DeFi Risk Transfer: Towards A Fully Decentralized Insurance Protocol.

Felix Bekemeier, Matthias Nadler and Fabian Schär

New publication by Felix Bekemeier, Matthias Nadler and Fabian Schär published in the Proceedings of IEEE ICBC 23, nominated for Best Paper Award 👏 

In this paper, we propose a fully decentralized and smart contract-based insurance protocol. We identify various issues in the Decentralized Finance (DeFi) insurance context and propose a solution to overcome these shortcomings. We introduce an economic model that allows for risk transfer without any external dependencies or centralized intermediaries. In particular, our proposal does not need any sort of subjective claim assessment, community voting or external data providers (oracles). Moreover, it solves the problem of over-insurance and proposes various ways to mitigate the capital inefficiencies usually seen with DeFi collateral. The work takes inspiration from peer-to-peer (P2P) insurance and collateralized debt obligations (CDO). We formally describe the protocol, assess its efficiency and key properties and present a reference implementation. Finally, we address limitations, extensions and ideas for further research.

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Center for Innovative Finance (Universität Basel)
Universität Basel

#blockchain #DeFi #smartcontracts #economic #research #IEEEICBC