Risks such as flash loan exploitation, hacking and stable de-pegging are a serious obstacle to taking DFI. Now Steady State wants to get Daffy out of the “fear zone” by insuring funds in decentralized protocols.
Insurance for Defiance
Steady State is launching a comprehensive insurance solution for decentralized financing (DFI). The project shifts responsibilities from individual users, and protocols containing underlying resources, and transfers those responsibilities to permanent state insurance. Theoretically, this should allow all parties to sleep more peacefully at night.
Decentralized money in its current form can never fully realize its potential: the risks of flash loan exploitation, hacking, and stable coin de-pegging mean that a large portion of potential investors will not enter the market easily. Any cursory examination in the sector makes it easy to understand why.
The single flash loan attack in February this year resulted in a 37 million cut from the cream protocol, with the price of its domestic token rising 30% in half an hour. In May, a single chain, Flash Loan Absorption in the Benson Smart Chain, totaled $ 167 million. These types of reports effectively put a handbrake on the market, slowing its growth and turning a blind eye to large investors and institutions.
Without the additional security that an insurance solution like Steady State can provide, the growth of the sector will always be weak.
Steady State thinks that insurance issued through smart contracts can help create more efficient and improved solutions for decentralized money. Part of the insurance process that is currently conducted by people (with all their underlying biases) can be done reasonably with code instead.
Users can first interact with the platform by depositing their assets as collateral, using Steady State Capital to write DFI protocols. Users are rewarded for stacking funds together while protecting.
Conducts a project called Direct-to-Protocol Basis. According to Steady State, their insurance coverage and use of index pools optimize capital efficiency. Steady State sources fluidity in fancy ways that they say cannot be accomplished through user-centric models.
All of this takes place in a community-centered environment, creating insurance policies that go beyond individual cover and instead cover multiple risk vectors for the entire community. Steady State has tagged this model as “Define Insurance 2.0”.
Steady State hopes that their approach to DFI insurance will allow the development of a truly risky market, inviting users to buy and sell securities in the liquid secondary market. This will allow users to sell funds that may otherwise be stuck in insurance smart contracts. Over time it is hoped that such collateral trade will help spread more risk and strengthen the ecosystem.
This, in turn, will help build the credibility of the DFI market, inviting large investors and institutions to participate in a variety of ways. It can even be a strong primary driver of insurance adoption, as an area where organizations can see a path to direct market participation.
If Steady State could create a solution that would leverage existing DFI users and attract new capital from organizations and whales, the company could indeed revolutionize the insurance industry.