Crypto is wild west as it is, and it is just experienced another seven-figure hack. This time, it’s Euler Finance. However, among all the things that are happening post-mortem, I noticed how some Euler users strategically avoided significant financial loss. What did they do? They insured their fund through crypto insurance protocols.
I remember writing about insurance protocol as “the next big thing” in one of my past articles (aside from infrastructure, and modularity protocols). Over time, however, I was getting difficulties tracking how they actually perform. This is because, although you heard so many crypto hacks, exploit that happen to popular, critically acclaimed Ethereum protocols like Euler — where the OGs flocks — were actually quite rare. These top protocols are the ones that are actually covered by those insurances — not some obscure lazy fork of cream finance in an unpopular L1 chain.
Now that one of those top protocols got hacked, it’s time to revisit the DeFi insurance protocols’ performance. Do they really pay claims? How can you also use their services? And what are the best DeFi insurance protocols out there?
Nexus Mutual
Nexus Mutual is the biggest insurance service in the industry, with TVL reaching $250 million according to DeFiLlama.
It offers a handful of cover options across famous protocols on major blockchains, not just Ethereum. You can buy cover against smart contract risks, de-pegging risks, and ETH staking risks. Even you can buy cover for your funds on centralized custodians (like Binance and Coinbase.)
Protocols covered include Convex, Curve, AAVE, and Beefy Finance. Meanwhile, for de-pegging, Nexus Mutual offers protection against the failure of Curve’s 3CRV tokens and Convex’s cvx3CRV. Honestly, there are only a couple of options for de-pegging. I expected more (like algostables i.e. DAI) but there’s none so far. I guess we’ll have to stick to other protocols for that.
How much do you pay for a cover on Nexus Mutual?
It’s different depending on the product. For example, for a year of protection against hacks on AAVE lending protocol, you’ll pay around 1.5% — or $150 for every $100k. Afterward, when I checked the quote for Aura Protocol, I found out that I’ll have to pay 7% to insure myself from hacks over there. The wide discrepancy in costs is clearly influenced by the reputation of the protocols. AAVE is acclaimed for its security — it’s one of the OG protocols and it never had a security incident with financial loss.
Meanwhile, protection against 3CRV de-pegging is twice as expensive as AAVE at 3%. You might want to consider if the percentage you pay is not higher than the yield you are going to get from the farming itself.
What about protection against Binance going bust like FTX? The cover cost is a whopping 16%. Although it seems high, profitable traders usually earn way more than 16% a year. Also considering the drama around CEXs in the past year, that cost seems totally justified.
Check the complete Nexus Mutual cover products here.
Response to loss events
Nexus was ready to accept claims as soon as the hack happened. As of the time of writing, some of them are already accepted and while the rest is undergoing assessment.
Scrolling down their claims page, you’ll also see how they paid insured FTX victims too, which is another proof of how helpful an insurance protocol can be when sailing the dangerous sea of crypto.
The downside?
Nexus Mutual sounds cool and all. A bit too good to be true, perhaps. So, what’s the downside?
- KYC-ed!
Perhaps the biggest turnoff for many, but buying a cover on NM would require you to compete for the KYC process. That includes submitting a government id. To buy a cover, you need to become a member (which also makes you eligible to become an assessor of claims and earn rewards.) KYC is a big no-no for crypto hardcore anons out there.
- Not exactly permissionless.
DeFi promises financial services accessible to all. But in the case of Nexus Mutual, that doesn’t apply if you are a citizen of these banned countries.
Further read: Nexus Mutual Documentation
Insurace.io
Insurace offers wider options than Nexus Mutual. They cover more blockchains and more protocols and slightly varied risk types.
What Insurace offers that NM doesn't: Stablecoins de-peg. Something that after what happened to USDC and BUSD lately, it becomes an urgent concern.
But of course, the demand for stablecoins de-peg protection is so high that the covers are all sold out.
With so many protocols covered, Euler was among the protocol listed. Shortly after the hack, Insurace tweeted they’re ready to receive claims.
Before Euler, according to their claim page, the last claim they paid was to clients who became FTX victims. And way before that, they paid claims to UST holders.
Digging into their cover statistic, I’m presented with more interesting data. I’m seeing that the most popular products are GMX covers. You can pretty much see here what crypto folks are most scared about — when their trading platform gets rugged.
I also couldn’t help to notice the double-digit staking APY on stablecoins. Wait, what? Just like GLP in GMX, on Insurace you can stake your assets like ETH or USDTs to provide liquidity — in this case, being the underwriter.
The downside?
It’s worth mentioning that Insurace needs no KYC unlike Nexus Mutual, this means we can avoid the hassle of that aspect. However, there is one major concern that I want to address. Unfortunately, many of the products are currently sold out. This includes popular stablecoin-related offerings, CEX risk products, and coverage for smart contract vulnerabilities on important protocols like GMX. This situation is frustrating because, without access to these key products, Insurace becomes pretty much useless for most people.
My biggest take after researching all this is that customers need more options. How annoying it is to find a lot of things are sold out — or that you need KYC on things that are available.
Apart from Insurace and Nexus Mutual, there are some minor names that I feel it’s too insignificant for now to list. For example, Unslashed is more focused on ETH staking (insurance for slashing.) There are some names focused on chains like Binance or Polygon, but they pale in comparison compared to Nexus Mutual.
Perhaps it’s a matter of supply and demand. Selling insurance in DeFi is similar to selling insurance in the real world. Marketing matters, and so are reputation and credibility. Nexus Mutual managed to become #1 because it’s an OG protocol, and the requirement of KYC put a certain seriousness and formality in their business. Perhaps even for crypto degens, insurance must be as anti-degen as possible.
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