Definition ∞ Decentralized cover provides protection against risks in decentralized finance through community-governed protocols. This mechanism allows users to obtain financial protection for their digital assets or smart contract interactions without relying on traditional centralized insurance companies. Participants collectively contribute to a capital pool, and claims are assessed and approved by community members or automated processes. The aim is to mitigate specific risks, such as smart contract exploits, oracle failures, or stablecoin de-pegging, within the DeFi ecosystem.
Context ∞ Decentralized cover is a rapidly growing sector within DeFi, with news often reporting on new protocols offering protection for various digital assets and platforms. Discussions frequently center on the effectiveness of decentralized governance in claim assessment and the capital efficiency of these models. A critical future development involves the expansion of covered risks and the integration of these solutions with broader DeFi lending and trading activities.
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