Etherisc project and DeFi insurance
DeFi applications are not limited to token swaps and NFT trading. Peer-to-peer networks could be used to create any decentralized projects, including insurance ones.
What is DeFi insurance?
Securing peace of mind is an indispensable part of life. The multi-trillion-dollar industry sprung out of this need a hundred years ago that has been operating on the basis of calculating risks.
If a potential event can cause losses, people are always looking for methods to minimize them, including financial compensation. Traditional insurance companies accumulate insurance premiums from millions of users to compensate thousands of them in case of some kind of accident.
Insurers are betting that the compensation they will pay out will be significantly less than the amounts their clients pay regularly. To get compensation, a person must prove that their claim is justified and that the fire, flood, illness, or theft was not their fault.
Insurance companies maintain a huge staff of lawyers who review claims, make decisions and determine the amount of compensation for each specific case. This is how centralized organizations work.
With the advent of DeFi, comes a question: can insurance be decentralized? Blockchain and smart contract technologies have completely changed the way we look at traditional things.
DeFi insurance is based on the fact that compensation is paid out only if certain smart contract conditions are met.
You can set the most unexpected parameters in such a smart contract: starting from the amount of precipitation (in mm) for insuring farm crops against volatile weather conditions to a crypto wallet model for insurance against its hacking.
Using a smart contract, insurance companies solve several problems:
1. Fake claims are automatically canceled.
2. The number of detectives and judicial interrogators is greatly reduced.
3. Payouts are made automatically.
DeFi insurance has only one disadvantage – it can be used only by people and entities who use cryptocurrencies and blockchain.
What can be insured with Etherisc?
Etherisc is not the only project that provides insurance based on smart contracts. It is not the most affordable project, but using it as an example can help you understand how decentralized insurance works.
Etherisc started in November 2017. Developers Stephan Karpischek and Christoph Mussenbrock created an open-source platform for decentralized insurance applications. Because Etherisc runs on the Ethereum network, any private, profit, or non-profit entity may become a participant.
By leveraging peer-to-peer blockchain, Etherisc automates and speeds up payouts. Such decentralized service protects against three major risks: hacks, theft, and natural disasters.
Some types of insurance are already available, and some are still in development.
1. Crop insurance against drought or floods. All you have to do is to send your field’s geolocation, the name of the crop, the period you want to insure it, and the amount of compensation.
2. Flight protection. This is short-term insurance against air crashes and flight delays. In this case, it is enough to indicate the air carrier and flight number in the smart contract. If you previously have tried to get compensation from airlines for delayed flights due to their fault, you understand how convenient DeFi insurance is. Payments come instantly, as soon as information about the delay or cancellation of the flight appears in the system.
3. Collateral protection for crypto-backed loans. The insurance company pays 100% of the loan amount if the value of the collateral provided by the borrower falls by 90% or more. Note that this is the most expensive policy and it applies to a limited list of cryptocurrencies. Even if some company accepts shitcoins as collateral, Etherisc is unlikely to insure that kind of deal.
Crypto wallet insurance and accident insurance are still in development. Therefore, we cannot explain how such cases can be tracked automatically by a smart contract. Perhaps this feature will be implemented when most medical institutions switch to the blockchain.
What is the DIP token?
Short for Decentralized Insurance Platform, DIP is a utility token powering Etherisc. Since the token operates on the Ethereum network, this is an ERC-20 token.
DIP grants access to the DeFi insurance platform. Token holders can stake them in risk pools as collateral and guarantee the future reliability and efficiency of services. The total supply is $1 billion DIP.
At the time of writing, there are 239,742,108 tokens in circulation. The project’s market capitalization is $4,622,681.
The DIP price directly depends on the popularity of DeFi insurance. In our opinion, while the idea is quite attractive, it is still far from mass adoption.
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