What is smart contract insurance in DeFi?

Smart contract insurance protects users from losses due to bugs, hacks, or failures in DeFi protocols by automating claim payouts using blockchain-based smart contracts. It provides financial security for investors and users in the high-risk DeFi ecosystem, covering events like smart contract exploits or protocol failures.

How does Ethereum smart contract insurance work?

Ethereum-based insurance apps use smart contracts to define policy terms, such as coverage amount and duration, and trigger automatic payouts when predefined conditions are met, like a verified hack or bug. These contracts, often powered by oracles for external data, ensure transparency, trust, and efficiency without intermediaries.

What are the best platforms for DeFi insurance?

Leading platforms include Nexus Mutual, Bridge Mutual, InsurAce, Solace, and Unslashed Finance. Nexus Mutual offers smart contract and exchange risk coverage with community governance, while Solace provides customizable coverage for DeFi portfolios. Each platform specializes in protecting against DeFi-specific risks like smart contract vulnerabilities and stablecoin depegging.

How much does it cost to build a DeFi insurance app?

Development costs depend on features, protocol integrations, and blockchain choice. A minimum viable product (MVP) for a DeFi insurance app starts around $25,000, while a full-scale platform with advanced features like multi-chain support and governance can exceed $100,000. Costs also vary based on developer expertise and security audits.

Can users stake capital to become insurers?

Yes, platforms like Nexus Mutual and Solace allow users to stake capital as liquidity providers in risk-sharing pools. In return, they earn premium income and, in some cases, governance rights. For example, Nexus Mutual members stake NXM tokens to underwrite risks and vote on claims, fostering a community-driven insurance model.