I'd say around and after the the UST Depot and if we look at what that means in terms of Provider cover provider profitability and if you look at the loss ratio which is the ratio of

the amount of like the funds paid out and the the funds collected as cover premiums or cover fees were above 100 for most of the providers that have had significant payouts so that means that they've kind of paid out more than they've collected so unfortunately although it's a very important part of the ecosystem it's not yet super profitable I guess to to be a cover provider but uh you know hopefully things will will change soon and talking about yeah the future so what's the future really of defy insurance and D5 cover I guess that's the same question is what's the future

of defy and that's a Pandora's Box that we're not going to open right now but what we will say is that uh on the provider side we're expecting a continued shift to uh Marketplace um to sort of marketplaces so um basically anyone can create a cover or Insurance product anyone can fund and the the the capacity for that product anybody can buy that so it's sort of more collaborative decentralized approach compared to to the traditional one so we've seen this with Nexus Mutual V2 that launched basically a couple months ago it's pretty much a Marketplace other leading providers like insurers are working on marketing places and newer providers like Neptune Mutual cozy names are going to Market directly

with a Marketplace product on the protocol side as we've been discussing for the last couple of days or I mean I guess if you were here at the workout we are expecting a focus on security architecture so basically not just like preventing attacks but limiting their impact if they do happen so things like circuit breakers and overall we expect that will lead to lower premiums and in terms of end users we expect to see a lot more embedded protection so that's Protection cover or Insurance offered at the point of transactions or like in wallets in um in the portfolio trackers in dapps uh kind of like bridge cover where you're basically bridging there's a toggle you

toggle it if you want to pay a little extra to to have your your the outcome of the transaction guarantee um I only have a minute left which is perfect because that's the last slide all right thank you nice thank you so much Jeremiah um maybe we have time for one question anybody have a question about do you find insurance all right well I think it's time for a break in that case thank you so much thanks [Applause]