Working Process
DeFi Working Process
Decentralized Finance (DeFi) is revolutionizing how we perceive and interact with financial services, and decentralized insurance is a prime example of this innovation. Crypto assets have emerged as modern equivalents to traditional valuables like property, jewellery, art, etc. These digital assets, ranging from cryptocurrencies to unique tokens, represent significant financial and sentimental value to their holders.
However, while traditional insurance models offer protection for physical valuables against theft, loss, or damage, they fall short in extending this safeguarding to digital realm. In addition, even if this area were included in the insurance list, people would be faced with the problem of justifying their claims for compensation.
If this is still an incomprehensible set of words for you or you have not yet fully understood why our insurance is better than traditional insurance, let’s look at how it works using a specific real-life example.
Traditional Insurance
Imagine you own a house in an area prone to flooding. To protect your property, you purchase flood insurance from a traditional insurance company. You pay an annual premium, and in exchange, the company agrees to compensate you for damages caused by flooding. If a flood occurs and your house sustains damage, you need to file a claim. After the manual assessment of damage, the company pays you an amount based on your policy’s terms to cover the repair costs.
DeFi Insurance
Imagine that you choose the DeFi insurance, which also aims to protect against losses from natural disasters such as floods but operates on blockchain technology. You need to contact the company’s representative to initiate the insurance process so that you can receive your payment as quickly as possible. One contact is much faster than collecting evidence on your own. The terms of the insurance are encoded in a smart contract. It is also pooled with other policyholders in a decentralized manner. So, it is transparent and operates without a central authority.
If your house is damaged by a flood, you submit your claim through the DeFi representative. Instead of manual inspections, the platform could use data from weather stations, satellite images, and other blockchain-based verification methods to assess the extent of the disaster and validate claims. After that, it automatically triggers a payout from the pooled funds co compensate you for your loss. The process minimizes human intervention and aims to reduce the time from claim submission to payout.