A long road lies ahead to repair confidence in crypto after unprecedented bankruptcies and hacks, including the major challenge of giving investors a way of insuring against such events, Bloomberg News reported. Stock brokerage accounts often come with some cover against outcomes like bankruptcy but digital-asset platforms provide few if any shields, a reality underlined by the November collapse of Sam Bankman-Fried’s FTX exchange. Investors seeking such policies face a tough task. Traditional insurers are wary and crypto-native solutions in decentralized finance — or DeFi — account for a fraction of the $1.1 trillion digital-asset sector. For instance, funds locked in DeFi insurance protocols amount to about $300 million, compared with more than $80 billion in DeFi services overall, according to data from DeFiLlama. “Last year highlighted the importance of insurance but it seems a very difficult problem for DeFi to solve,” said Riyad Carey, a research analyst at crypto data provider Kaiko. “To properly protect a protocol or position is challenging.” The largest DeFi insurance provider is Nexus Mutual, a member-based service accounting for about 70% of funds locked in crypto-native insurance protocols. Nexus Mutual has paid out roughly $5 million in claims from the bankruptcies of FTX and crypto lender BlockFi. It expects to pay another $2 million but those figures are dwarfed by the billions of dollars eviscerated by FTX alone.
