The inherent risks in DeFi have slowed potential growth by deterring institutional investment. Now one decentralized insurance firm is attempting to right that wrong with a range of insurance innovations for the sector.
Decentralized finance (DeFi) offers a new path for money, free of centralized control and intermediaries. Until now, however, it was also free of many of the safeguards which allow bigger investors to participate. Flash loan exploits, hacks, and stablecoin de-pegging are all clear and present dangers for the DeFi sector, and ones that deter institutional money from ever becoming involved.
While DeFi has managed to be successful without this inflow of cash, the chilling effect of DeFi’s many risk factors cannot go on indefinitely. Eventually, they must be dealt with for the good of the industry as a whole. This is where Steady State steps in, with a range of insurance innovations tailored specifically to decentralized finance.
What is Steady State?
Steady State is an insurance solution for DeFi protocols. Built from the ground up with decentralized finance in mind, its mission is to banish the “fear factor” from the sector. Steady State is a direct-to-protocol solution that can operate through its community. With Steady State’s coverage and index pools, the platform optimizes capital efficiency, sourcing liquidity by means that is simply not possible in traditional finance.
The company also employs smart contract functionality to further reduce human inefficiencies and bias. By removing human frailty from the equation, Steady State is free to focus on automatic objective data analysis.
It’s not all computers and algorithms, however. Steady State is also working to make insurance more democratic by decentralizing the collateralization of its policies. Users can participate in Steady State by staking their assets as insurance capital Users earn rewards from their staked funds while helping to protect funds from various risk factors.
The company also hopes to create a true ‘risk market’ where stake collateral can be sold on secondary markets. This will allow users to create liquidity out of otherwise locked funds and to spread risk between a greater number of stakeholders.
Steady State is seeking to shift the narrative around decentralized finance from the user to the protocol. While communities can create the insurance policies themselves, they can also help to push through the adoption of these policies through governance mechanisms. Over time, this insurance protects not only the existing investors, but increases the likely number of potential investors who may wish to consider using the protocol in future.
For this reason, Steady State insurance has the potential to be a gamechanger for decentralized finance. DeFi has battled on for too long with a lack of proper protection for user funds and many users have paid dearly for this omission. To take the next step in its evolution the industry must now look towards encouraging additional inward investment. That can only happen by mitigating risk in a complete and efficient package. That is the promise of Steady State.