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DeFi's world is on the rise, and the insurance industry emerged as a major track.Of course, as the underlying infrastructure behind DeFi, there are not many major projects right now.In DeFi's competitive landscape, it is not necessarily a first-come, first-served basis, but the first projects often have a higher market share.

The insurance industry is no exception.Over the past few years, several DeFi insurance programs have emerged, each with its own unique mechanism, but each program is showing its own weaknesses.Most start-ups have transparent financial disclosure in the vault.However, the project parties often manage it in a centralized way.

Trusted insurance

Most of the centralization problem is not due to technical limitations, but because there is not yet a balanced solution.For DeFi insurance programs to explode, they must address the problem of credible data.

The essence of blockchain and smart contracts is that "code is law".There was no human-error intervention.When the user chooses the fit of a certain smart contract, it means that all the code is publicly accessible, so that you can know exactly where the money is going.

There are certainly a lot of benefits here and create problems.In the insurance space, this is a challenge to traditional business models.The entire profession and department of traditional insurance programs spend a lot of time working on claim investigation.In fact, the whole concept of insurance conflicts with the spirit of the smart contract. —— insurance is uncertain; the code of the smart contract is written dead.

Ultimately, there must be a third-party credible and neutral data source to determine whether a claim should be paid.The decentralized solution is to use a prophecy machine.But it's not a simple thing.

Insurance data are not simple

For some industries, data problems are easier to solve than others.But the dimensions and verification procedures are more complex.Many people follow the rules of smart contracts completely, so it is very likely that the data gets out of control.

Imagine a separate data source to verify the payout.So how to make sure that the compensation scenario is 100% consistent with the terms of the contract, especially when many code does not take into account.On the surface, blockchain's smart contracts are similar to traditional insurance contracts.And blockchain has no indirect claim adjustment costs, everything happens automatically.Credit risk is also low because tokens are locked in as collateral.

However, it may also have to improve on whether the data is credible.How to ensure that factors such as force majeure do not fight code justice.How to ensure that users receive timely compensation.What if the prophecy machine collapses?Once a smart contract cannot be invoked, safety accidents will occur.And current insurance programs tend to be more aggressive, also pursuing DeFi's capital efficiency.

The fact is that many businesses are almost impossible to be completely decentralized.A true insurance claim always requires some form of human intervention.Instead, if the vault holds "enough reserve assets" or even "interest-bearing assets", users are more confident that there is enough money to cover future claims.

Insurance is a complex business, which many people tend to underestimate.**DeFi provides an opportunity for insurance programs in a different paradigm to cut costs and increase trust that legal claims being paid.**This, in turn, would encourage DeFi insurance programs that address these issues to compete with traditional insurance programs.More innovative projects are still emerging in this area.

*The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of SparkDAO. Every investment and trading move involves risk, you should conduct your own research when making a decision.