Why DeFi Insurance Failed (And How to Fix It)

Why DeFi Insurance Failed (And How to Fix It)

Onchain insurance has failed to scale meaningfully - Nexus Mutual remains the largest, yet covers only ~$130M in premiums—minuscule compared to DeFi’s $100B+ TVL. Traditional insurance thrives on a robust yield loop: premium collection, float investment, and selective payouts, yet the onchain model has struggled with capital inefficiency and adoption friction.

Key Challenges

  1. Capital Bottlenecks: First-gen models require large, locked capital pools—limiting underwriting capacity.

  2. Pricing Complexity: Risk pricing demands expert assessments across evolving codebases, market dynamics, and off-chain factors.

  3. Limited Supply: Few underwriters are willing to stake collateral or navigate complex, manual underwriting flows.

DeFi insurance needs more than tech—it requires sophisticated risk management, better capital efficiency, and strong ecosystem alignment. With new primitives like restaking and permissionless pools, we could unlock scalable coverage—if participants are willing to share the burden and rewards. A safer DeFi future hinges on collective skin in the game.

Read the whole article at: blog.monad.xyz