Defisurance provides protocol hack insurance for DeFi deposits (source code).

NOTE: Today, Defisurance works with one protocol (Compound) on Rinkeby. To try it, use the following Rinkeby private key: f726f256d16f99921cf6ffd4a4de77c599cfb2c94e16dd530266cb2947e3f528 (for address: 0x0d0ba4a986fb9d3856fcfa30efb3872ab217ab76)

Inspiration

US banks have FDIC insurance to protect against deposit loss during bank failure. Brand new decentralized finance protocols have no insurance to protect deposits in the event of a hack.

Defisurance makes it easier for cryptocurrency investors to choose decentralized protocols, and exponentially unlocks the number of people who will feel comfortable investing using decentralized products. (24 hours after we started this project at EthNY, a 0x developer tweeted about wanting this exact product as it would "drastically improve adoption" )

What it does

defisurance allows defi depositors and defi protocol developers to buy insurance for the funds held in decentralized finance protocols like 0x, Dharma, dYdX, and Compound. The insurance is provided through a one-sided bet using Augur (investors in defisurance take the other side of the bet, see example Augur market bet on dYdX hack we created).

Initially, we expect users themselves to buy insurance. Over time, defi protocol developers can buy insurance for all the deposits on their platform automatically. With minor changes, they could then automatically pay out if a hack was discovered, guaranteeing to their customers that their deposits are secure. This would make it easy for them to attract new users and stand out versus other DeFi protocols.

Beyond selling insurance, defisurance lets investors bet that the protocols will not be hacked. This provides return even in the instance a single underlying protocol is hacked (all investments are automatically diversified across all protocols, so no investor loses all their money if a single protocol is hacked). We expect that smart contract auditors might eventually take positions in this market, given the unique knowledge they have of which smart contract protocols have taken appropriate due diligence.

How it works

Fund Compound First, send Rinkeby ETH to 0xbED6D9490a7CD81fF0F06f29189160a9641a358F (from the wallet of your choice including Torus, Metamask, and Coinbase Wallet).

Go to Defisurance: Then go to Defisurance.com and follow the instructions for Compound insurance.

How we built it

Our team of four built defisurance using standard web development technologies/tools like Javascript, React, Netlify, and Web3. Our "insurance" is one half of a two-sided prediction market on Augur, the prediction market protocol. We created an Augur market for Compound, and in the future, can easily create new markets for other DeFi protocols.

Defisurance supports Torus, Metamask, and Coinbase Wallet — and uses The Graph and Infura as backing infrastructure.

See the source code on Github.

Challenges we ran into

  • There is no market for protocol insurance, so creating a robust insurance product would require market making — and investors on the other side of the market (betting that these protocols would not fail)
  • The price of the insurance could be high, and be higher than the protocol return (but making this explicit would be a valuable signal to investors)
  • Different defi protocols don't have standardized interfaces for checking balances, so each protocols needs to be custom integrated (we brainstormed providing common standards, like easy deposit checking for any address — that would make this easier in the future)

Accomplishments that we're proud of

Idea to fully functioning prototype in 36 hours Creating our first Augur market

What we learned

We discussed many decentralized ideas in insurance (weather-indexed crop insurance to property insurance). We realized that every one of us had invested in DeFi protocols, and all of us were concerned about the safety of our money.

We debated an easily priced insurance, but realized that there was no historical data on the risk of each DeFi protocol. So we decided to use Augur, as it's perfect for markets that are hard to price.

What's next for defisurance

We're going to keep hacking on this to finish the Investor flow. We're also going to talk to the Augur team about how best to market make the Compound insurance market.

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