Decentralized Insurance in DeFi: Current Challenges and the Astra Solution.

Decentralized finance — or more commonly, DeFi — is now a household name in the crypto space. It’s become almost criminal to imagine crypto surviving the dark post-ICO days without DeFi’s big push.

DeFi has defied the odds to foster an open, digital financial economy powering the next iteration of the internet (Web 3.0). We can now look towards a decentralized, fairer, and more transparent crypto landscape — thanks to DeFi.

The DeFi space continues to enjoy rapid growth, welcoming new projects, platforms, and protocols day by day. With several big-name startups and over $200 billion locked in protocols, DeFi is quickly becoming a key part of the wider crypto industry.

Indeed, it seems just like yesterday, when the world first heard ‘DeFi’ a few years back. Truly, much has changed for the better since then — but it hasn’t been a smooth ride.

DeFi’s altruistic promise of financial freedom for every human has been all but marred with hacks, scams, and attacks. Bad actors continue to wage war on DeFi protocols, with losses from notorious exploits running into eye-popping figures.

Surely, the memory of Axie Infinity’s recent $625 million heist won’t fade anytime soon. At this juncture, we may very well conclude capital risk remains the biggest barrier to mainstream crypto adoption — besides regulation, that is.

But now, decentralized insurance has given us a solution.

What Is DeFi Insurance?

Insurance is simply a way to manage your risk and protect yourself from financial loss. Decentralized (or DeFi) insurance is much the same. DeFi insurance helps you protect your digital assets against numerous risks, without a centralized insurance provider.

The DeFi space is rife with rug pulls, exit scams, smart contract exploits and whatnot. Therefore, you need a form of cover against these setbacks. To put it simply, decentralized insurance is the umbrella term for all platforms and protocols acting as a safety blanket for the DeFi space.

Although insurance isn’t talked about enough in the DeFi community, the huge potential is there for all to see. The legacy insurance industry is worth several trillions of dollars and is riddled with dubious entities and trust issues. A new type of insurance market is required for this new decentralized landscape.

People are becoming aware of the risks, and DeFi is well-positioned to transform the industry with its unique features like decentralization, transparency, and trustlessness.

DeFi insurance protocols could unlock the trillion-dollar potential of crypto by democratizing asset protection and providing coverage for investors. However, a few challenges plague the sector.

Key Challenges Facing Decentralized Insurance

For one, the DeFi insurance sector is still nascent and, therefore, more susceptible to false or fraudulent claims. The unclear regulatory nature of cryptocurrencies has left loopholes for shady people to exploit insurance policies for gain. Without a robust regulatory framework, DeFi insurance protocols will find it difficult to report and verify claims.

Clearly, the DeFi insurance ecosystem itself is decentralized. To cover an event, you buy an insurance policy from a pool of insurance providers, as opposed to centralized insurance companies. You file a claim if the event happens and get coverage if the claim is valid.

However, like legacy insurance providers, DeFi insurance solutions verify claims in a centralized manner. Worse still, the claims settlement process isn’t transparent (read: inefficient). There are no on-chain verification tools to assess the validity of the claim.

This raises the all-important question, “Who (should) verifies the validity of a claim?”

Usually, insurance protocols verify claims through community-based DAO governance, but sometimes, the claims are automatically verified with oracles.

Oracles feed insurance protocols with accurate real-world data in a decentralized manner, allowing them to monitor claims and decide on outcomes. However, oracles can only supply data for protocols to make informed decisions, meaning decision-making is not so transparent.

Finally, less transparency and fairness can only mean one thing: more disputes will arise as more insureds question the protocol’s settlement process.

With the Astra protocol, we can finally put these issues to bed toward creating a truly decentralized insurance ecosystem.

How Astra Aims to ‘Decentralize’ DeFi Insurance

Astra is building a decentralized compliance solution for the crypto space. Protocols can easily safeguard investor funds and comply with financial regulations without giving up decentralization.

DeFi insurance protocols can rely on Astra’s robust compliance layer to fight insurance fraud. Astra has an inbuilt dispute resolution system that they can integrate to handle insurance claims with utmost fairness.

Astra handles the entire settlement process on-chain and leverages the Decentralized Legal Network to ensure protocols can guarantee unbiased dispute resolution. The DLN is a decentralized pool of legal and financial experts from the biggest global firms. This means DeFi insurance protocols can finally fix their weakest point.

Even more, insureds can enjoy cover on their insurance cover when they take out DeFi insurance policies through Astra’s legal assurance layer.

The insured would file a claim on the policy if the covered event happened. The protocol then invokes Astra’s dispute resolution system to validate the legitimacy of the claim on-chain.

With existing DeFi insurance solutions, the insurer usually has to pay out regardless of the outcome or settle the dispute off-chain. But now, Astra leaves room for two alternative outcomes: the claim is either valid and the insurer pays out, or the claim is invalid, and a recommendation is passed to the insurer.

Opportunities for Growth in Decentralized Insurance

It’s still early days for DeFi insurance, even if it’s on course to disrupt the trillion-dollar insurance industry.

Through Astra’s legal assurance layer, DeFi insurance protocols can begin to create better solutions over the monolithic companies that currently dominate the industry.

Insureds can now enjoy fairer and more transparent cover with the on-chain dispute resolution tool, while protocols can expand their offerings to onboard more users from the legacy insurance industry.

Before long, we envision many DeFi insurance providers integrating Astra’s legal assurance layer into their smart contracts, as more instances of DeFi insurance surface to protect the DeFi space.

About Astra

Astra integrates trust and security into existing DeFi solutions through a decentralized compliance layer. Thanks to Astra’s globally patented technology, protocols can now comply with regulations without giving up decentralization while investors can participate in DeFi with minimal risk. Ultimately, Astra will unlock the trillion-dollar potential of crypto through strict regulatory compliance for protocols and trust-enhanced protection for investors.

A Decentralized Compliance Layer for the Web3 Economy. 💪

Join Astra on: Telegram group | Announcements | Twitter | Website | Medium

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Astra Protocol

Astra’s mission is to provide a range of regulatory compliance tools for crypto applications and across the Web3 industry. www.astraprotocol.com