Protocol Insurance

Protocol insurance refers to decentralized mechanisms designed to protect users and protocols against smart contract vulnerabilities, hacks, or collateral failures. These platforms allow users to purchase coverage by paying premiums into a shared pool, which is then used to pay out claims if a verified incident occurs.

Unlike traditional insurance, these systems often rely on decentralized governance or oracle data to validate claims and trigger payouts. This provides a necessary safety layer for the broader DeFi ecosystem, as it allows participants to hedge against technical risks that are not captured by standard financial derivatives.

By formalizing risk transfer, protocol insurance helps increase trust and institutional participation in blockchain-based financial systems.