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- A new decentralized finance (DeFi) solution has appeared on the market for insurance deposits made on Compound, from a company called Opyn.
- It will allow users to hedge options on stablecoin deposits made on the third-largest Ethereum DeFi app, Compound.
A new decentralized finance (DeFi) solution has appeared on the market for insurance deposits made on Compound, from a company called Opyn. The products allow users to hedge options on stablecoin deposits made on the third-largest Ethereum DeFi app, Compound. In the case of some unfortunate black swan event on Compound’s ledger, the users of Opyn can make an insurance claim.
Decentralized Insurance Solution to hedge against black swan
Opyn, a new #DeFi product, has introduced an options-based insurance market for investors to hedge against black swan events and insure their #Compound deposits. With insurance, DeFi is getting more sophisticated.
— Weiss Crypto (@WeissCrypto) February 14, 2020
Decentralised networks have been taking a stronghold in the financial markets bringing in a new evolution, but it still holds some degree of risk. Opyn marks the beginning of a new page in DeFi’s books, bringing insurance into the game. Risk management becomes necessary as cryptocurrency grows and becomes mainstream, and Opyn provides a blockchain-based solution that is quite similar to the system found in traditional financial markets.
Opyn’s insurance system
The Compound is one of the largest decentralized finance apps on the Ethereum network allowing for users to gain interest in their funds deposited while also allowing them to borrow from those deposits. Decentralized Finance has only begun seeing steady growth over the past couple of years, and so far, there yet haven’t been any major incidents that have posed a risk to security. But as the interest in DeFi grows, it becomes fairly necessary to have some form of risk management to secure investors’ funds.
Any potential bugs in the code for a DeFi protocol can easily be exploited and attacked; therefore, regardless of the decentralized nature of these applications, there is still some degree of risk involved in DeFi. Opyn’s insurance system will work by offering a “put option,” which guarantees that users will be able to recover a good portion of their lost capital in the case of a catastrophic failure in Compound.
Another DeFi application involved in the insurance market is Nexus Mutual, providing security for risks on smart contracts and is also built on Ethereum. DeFi applications have seen a net investment of over $1 billion as of recently, and Opyn’s push into decentralized Finance will hopefully be a start to bringing more investments into cryptocurrencies.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
