Explorative Research on Crypto Insurance - Current state, problems and possibilities of creating new products


Aleksandar Damjanovic


March 9, 2022

Executive Summary

In this paper we covered 5 of the main players in DeFi insurance market in order to determine the products offered, the problems with these products, the way the claims are handled and the possibilty of creating new insurance protocols. Initially we were not familiar with this field and the effort needed for creating these products, so we conducted this explorative research.

After the research we came to these conclusions:

  1. In creating these kind of products there needs to be significant effort both in developing and inital investment. Protocols covered utilize Advisory Boards of insurance experts in order to create their products.
  2. State regulation is a big factor in insurance in order to protect the policyholders from malicious insurance offerers. This can be a problem, depending on the states’ attitude towards cryptocurrency.
  3. Handling claims is often left to the community incentivizing just behavior by staking.
  4. Collecting adequate capital initially is also one of the major problems.
  5. Protocols with less staked pools have higher premiums in most cases which shows us that the risk assessment is usually hard to do with new protocols.
  6. There is a limited cover capacity.
  7. Usually there is no cross-chain coverage which limits the protection capability of DeFi protocols on other chains.
  8. Lack of protection diversity: most products offered are limited when compared to the broad coverage of risk types in the traditional insurance market.
  9. Insuring real world Events is almost non-existent. Etherisc offers 2 products using Oracles but our assumption is that there is still no market need for this kind of products thus there is not much movement in this direction. However utilizing Oracles in traditional products is an interesting thing and we think should be looked more into.

However, if You would like to go deeper to understand how these protocols work we recommend reading the entire paper.


In this paper we will be exploring the current state and problems of the decentralized/crypto insurance field with an emphasis to exploring the types of insurance offered, how are claims assessed, processed and finally paid out to the insured in a decentralized way.

Before we go further in the paper we will be shortly covering some insurance basics with a goal of reader’s better understanding of this paper and insurance’s importance in Decentralized Finance (DeFi). Considering Insurance is one of the oldest ways of dispersing risk over many individual units there could be many potential use cases for using this kind of mechanism in Web3, not just for the insurance of loss. Alas, this paper will be covering the current state and problems of Insurance and we will leave the potential cases for discussion.

If you are already familiar with insurance terms you can continue to the Goals & Methodology paragraph.

What is Insurance?

Insurance has a long history, there are claims that it was created around 2000 BC in Babylon, merchant receiving a loan paid the lender extra money in exchange for exemption of loan payment if the merchant’s shipment were stolen. Hovewer, the importance of insurance field cannot be presented without a mention of London’s Lloyd’s. In the 17th century, a London coffeehouse was a meeting place for people seeking marine cargo protection and people willing to take those risks in exchange for premium. The coffeeshop now is the world famous Lloyds. A sheet of cargo and ship information would be filled and the individuals who accepted that risk would sign with their names under it’s description.1 That brings us to a first term in insurance underwriting.

  • Underwriting is risk accessment process to determine whether to accept or reject the risk we will come into contact with this term a lot in the later paragraphs.

  • As we previously mentioned the point of insurance is to transfer and share risks.

  • The individuals or companies that would like to transfer risk to other parties by paying a certain fee (premium) are called insured. The reason why the insured avoid the risk is because the loss is too volatile to bear.

  • The party that accepts such risks and and associated fee (premium) is the insurer. Insurers are not averse to exposing themselves to the same risks as insured because of something called pooling and the law of large numbers. The essence of pooling risk is to spread losses of the few over the entire group. The law of large numbers states that the greater the number of exposures the more closely will the actual results approach to the expected average value

Benefits of Insurance and the nature of Insurance

Insurance allows the insureds to “trade” the risk of loss for the certainty of smaller payments. As a result this ensured the stable cash flow since there are no extreme losses, and if they happen, they are covered by the insurance. As a result of this “stability” provided by insurance there is less need for governments assistance which saves public resources.2

Application Underwriting Policy Issuance Claim if a loss occurs

Figure 1: The process of issuing insurance

  • The application for insurance often starts with quoting process where the amount to be paid in premiums are estimated according to the risk the client would like to manage. After the application the underwriting process occurs.
  • Underwriter evaluates the information of the application and then accepts and then “fine-tunes” the policy using the rating tables from the actuaries. Actuaries calculate premiums, in DeFi, this is done in a different way, more words on that in the later paragraphs.
  • After the underwriter accepts the application the policy is issued.
  • If a loss occures the claims department examines the claim and asks the insured for the proof of loss before they pay the insured amount. The payment depends on the amount of damage suffered and the decision of the claim department.

The big part of insurance also is its regulation. Insurance is one of the most actively regulated fields, especially after the financial crisis in 2008. The regulation aims to ensure solvency of the insurers. One of the ways the state regulates Insurance companies is limiting their investment tacticts and portfolio allocation , in other words they don’t let them invest in risky assets which is de-facto the norm in cryptocurrency investments. This is one of the first issues encountered if we were to cooporate with existing insurance companies or create our own protocol that is regulated.3

Goals & Methodology

The goal of this research is to explore:

  1. The current state of DeFi Insurance and Insurance with cryptocurrency.
  2. The process of applying, policy issuing and insurance claiming in a decentralized way of the main competitors in this market
  3. The problems present with this kind of products.
  4. Possibility of insuring material goods with cryptocurrency.

Approach to this research will primarily be reading the whitepapers of covered protocols and documentation, discord discussions with staff and reading the reports of other researchers we find online.

Answers to the questions above will give us an insight into this field of DeFi and will provide us with better of understanding of insurance in general for creating potential products if we decide to go into that direction. Considering the effort needed to create this kind of products this short explorative research is conducted.

Approach to this will be explorative one as previously mentioned. We will start with presenting the main competitors in this field and we will analyze their proccesses. Extra attention will be paid to the biggest competitors. Afterwards the problems of these products with cryptocurrency will be presented.

Results & Discussion

The current state of DeFi Insurance and Insurance with cryptocurrency and insurance processes

When it comes to crypto-insurance with traditional insurers the market is non-existent, because of the regulation, lack of awareness and the lack of crypto adoption among general public. That’s why we will be covering DeFi insurance field.

DeFi Insurance refers to buying coverage against losses cause by events in Decentralized Finance. With various hacks and exploits over the years the need for insuring users from the results of these events emerged. Contrary to the layman’s belief DeFi Insurance field is big and growing with different protocols emerging in it. However only 2% of all DeFi value is insured at the moment.4

Main protections offered is capital protection against protocol hack/exploit risk, smart contract failures or stablecoin crashes. The premium user pays for a cover depends on the type of the cover, insurance provider and the duration of the cover.

The Decentralized part in this type of Insurance is that anybody can act as a coverage provider, which supports the initial writers assumption. They become providers by locking up capital in a capital pool of the insurance protocol thus providing needed liquidity. As coverage providers they choose for which protocols or events they want to provide coverage, for example: If they are certain that a protocol is safe from exploits they will prefer providing liquidity to the pool that covers that event.

Another big part of DeFi Insurance is verifying claims. This is often done by the Insurance protocol’s community. Considering the nature of insurance and pooling of risk and collecting coverage from providers they are often assembled as DAOs (Decentralized Autonomous Organizations). This means that governance token holders participate in verifying claims. There are several ways of doing that and we will be covering it in the next paragraph.

Main players in this market

The 5 main competitors in DeFi insurance are:

  1. Nexus Mutual
  2. Bridge Mutual
  3. InsurAce
  4. Nsure
  5. Etherisc

Note: There are more insurance protocols but in order to keep this research a short overview we will showcase five

We will be covering them in detail to explore how they work and the type of products offered.

Nexus mutual

Nexus mutual is an Ethereum-based platform that offers insurance products led by community management and financials. Nexus mutual is set up as a DAO. Nexus offers three kinds of products:

  • Protection against failures in any protocol used by users yield bearing token (Ethereum only)
  • Protection against failures in the individual protocol user has funds in, on any chain, but not in other protocols it uses.
  • Protection against hacks and halted withdrawals on exchanges or custodial wallets5

Simply put, Nexus cover protects against loss of funds, not loss of value, except in the Yield Token Cover. In the Yield Token Cover Nexus may pay a claim if:

  • During the cover period the face value of the covered token and the market value of the covered token differ in price by more than 10% for a continuous period of four hours or more; and
  • The Covered Member contributes to the mutual, one unit of face value of the covered token in exchange for 0.90 units of cover amount they wish to claim; and
  • The Covered Member redeems their claim payment during the cover period or within 14 days of the cover period ending.

Nexus does not provide Cover where the covered tokens and the cover amount are not denominated in the same refference currency. Nexus also doesn’t provide cover for any material goods loss.

Claim assessing process:

  • All Covered members for a particular covered token will be assessed together for each claim event; and
  • The face value of the covered token immediately prior to the claim event shall be set as part of the claims assessment process; and
  • Following a successful claim vote all Covered Members will be able to contribute their covered tokens and redeem their claim payment on a proportional basis up to the cover amount.6

We will not cover the other 2 products into great detail, as they are pretty straight forward. More info on them can be found here: https://nexusmutual.gitbook.io/docs/welcome/faq/cover-products

All protocols and custodial accounts can be covered by the platform provided that risk assesesors staked enough value against them. Risk Assessors (experienced auditors, capital providers) can stake value in the form of NXM token, thereby vouching for the security of the protocol/custodian and dropping the price of the cover. NXM can be unstaked at any time subject to a 30-day withdrawal period. When cover is subsequently sold on a protocol or custodian, Risk Assessors earn proportional rewards in NXM equivalent to 50% of the cover premium. If a claim is accepted and a payout occurs, Risk Assessors staked against the protocol/custodian will have their staked NXM burnt on a proportional basis to facilitate the payout of the cover amount. This may result in a Risk Assessor having some or all of their NXM staked against the protocol/custodian burnt to provide capital for the payout of the claim.

Cover becomes available through one of two ways:

  1. When Risk Assessors stake NXM against a protocol, custodian or cover product more cover is made available. The mutual places limits on the amount of cover to protect the mutual from being too exposed to any single risk. There are two limits a Specific Risk Limit and a Global Capacity Limit.

    1. Specific Risk limit means capacity on any particular risk is limited by the amount of staking on that risk. If there is no staking the mutual cannot offer any cover. Specific Risk limit is equal to : capacity factor x net_staked_NXM .

    2. Global Capacity Limit is based on the financial resources of the Mutual and is there to ensure the mutual is not overly exposed to any particular risk, regardless of how much is staked. Global Capacity Limit = Minimum Capital Requirement In ETH (MCReth) x 20%

  2. As cover policies expire cover becomes available. User can check Nexus Tracker for info on cover expiry.7

Membership issue regarding privacy

Membership in Nexus requires a one-off membership fee of 0.0020 ETH (~$5.50). However, to become a member users need to verify their identity following their Know Your Customer process. They also cannot accept members from 17 countries, Serbia included, thus limiting the usage of the mutual.


All deployed contracts of Nexus Mutual can be found here: https://api.nexusmutual.io/version-data/

All info regarding cover, staking and claims approvals/denies can be found here: https://nexustracker.io/

How are Cover purchases taken care of by Nexus?

Users specify which smart contract address they want cover for. They specify the cover amount , currency (ETH or DAI) and Cover Period. Quote will be generated and they need to make the transaction with Metamask. Users can currently pay with ETH, DAI or NXM (nexus mutual tokens). Cover Holders can submit a claim for material loss that occured within the cover period. They can also submit a claim up to 35 days after expiry. A loss that ocurs after cover policy is ended won’t be covered

How are claims taken care of?

Claims are filed by submission. Members must provide cryptographic evidence of the loss (proof of loss) and their claim is later assessed by Claim Assessors by voting. Assessors are financially incentivised to take a longer-term view as they are required to lockup a stake. This stake is then burned if there is evidence of fradulent voting, which is addressed by Advisory Board. Advisory board consists of five members of founding team of the Nexus Mutual and insurance industry experts. They are said to have :

  • Technical Expertise on Smart Contract Security and blockchain
  • Technical Expertise on Insurance and Mutuals
  • General Expertise

Advisory board is there to provide techniqual guidance to the members of the mutual as well as to exercize the emergency functions if they are required.

This proposes a question: How do they keep the Advisory Board “in check” with Nexus’s decentralization principles?

Nexus does that by enabling members to kick-vote the Advisory Board members that they think are working maliciously. Board member can be replaced by another member if the membership base agrees. These proposals cannot be interfered with by the existing Advisory Board.

Bridge Mutual

Bridge Mutual has a similar business model as Nexus Mutual (DAO model). They provide coverage for smart contracts, stablecoins and other services. Bridge allows users to purchase coverage, provide coverage in exchange for yield, vote on policy claims and their payouts. We will not go into great detail as there are various similarities with Nexus Mutual to avoid repeating ourselves.

The main difference between Bridge and Nexus Mutual is that that Bridge doesn’t check customer’s ID and is available for residents all countries

Any user on the platform can create any pool for any project as because the system is permissionless by design.

  • Initial capital (USDT) must be put into the Project Coverage Pool by the user that is creating the pool.
  • That project can create incentives for coverage providers to provide coverage to their pool by depositing any number of Token into its designated Shield Mining pool which gets distributed to Coverage Providers alongside the typical yield.

Coverage Provider examines the risk of providing Coverage Capital to the Project’s Coverage Pool. When they provide capital they are de-facto telling users that they are sure in the security and stability of the project. They recieve yield from the users purchasing policies and the BMI(Bridge Mutual) token staking. When coverage providers supply capital to the coverage pool they receive a token (bmi(project name)Cover) representing their share in the capital within this capital pool. Coverage providers can then stake those tokens in the bmiCover Staking Contract pool to get additional BMI rewards. They also recieve a BMINFT Bond that represent the amount of for example DAI staked in Cover Staking Contract pool. These NFT Bonds are tradable on any NFT marketplace. The purpose of these NFT bonds is to give the user a way out of their position without removing DAI from the ecosystem. When the Coverage Provider sells his NFT he also transfers the ownership of the staked bmiDAIx.

Policy Holder pays a premium for Coverage to protect against the Coverage Event that could affect the insured Project and cause them to lose funds. The total cost of the Premium is split : 80% to coverage 20% to the Reinsurance Pool. They can buy cover for minimum of 1 week and maximum of 52 weeks. Three factors determine the price of cover (premium):

  1. The utilization ratio of the pool (ratio between cover bought and cover provided, pools that have higher utilization ratio are riskier and more expensive)
  2. Duration of the cover
  3. Amount of cover which user wants to buy

The Reinsurance pool consists of protocol owned funds that are used to provide liquidity to Coverage Pools. The reinsurance pool is funded through 20% of all premiums paid as mentioned above.

The Capital Pool aggregates USDT from the Coverage Pools and provides additional revenue to the protocol. Capital Pool sends USDT to yield generating platforms they deem to have low risk. We coulnd’t find exactly what those platforms are. This is a similarity with classic insurance companies which are limited in what way they invest their funds.

Proving a loss

Policy holders should submit any or all of the following:

  1. Transaction IDs proving that Policy Holder’s wallet deposited assets into the protocol and transaction IDs of the Coverable Event
  2. Posts from Protocol team, or an auditing team confirming that there was an exploit and providing additional information
  3. A description of the Coverable Event
  4. If the address affected was not the same address that purchased coverage, any evidence that proves the Policy Holder is the bonafide owner of the address that suffered a Permanent Loss.

They also need to deposit 1% of the claim’s value in BMI to prevent spam claims. If the claim is valid, USDT is issued to the Claimant. If a claim is denied they can try again by depositing 1% again.

A successful claim can only recieve up to the policy’s maximum coverable amount. If the DAO determines that the loss suffered was less then the maximum coverable amount, policy owners may recieve less funds. The DAO is incentivized to pay the claimant the exact amount that was lost.

Voting process

Votes for claim approval are anonymous and any user holding vBMI can vote. Voters can wote on multiple Claims before submitting them in a batch send. This is done to save time and gas. Only users that vote in the majority are rewarded with BMI for voting. Users that vote in the minority can lose “reputation” which decreases voting power. If there is a large diference in voting yes or no (80% to 20%) users that voted no will lose a portion of their stake.

Figure 2. High Level Overview of Bridge Mutual’s Mechanism


InsurAce.io is a multi-chain mutual insurance protocol created in April 2021. It offers products that cover 100+ protocols, 3 CEX and 1 IDO platform. Currently they are depoloyed on Ethereum, Binance Smart Chain, Polygon and Avalanche. InsurAce hasn’t yet adopted the DAO governance mechanism, although they are working on it.

Current state of Insurace.io (Capital pool size, Active cover amount, Capital Ratios etc ) can be found here: https://app.insurace.io/Data/Insurance

This protocols has 4 unique selling propositions :

  1. “0” Premium - Which means that the premiums are lower for their products. Their team designed portfolio-centric products to embrace risk diversification, developed models to optimize the cover cost. They did so by using advisors that are experts in the Insurance domain.
  2. Enriched Product Line - InsurAce.io also offers products that covers non-Ethereum DeFi protocols.
    1. Types of protocols and smart contract systems covered:
      1. Lending Protocols
      2. Decentralized Exchanges
      3. Derivative (e.g. Synthetix, Nexus Mutual)
      4. Asset (e.g. Badger, RenVM)
  3. SCR Mining - The participants earn $INSUR tokens by staking into the mining pool. The mutual capitals injected through staking will be managed with rigorous risk control models to adjust the Solvency Capital Requirement (SCR) dynamically and use the secured free capital for investment to control the mining speed accordingly.
  4. InsurAce tries to combat the low investment returns. Nexus mutual offers capital return to their providers from the premiums paid by users which is low compared to the yield on Compound and Aave. This problem makes users prefer putting their funds elsewhere, instead of the Insurance Protocol. Insurace combats this with offering users:
    1. Option to invest directly in the investment product depending on their risk aversion
    2. Option to stake in the mutual pool and get the investment carries and $INSUR tokens as rewards
    3. Shares of the premium income

InsurAce is operates similarly like the traditional insurance company using the insurance arm and the investment arm.

“The insurance arm maintains reserve pools which maintain the solvency for claim coverage based on risk exposure. The investment arm maintains investment pools that generate carry to subsidize claims and attracts investors with risk appetite. The free capital in the insurance capital pool can be placed into the investment pool to gain a higher yield, while the insurance arm will protect the investment activities. Meanwhile, the investment arm’s yield will complement the premium on the insurance side and reduce the cover cost for customers.” ‘Whitepaper’8

Pricing model

When it comes to before mentioned protocols they rely heavily on the value staked on individual protocols: the higher value staked the lower the premium will be priced. InsurAce tries to combat this with adopting the new actuary-based pricing model to mitigate this in order to assess the expected loss of insurance products fairly, reduce costs and enhance capability.

“The model’s main inputs are the number/amount of claims and number/amount of exposures in a given time period, which will be used for selecting and training two separate models - the frequency model and the severity model. Frequency modeling produces a model that calibrates the probability of a given number of losses occurring during a specific period, while severity modeling produces the distribution of loss amounts and sets the level of deductible and limit of the coverage amount.” These models are then combined to solve aggregate loss. After that the decided aggregate loss is incorporated into the risk factors of protocols and the premiums are then calculated. The model’s parameters rely on historical data to devise and validate. They plan on taking this further with new Machine Learning methodologies.

Capital model

InsurAce’s capital model refers to EIOPA’s Solvency II, this regime is used for insurance and reinsurance in the European Union. It sets requirements needed for insurance products in order to protect policyholdes and beneficiaries.

“Solvency II is an economic risk-based approach that should assess the”overall solvency” of insurance and reinsurance undertakings through quantitative and qualitative measures. Under Solvency II, the undertaking’s solvency requirements are determined based on their risk profiles and how such risks are managed, providing the right incentives for sound risk management practices and securing enhanced transparency.”

Solvency II has different tiers of which the SCR (Solvency Capital Requirement) and MCR (Minimum Capital Requirement) are the two most important ones.

“The SCR is the capital required to ensure that the insurance company will be able to meet its obligations over the next 12 months with a probability of at least 99.5%, while MCR represents the threshold to correspond to an 85% probability of adequacy over 12 months and is bound between 25% and 45% of the SCR. For supervisory purposes, the SCR and MCR can be regarded as”soft” and “hard” floors.”

InsurAce uses SCR to calculate the minimum requirement funds set aside to pay all the potential claims considering all quantifiable risks. SCR is calculated with the following inputs:

  1. All the active covers
  2. All the outstanding claims
  3. The potential incurred but not reported claims
  4. The market currency shock risk
  5. The non-life premium & reserve, lapse and catastrophe risks
  6. The potential operational risk

SCR% = Capital Pool Size / SCR

A high ratio means the insurance company is financially strong with sufficient available funds to cover potential claims and other risks so the company is less likely to be insolvent . The lowest acceptable ratio is 100%.

InsurAce also offers information of their Capital Efficiency ratio which shows the company’s current success in deploying capital.

CER% = Active Cover Amount / Capital Pool Size

A high ratio means the insurance company is increasing the productivity of its assets to generate income. Desired ratio is between 100% and 300%.

Risk Assesment by InsurAce.io

InsuraAce’s Advisory Board performs a preliminary risk assesment on the new protocols at first. InsurAce will also work with auditing firms if there is extra complexity or challenges. After that Advisory Board provides a report and rates the protocol 1 to 5. After they rate it protocol will go through the community risk assesment. Members who participate in the assesment get INSUR tokens as incentive.

Claims Assesment by InsurAce.io

Figure 3: InsureAce’s Claim Assesment process

This diagram shows us the whole system of claims Assesment in a clear way. The main difference is the inclusion of the Advisory board members which consists of various industry experts including the CTO of InsurAce.

“$INSUR token holders can stake the $INSUR tokens to become the community Claim Assessor. Claim Assessor will be entitled to the right to vote in each claim assessment and earn $INSUR tokens as reward if their votes match with the voting result. During each voting session, the more tokens the user stake, the more voting tickets they will get (* capped at 5% of the total votes), and the more rewards they will receive.”


Nsure was targeted to be a platform for users to trade risks borrowing the operation model of previously mentioned Lloyds London. With Nsure information is transparent and users are allowed not only to be outsorcing risk but also to become risk takers, capital providers, governance actors and auditors of the system.

More data on Nsure performance can be found here: https://app.nsure.network/#/cover/my


Nsure offers Smart contract cover like previously mentioned protocols. The coverage and exclusions are identical so we will not go into great detail. More info can be found at: https://docs.nsure.network/nsure-network/docs/nsure-smart-contract-protect-policy-wording

Capital model

Capital is sourced from capital mining, with return of Nsure tokens for the miners to ensure a continuous capital support to the underwriting. Minimum Capital Requirement (MCR) is calculated based on the volume of each project and the correlation between them. A low MCR% below a pre-determined threshold will result into a lock of assets in capital pool, so as to protect the solvency the business.

Pricing model

Nsure uses a Dynamic Pricing Model to set the price. In this model capital supply and demand from the entire platform determines the price jointly similar to the pricing mechanism in the free market, by having Nsure tokens backing the policies bought. The price is self-adjustable to the movement of supply and demand, subject to the model, moderately stabilising the price change.

Rating System

Nsure uses its N-SCOSS rating system to quantify the code security of projects by assessing:

  1. History and Team
  2. Exposure
  3. Audit
  4. Code quality
  5. Developer community

Claim process

Figure 4: Nsure claim process

For each policy sold there is one chance of claim filling for free. If the first claim was rejected a claim assesment fee of 10% is requested before new assesment.

Policy holder must provide evidence of loss on the designated project within the insurance period. Proof of loss must include:

  1. Proof of ownership of affected account - After identifying his affected account, policyholder may prove his ownership over the account by signature or making a 0 amount payment to a specified address.
  2. Evidence of loss - Policy holder should provide:
    1. the snapshot of the affected address’s balance at blocks before and after attack (to assist claim assessors quickly quantify the amount of lost
    2. transaction of selling the damaged assets (loss is only recognised when it is realised)
    3. description of the attack from project team or security specialist

Claim assesment

Nsure introduced a similar voting mechanism as previously mentioned protocols. Its features are:

  1. To be registered as a claim assessor candidate, user must deposit a considerable amount of Nsure token. At launch, the deposit is set at () Nsure token.
  2. Claim assessors are randomly picked from registered candidate. For each claim, there will be 5 claim assessors.
  3. As claim assessors’ reward is proportion to premium, users tend to register for larger size policy. To get each policy equal and fair tender, users do not know the premium of the policy at registration.
  4. The token will be slashed if the claim assessor’s judgment is different from the majority.

After claims assessors make a decision, policyholder and other Nsure token holders can challenge this decision. This will lead to a public vote for the final conclusion on the issue.


So far we have been covering only protocols that offer smart contracts protection. Etherisc tries to include material goods into the story. Etherisc is a protocol to collectively build insurance products. Common infrastructure, product templates and insurance license-as-a-service make a platform that allows anyone to create their own insurance products. The first product Etherisc offered was FlightDelay Insurance. Products currently licensed are: Crop Insurance and FlightDelay Insurance. Products currently in design: Hurricane Protection, Crypto Wallet Insurance, Collateral Protection for Crypto backed Loans, Social Insurance (death, heavy illness). They are also open for product requests. Users have the option to build their own insurance product, but more information about the user needs to be provided.9

They also launched a Joint Grant Program with Chainlink to accelerate the adoption of data-driven decentralized insurance products, so we think that special attention should be paid towards potential building with Etherisc.10

Etherisc Token

DIP Tokens act as the native internal currency that is inseparable from the protocol and network of its users. DIP tokens are needed to earn transaction fees (% of insurance premiums or fixed cost), incentivize and reward platform users to bring risk to the network, build and maintain risk transfer products. The total supply of Etherisc Tokens is 1 Billion.

DIP tokens give users access to the Decentralized Insurance Platform. By staking DIP token, participants provide collateral (bond) to guarantee future performance, availability, and service levels. Staking also signals quality and reputation. As a result, participants can earn money monetizing their skills, software (for example risk models or UI/UX), risk capital, insurance licenses, claim processing, or regulatory compliance/reporting services.

FlightDelay Insurance example from the Whitepaper - Launched on January 20 2022

In their whitepaper’s FlightDelay Insurance product they use oraclize to obtain data from their data provider. Oraclize charges Etherisc for calling their contract. Etherisc incentivize Oraclize to provide their service correctly by :

  1. In the buyers market (market with many oracles) - Demanding of Oraclize to put some tokens in a staking contract which will then returns tokens if they deliver in time and forward the tokens to Etherisc in case they miss their obligations.
  2. In the sellers market (market with only one or few oracles) - Oraclize will earn an additional profit, again by staking tokens in a “staking contract”, but with reversed roles: Etherisc will stake tokens, and Oraclize will earn these tokens if they deliver, and in case they don’t deliver, the tokens are returned to Etherisc.
  3. Both options can be combined with both parties staking tokens from historical flight delay

Their experience with the Flight Delay DApp confirmed that insurance applications need plenty of capital to be able to scale. But that entry barrier can be overcome with cryptographic tokens that enable highly customized economics. Their goal is to allow the tokenization of risks on the platform and to make them available on a global open-access marketplace.

In this kind of insurance the probability is calculated from historical flight data. They used flight delay initially as a POC because of low premiums assosciated with them and under normal circumstances flight dellays are well-aproximated by independent probability events. Etherisk leverages ChainLink data.

On January 20th 2022 Etherisc launched FlightDelay on Gnosis Chain Mainnet. It uses Chainlink Data Feeds to autonomously issue policies and execute payouts for travelers who experience flight delays or cancellations. The result of this is insurance policies that are quicker to settle, cheaper to provision thanks to decreases in human and technical overhead and more transparent given the blockchain backend.

FlightDelay is now available for passenger flights globally. The insurance policies are purchasable with USDC using the Gnosis Chain on Etherisc’s FlightDelay portal. More payment options are in the works.

Participants in the Etherisc Protocol

Participants in the protocol are:

  1. Customers - Customers can buy insurance using the token. For convenience, third parties can offer payment gateways and integrations which remove the necessity to own cryptocurrency from the end customer. Furthermore, participants can choose to offer insurance products in any native currency - be it a cryptocurrency, a token or a fiat currency. Use of token: Universal currency to buy insurance products.
  2. Risk model Providers and Actuaries - “Risk models are fundamental for any insurance product. The correctness of the model is precondition for the economic success of the product.Generally, because of the magnitude of value affected by errors and deviations in the model, a Risk Model Provider won’t take responsibility for the economic outcome of his model, but rather for his adherence to principles and established guidelines in his trade.” Use of token: Staking/Reward for providing or updating risk models
  3. Data providers and oracles - Currently, data is collected together with the application for an insurance, and the insurance company “owns” the data - even after the insurance contract is no longer valid. In a blockchain decentralized environment, the collection of data could be separated. Customers could get paid for voluntarily offering their data to a data pool, which in turn can sell this to interested parties, leaving the ownership of the data completely with the customer. This is an interesting take on handling events in the real world and the real world application of crypto insurance. Use of token: Reward for giving data. Reward for giving access to data pools. Staking / Reward for providing reliable oracles.
  4. Sales Agents - Sales agents are responsible for offering insurance products like in the traditional insurance. Use of token: Reward for distribution of products.
  5. Claim Agents - There are still many cases where automatic detection and processing the claims is not possible. Specialized and sometimes independent claims agents already exist that can be somewhat utilized e.g. in the area of car insurance, where they help insurers to process claims in shorter time. These claims agents can immediately use a decentralized platform, as soon as adequate products are available. Use of token: Reward for the provided service.
  6. License providers - Insurance in most countries depends on a proper license which can be difficult and costly to obtain. There is also a model where a license provider can act as an intermediary to regulators which is interesting if we are to build a new kind of insurance product. Use of tokens: Staking tokens to provide capital for a license provider, paying fees for licenses.
  7. Product managers - Use of token: Reward for service.

Etheriscs’ approach to crypto insurance is interesting but majority of their products are still in the works.Their first product FlightDelay Insurance was launched on January 10th 2022.11


Above we covered 5 of the main players of the DeFi insurance market in order to determine the products offered,the way the claims are handled and the possibility of creating new insurance protocols.

Quick recap:

Nexus Mutual Bridge Mutual InsurAce Nsure Etherisc
Mechanism Mutual Mutual Mutual Open insurance platform Platform to build insurance products
Insurance Protocol failure, hacks Smart Contracts, Stablecoins Protocols, 3 CEX, 1 IDO Smart Contracts Material Goods, Other real-world events
Governance DAO DAO Working on DAO governance mechanism DAO No data/working on DAO
Identity Check KYC NO NO NO No
Availability 17 Countries are prohibited Anyone Anyone Anyone Anyone
Transparency Fully Transparent Fully Transparent Fully Transparent Fully Transparent Fully Transparent
Claim Assesment Claim Assessors and Advisory Board Voting of vBMI holders Community Voting Claim Assessors or Public vote Oracles

We went into detail on those protocols and have come to these conclusions:

  1. In creating these kind of products there needs to be significant effort both in developing and inital investment. Protocols covered utilize Advisory Boards of insurance experts in order to create their products.
  2. State regulation is a big factor in insurance in order to protect the policyholders from malicious insurance offerers. This can be a problem, depending on the states’ attitude towards cryptocurrency.
  3. Handling claims is often left to the community incentivizing just behavior by staking.
  4. Collecting adequate capital initially is also one of the major problems.
  5. Protocols with less staked pools have higher premiums in most cases which shows us that the risk assessment is usually hard to do with new protocols.
  6. There is a limited cover capacity.
  7. Usually there is no cross-chain coverage which limits the protection capability of DeFi protocols on other chains.
  8. Lack of protection diversity: most products offered are limited when compared to the broad coverage of risk types in the traditional insurance market.
  9. Insuring real world Events is almost non-existent. Etherisc offers 2 products using Oracles but our assumption is that there is still no market need for this kind of products thus there is not much movement in this direction. However utilizing Oracles in traditional products is an interesting thing and we think should be looked more into.


‘A History of Lloyd’s: From the Founding of Lloyd’s Coffee-house to the Present Day’, Nature, 122.3069 (1928), 267–68 <https://doi.org/10.1038/122267a0>
‘Capacity Limits’ <https://nexusmutual.gitbook.io/docs/users/understanding-nexus-mutual/capacity-limits> [accessed 22 March 2022]
‘Cover Products’ <https://nexusmutual.gitbook.io/docs/welcome/faq/cover-products> [accessed 11 March 2022]
Etherisc, ‘Etherisc and Chainlink Launch Joing Grant Program’, Medium, 2022 <https://blog.etherisc.com/supporting-the-development-of-blockchain-based-insurance-solutions-through-the-chainlink-etherisc-c1d34076926b> [accessed 22 March 2022]
‘Etherisc - Decentralized Insurance’ <https://etherisc.com/> [accessed 14 March 2022]
‘Etherisc Launches Flight Delay Insurance Platform That Leverages Chainlink Data’ <https://finance.yahoo.com/news/etherisc-launches-flight-delay-insurance-140029295.html> [accessed 14 March 2022]
Litan, Robert E, ‘Regulating Insurance After The Crisis’, 2009, 20
‘Nexus Mutual - Buy Cover’ <https://app.nexusmutual.io/cover> [accessed 11 March 2022]
Outreville, J., ‘Insurance Concepts’, 1998, pp. 131–46 <https://doi.org/10.1007/978-1-4615-6187-3_8>
‘Top Decentralized Insurance for DeFi Investors in 2021 | Bitcoinist.com’, 2021 <https://bitcoinist.com/top-decentralized-insurance-for-defi-investors-in-2021/> [accessed 10 March 2022]
‘Whitepaper’ <https://docs.insurace.io/landing-page/documentation-1/whitepaper> [accessed 13 March 2022]


  1. ‘A History of Lloyd’s: From the Founding of Lloyd’s Coffee-house to the Present Day’, Nature, 122.3069 (1928), 267–68 <https://doi.org/[10.1038/122267a0](https://doi.org/10.1038/122267a0)>.↩︎

  2. J. Outreville, ‘Insurance Concepts’, 1998, pp. 131–46 <https://doi.org/[10.1007/978-1-4615-6187-3_8](https://doi.org/10.1007/978-1-4615-6187-3_8)>.↩︎

  3. Robert E Litan, ‘Regulating Insurance After The Crisis’, 2009, 20.↩︎

  4. ‘Top Decentralized Insurance for DeFi Investors in 2021 | Bitcoinist.com’, 2021 <<https://bitcoinist.com/top-decentralized-insurance-for-defi-investors-in-2021/>> [accessed 10 March 2022].↩︎

  5. ‘Nexus Mutual - Buy Cover’ <<https://app.nexusmutual.io/cover>> [accessed 11 March 2022].↩︎

  6. ‘Cover Products’ <<https://nexusmutual.gitbook.io/docs/welcome/faq/cover-products>> [accessed 11 March 2022].↩︎

  7. ‘Capacity Limits’ <<https://nexusmutual.gitbook.io/docs/users/understanding-nexus-mutual/capacity-limits>> [accessed 22 March 2022].↩︎

  8. <[Https://docs.insurace.io/landing-page/documentation-1/whitepaper](https://docs.insurace.io/landing-page/documentation-1/whitepaper)> [accessed 13 March 2022].↩︎

  9. ‘Etherisc - Decentralized Insurance’ <<https://etherisc.com/>> [accessed 14 March 2022].↩︎

  10. Etherisc, ‘Etherisc and Chainlink Launch Joing Grant Program’, Medium, 2022 <<https://blog.etherisc.com/supporting-the-development-of-blockchain-based-insurance-solutions-through-the-chainlink-etherisc-c1d34076926b>> [accessed 22 March 2022].↩︎

  11. ‘Etherisc Launches Flight Delay Insurance Platform That Leverages Chainlink Data’ <<https://finance.yahoo.com/news/etherisc-launches-flight-delay-insurance-140029295.html>> [accessed 14 March 2022].↩︎