by Stefan Cohen, Bain Capital Ventures
Risky Business — $50B Without Protection
The vision for DeFi is a powerful one. With an aim at disrupting traditional finance, its friction and counterparty risk, we are early on in a multi-decade journey towards re-architecting the modern financial system with open source, community-owned, financial primitives.
The speed and breadth of innovation in the category is incredible with the emergence of mature credit facilities, money markets, decentralized exchanges, and yield aggregators. Even after a local sell-off, DeFi has $50B in TVL today.
Retail and risk-seeking institutions have been willing to test the waters with DeFi, but they are doing so with exposure to a laundry list of risks: smart contract vulnerabilities, poorly managed risk pools, potential insolvency, and sophisticated hacks.
Insurance Is A Requirement And Essential Primitive For Non-Experimental Adoption And Broader Traditional Finance DeFi Usage
Today, users rely on audit firm certifications and protocol track records to assess the stability of DeFi protocols. As the market seeks to onboard more conservative users, insurance is a necessity.
But getting decentralized insurance right is challenging, as existing decentralized insurance solutions struggle with deterministic payouts. Adjusters are the token holders and the token holders take a hit when payouts occur. This tension can lead to bad decision making and erode the trust of the insurance protocol.
A New Approach Is Necessary: Enter Risk Harbor
We could not be more thrilled to participate in Risk Harbor’s seed financing. Risk Harbor is building a parametric protection protocol with algorithmic, transparent, and impartial adjusting decisions. It allows users to underwrite any asset pair on any platform and price risk dynamically based on market sentiment.
We believe the Risk Harbor team is uniquely positioned to build the de facto standard for DeFi protection with an innovative approach that solves the problems of existing DeFi risk management protocols.
To learn more about Risk Harbor, check out:
- Getting Started
- Risk Harbor Debuts on Mainnet With a Round of Funding
- Community Call Recap — #1
P.S. The team is (always) hiring!