With the popularity of the cryptocurrency market, a demand to insure the cryptocurrency assets grows. At the same time, the blockchain technology, at first glance, can bring the insurance to a new level due to the fact that this technology allows you to remove intermediaries from the insurance chain. However, it is not so easy to transfer the insurance mechanisms to the cryptomarket: you need to take into account too many nuances, including those related to legislation.
Nevertheless, there are already several projects on the cryptomarket that offer different products: from the p2p insurance and the pet insurance to the investment insurance in the ICOs and the loss coverage of funds on the cryptoexchanges. The review of these projects specially for ForkLog was prepared by Arseniy Poyarkov, the founder of the rating agency for the valuation of digital assets DigRate.
Why insurance in the cryptocurrency market has become relevant?
At its core, the cryptocurrency market is a financial market, and the same mechanisms operate on it. The insurance itself is not a vital tool. The need for it arises when the insured has financial surpluses that can be used to ensure stability and protection from the unpleasant accidents. Since over the last year the capitalization of the cryptocurrency market has grown several times, the issue of insurance has become topical for quite a large number of people. The significant holders of cryptocurrency have previously used various measures aimed at the high-quality risk management — here we can recall the example of the Winklevoss brothers, who seem to store parts of the key from their bitcoin-purse in different banks.
But today the number of cryptomarket participants and its volume have become much larger. It is not necessary to be a billionaire to insure yourself against all kinds of losses, so the insurance becomes relevant.
What kind of insurance possibilities are there?
Under “insurance”, we can mean a variety of things. This may be the so-called insurance against changes in the rates of cryptocurrencies — although, in fact, this is not insurance, but hedging the risks of currency fluctuations. Or it could be crypto insurance from hacking or insurance of funds located on the crypto-exchanges — an insurance case here may be a hack, closing of a stock exchange or similar issue. Finally, you can simply insure an individual who has access to an impressive amount of a cryptocurrency — in case he suddenly gets kidnapped, for example. Anything happens.
All these types or directions of insurance have their own peculiarities. There are already projects on the market that offer these or those services in their domains.
Insurance of investments in ICO
Insurance of investments in ICO can be in several formats, which will depend on the local legislation. If a cryptocurrency or a token at the legislative level is considered to be a commodity, then this product is a subject for insurance by the companies that have all the necessary licenses for activities in the field of the property insurance. If a cryptocurrency or a token is money (in one form or another), then it is necessary to talk not about the insurance, but about the stock mechanisms — hedging futures, options and so on.
One of the projects that chose this direction is DeHedge. The project declares that it is ready to hedge the risks of changing the value of the tokens after the ICO. Theoretically, this is just the product that everyone wants — the ability to insure the token rate. You can hedge the risk of the asset falling, and in the first approximation it sounds very good.
If you buy a token, and this token is on the DeHedge list, then you can hedge the risk of falling rates with DHT tokens. The company evaluates projects on a one-point scale, and the cost of hedging depends on the rating of the project. The White Paper of the project refers to the cost of hedging, the coverage (that is the amount that the company will pay in case of a hedging issue), the period of the hedge, the onset of the hedging case (if the token is traded on the exchange, the price ranges within mentioned in the hedge ). However, more detailed mechanics on the site and in the WP are not presented. Theoretically, everything sounds very cool, in practice it turns out that you and an external player make a kind of a bet.
The Digital Asset Evaluation Agency DigRate and the Central Insurance Company also offer ICO insurance. This is just an example of how the market is preparing for the legalization of cryptocurrencies and how real insurers with a license offer the insurance coverage. Unlike the insurance cryptostartups, such companies offer insurance in a more conventional form, when all insurance mechanisms are transferred to the crypto environment. Naturally, it requires serious experience and expertise in the insurance industry.
In this case, the investments in projects that will pass the rating evaluation of DigRate and get the rating A1 or A2, it will be possible to insure in total up to $ 20 million for one project. The cost of insurance coverage for the client will depend on the rating of the project.
Insurance of the crypto-exchanges
This direction is more understandable and universal in the terms of insurance. And the market already has a number of solutions.
B.Sure is a project that offers the insurance of funds on the exchanges. The exchanges, whatever one may say, are a convenient place for storing cryptocurrencies and tokens, and it is not convenient for the traders or investors to keep money in the “cold” wallets. It is convenient to store them where you can quickly convert, trade and spend it. But something regularly happens with the exchanges, so the service of insurance of the exchanges is in demand. For the traders, in fact, the main risk is that they can put money on the exchange, and this exchange will close for some reason.
The B.Sure team transfers the working mechanisms from the classical insurance — charging, definition of the insurance product, etc. — to the crypto environment. The company makes a technological product in the conjunction with the crypto-exchange API. Thanks to this, for example, in the online mode it will be seen what is happening on the accounts.
How it works. The user buys a token on the presale, for example, for 1 dollar. Then the token starts to bargain for 2 dollars. At any time, a user can send a token to the address of the B.Sure smart contract, and automatically insure his funds by the amount multiplied by 40 from the current price on the exchange that the user himself specified. If something happens to the exchange, for example, it does not work for a certain period of time and does not return funds, then they are automatically reimbursed to the user with the help of a smart contract in the amount that was in his account.
Classic insurance in the crypto
Classical insurance in the crypto environment is an attempt to tie the insurance services to a smart contract. In fact, this is the evolution of insurance: the same products as in the traditional companies but with the use of blockchain technologie.
Belay — the team of the project, as in the case of B.Sure, also has an extensive experience in the insurance. The project suggests using the blockchain technology to increase the speed of the insurance payments, make the process of the regulation of insured cases more transparent and leave the paperwork in past. In words, at least, everything sounds very cool. But there is one big problem that concerns all such undertakings. The matter is that insurance companies are the entities that are regulated by the Central Bank (or other regulator, depending on the country), and therefore the insurance companies have very strict standards in terms of their activities and reporting. The idea of making insurance on a blockchain meets problem in the fact that if the insurer decides on the basis of a smart contract, without any documents finely executed, then it will have to make these payments out of profit, not the insurance fund. Naturally, not a single insurer will live long in such conditions. Therefore, now there is a trend when the insurance fintech projects are developing without any insurance licenses. In fact, such companies offer the insurance instruments, not calling them “insurance”.
Rega.Life — another project that offers the insurance on the blockchain. The team here is also good. And they already have a rather interesting product on the pet insurance — Lexi Club. The team declares the so-called Crowdsurance when еру intermediaries in the form of companies, insurance agents and brokers are no longer needed, and people themselves form a safety fund and pay insurance out of it. It sounds beautiful. This is a theoretical approach away from the centralized to the decentralized insurance. Blockchain perfectly corresponds to the the topic of mutual insurance and allows you to save on the costs reduction for the maintenance of the centralized insurance system. However, in addition to the same problems as Belay, Rega will have to resolve other issues. For example, in any case, someone should establish the rules: what an insurance case is, what tariffs are, what coverage is and so on. If the rules are not working adequately, for example, the insurance will be paid for any bicycle fractures, regardless the cause of the failure, the insurance fund will end very soon. Conversely, if the rules are too strict, the product is unlikely to be in demand.
The Future of Crypto Insurance
There are reasons to believe that the numerous insurance products on the cryptomarket will start working this year. It depends not only and not so much on how quickly insurance projects will develop or how successfully they will conduct their ICO, but also on the outcome of the crypto regulation in Russia particularly and worldwide in general. There are a lot of nuances here, the most important of which is whether the crypto-currencies and tokens will be estimated as goods or money. On this depends who can effectively insure — the licensed insurance companies or the fintech and insurance tech projects. In any case the insurance progress on the cryptomarket gives the significant impulse to the development — ICOs should become more qualitative. As it was on the traditional market — the rating obtaining and insurance will become standard procedures.
Original article: https://forklog.com/chto-mozhno-zastrahovat-na-kriptorynke-uzhe-sejchas/
Translated by REGA
