DEFI, NFTS, AND INSURANCE… THE TALE OF THREE CRYPTO HORSEMEN’S

What will the future of insurance using NFTs collateral powered by Defi on the Blockchain platform look like?

One idea behind blockchain technology is decentralization and making applications run without having the need for central bodies. In the traditional world, central bodies control various operations. To name a few, digital films and series are under the control of big studios or platforms like Netflix, or FMCG is controlled by a few companies. Finance suffers from the same problem as it depends hugely on central bodies such as banks, governments, and other financial institutions. The operations that are controlled by central bodies in the traditional world are P2P in the crypto world and controlled mostly by dApps (digital applications or programs that exist and run on a blockchain or P2P network of computers). Defi platforms utilize dApps to serve decentralized finance solutions.

What is Defi?

“De” stands for “Decentralized” and “Fi” stands for “Finance”, put together, “Defi” is “Decentralized Finance”. Decentralized means without having a need for intermediary central bodies such as brokerages, banks, or exchanges. Defi utilizes smart contracts on blockchains instead of traditional financial instruments offered by central bodies.

What are the most popular types of Defi applications?

· Decentralized exchanges (DEXs): DEXs allow users to swap one currency for another, such as USD for BTC or Ether (ETH) for Tether (USDT). DEXs are a popular sort of exchange that links users directly, so they can trade cryptocurrencies without entrusting their funds to an intermediary.

· Stablecoins: A cryptocurrency that is linked to a non-cryptocurrency asset (USD, EUR, GBP, etc.) in order to keep its price stable.

· Lending platforms: Smart contracts are employed by these platforms to eliminate the need for middlemen such as banks to manage lending.

· “Wrapped” bitcoins (WBTC): A method of transferring bitcoin to the Ethereum network so that it can be utilized in Ethereum’s Defi mechanism directly. WBTCs allow users to earn interest on bitcoin they lend out through the above-mentioned decentralized lending networks.

· Prediction Markets: Where people can gamble on the result of future events, such as election results, prices of various assets, sports results, etc. The purpose of Defi versions of prediction markets is to provide the same functionality as traditional prediction markets but without the need for intermediaries.

Defi in Insurance

Decentralized insurance aims to make insurance cheaper, faster to pay out, and more transparent. With more automation, coverage is more affordable and pay-outs are a lot quicker. The data used to decide on your claim is completely transparent.

Ethereum products, like any software, can suffer from bugs and exploits. So right now a lot of insurance products in the space focus on protecting their users against loss of funds. However, there are projects starting to build out coverage for everything life can throw at us. A good example of this is Etherisc’s Crop cover which aims to protect smallholder farmers in Kenya against droughts and flooding. Decentralized insurance can provide cheaper cover for farmers who are often priced out of traditional insurance.

Aggregators and portfolio managers

With so much going on, you’ll need a way to keep track of all your investments, loans, and trades. There are a host of products that let you coordinate all your Defi activity from one place. This is the beauty of Devi's open architecture. Teams can build out interfaces where you can’t just see your balances across products, you can use their features too. You might find this useful as you explore more of Defi.

Ethereum and Defi

Ethereum is the perfect foundation for Defi for a number of reasons:

• No one owns Ethereum or the smart contracts that live on it — this gives everyone an opportunity to use Defi. This also means no one can change the rules on you.
• Defi products all speak the same language behind the scenes: Ethereum. This means many of the products work together seamlessly. You can lend tokens on one platform and exchange the interest-bearing token in a different market on an entirely different application. This is like being able to cash loyalty points in at your bank.
• Tokens and cryptocurrency are built into Ethereum, a shared ledger — keeping track of transactions and ownership is kinda Ethereum’s thing.
• Ethereum allows complete financial freedom — most products will never take custody of your funds, leaving you in control.

You can think of Defi in layers:

1. The blockchain — Ethereum contains the transaction history and state of accounts.
2. The assets — ETH and the other tokens (currencies).
3. The protocols — smart contracts that provide the functionality, for example, a service that allows for decentralized lending of assets.
4. The applications — the products we use to manage and access the protocols.