Definition ∞ DeFi insurance provides financial protection against specific risks associated with decentralized finance protocols and digital assets. This coverage can protect users from smart contract exploits, oracle failures, or stablecoin de-pegging events. Unlike traditional insurance, DeFi insurance often operates on decentralized platforms, utilizing smart contracts for claims processing and risk pooling. It aims to reduce counterparty risk and enhance user confidence within the nascent DeFi ecosystem.
Context ∞ The expansion of DeFi insurance products is a direct response to the inherent volatility and security risks present in decentralized financial markets. News frequently reports on significant losses due to smart contract vulnerabilities, underscoring the demand for such protection. The ongoing discussion revolves around accurate risk assessment models, sustainable underwriting practices, and the regulatory treatment of decentralized insurance offerings.
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