DeFi Cover: An Emerging Sector to Watch

Jan 25, 2024  •  Written by NotDegenAmy & Derek

In our 2023 thematic outlook, we highlighted that on-chain insurance is a DeFi sub-sector that remains underdeveloped.

Today, DeFi has largely covered the services offered by TradFi, such as payments, lending and exchanges; as well as central, commercial and investment banking services. There is also DeFi insurance (or more accurately termed as ‘DeFi cover,’ since the solutions provided are more discretionary than contractual; and may not be regulated), but presently it is not being offered as extensively as traditional insurance. For context, the global insurance market is estimated to be $6 trillion, while the TVL in DeFi cover is around $275 million, which is 0.5% of the total TVL in DeFi (at $55 billion).

This may come as a surprise to some, especially considering the series of unfortunate events that rocked web3 last year. A record of $3 billion was also lost to DeFi exploits last year, highlighting the need for more risk mitigation measures. In this article, we will discuss the state of DeFi cover, specifically covering the current landscape; the issues that consumers and DeFi cover providers are facing; and the next steps for the sector to continue to grow and address the risks of DeFi.