Tokenized Cover

Definition ∞ Tokenized cover refers to a form of insurance or risk mitigation where the protection against specific events is represented as a tradable digital token on a blockchain. These tokens grant holders the right to claim compensation if a predefined insured event occurs, such as a smart contract exploit or oracle failure. This mechanism allows for decentralized risk markets, enabling greater liquidity and transparency in the provision of financial protection. It offers a novel approach to risk management in decentralized finance.
Context ∞ Tokenized cover is an emerging innovation within the DeFi insurance sector, aiming to address the limitations of traditional insurance models in decentralized environments. News often discusses the potential for these tokens to democratize access to risk protection and create more efficient markets for hedging against crypto-specific risks. Future developments will focus on standardizing the structure of tokenized cover products and integrating them more seamlessly into broader DeFi ecosystems.