Decentralized Insurance Providers Need to Fully Decentralize to Make It
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The news that team developers at RULER and COVER have left the protocol is, for many, deeply saddening. Having asserted itself as an innovative protocol that forged the way for companies in the lending and insurance markets of Decentralized Finance, we want to take some time to look back on the innovations made by COVER protocol and how we can learn from these lessons going forward.
First it’s important to recognize COVER’s standing as an early success story in the world of DeFi insurance, and a protocol that created new conversations around protecting your assets in the relatively wild world of Decentralized Finance, especially in light of increasing numbers and levels of hacks into various DeFi projects.
COVER has been widely regarded as one of the most influential early decentralized insurance products. Aspects such as COVER’s peer-to-peer coverage made it one of the most popular options for users seeking insurance in the booming decentralized finance sector.
COVER entered a market that was dominated by Nexus Mutual, with the founders particularly inspired by the outbreak of Covid-19. In the middle of 2020, when rug pulls, exploits and scams were a day-to-day occurrence, founders of the company were shocked by the lack of coverage options against these risks.
Thus the founders began building a peer-to-peer Decentralized Insurance protocol, that was built on Ethereum. COVER helped to build a permissionless service, which allowed them to move away from the traditional phenomenon of ‘Know Your Customer’ service. Of course these early innovations were popular among crypto users.
However, COVER had its own issues, in particular the fact the protocol relied on predetermined assessors to validate insurance claims, while also being based around fungible ERC-20 tokens, meaning that payout came with high gas fees, thereby making the protocol somewhat restrictive.
It’s important to note what will happen for decentralized insurance as we move forward. While some of the early adopters of the technology have been influential in certain aspects of the market, there have also been some shortcomings, such as a lack of liquidity and the presence of pre-appointed evaluators.
INS3 combines solutions to these issues, allowing for users to trade their liquidity for NFTs, ensuring that the protocol is super liquid, while also using user game theory, which means that verdicts on insurance claims are fast and fair.
The future for decentralized insurance is one which will rely on fairness, transparency, cost-effectiveness and inclusiveness.
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