Some Notes About Insurance and DeFi
Insurance models will evolve as a key component of the DeFi ecosystem.
Lately, I’ve been spending quite some time thinking about insurance models for DeFi. This exercise is likely going to produce a series of articles or papers but I would like to share a few initial notes.
The recent change in composition in the DeFi market has made the need for more sophisticated risk management primitives extremely clear. Among those risk management primitives, insurance has remained largely ignored in the context of the DeFi space. This is completely understandable if we consider that insurance products in capital markets are extremely difficult and capital intensive to build and DeFi is still a very young financial market. However, it is hard to envision a long term future for DeFi without proper insurance models. This is definitely true for the institutional adoption of DeFi but is also quite relevant to retail investors.
A simple way to think about insurance in financial markets is as one of the ultimate expressions of risk management. As a financial market evolves, it develops different risk management models that eventually become the foundation of insurance products. Somewhat paradoxically, the value capture by the insurance products quite often surpasses the underlying risk management models.
