Securing peace of mind is an indispensable part of finance. The multi-trillion-dollar insurance industry sprung out of this need, and for hundreds of years, it has operated on the basis of calculating risks down to fractional degrees.
With the advent of DeFi, comes a fascinating question: can insurance be decentralized?
A company called Etherisc is giving it a try by providing a platform for decentralized insurance applications. Hosted on Ethereum blockchain, Etherisc aims to provide on-chain insurance, lower insurance costs, and democratize access to reinsurance.
As with many blockchain projects, Etherisc started in December 2016 as a hackathon entry. A year later, in November 2017, Etherisc developers and co-founders Stephan Karpischek, Christoph Mussenbrock, and Renat Khasanshyn published the project’s whitepaper.
The idea was to create an open-source platform for insurance dApps. Because Etherisc runs on the Ethereum network, any private, for-profit, or non-profit entity may tap its on-chain insurance market.
By leveraging peer-to-peer blockchain transparency, Etherisc automates and streamlines insurance products, resulting in faster payouts. In the blockchain world, such decentralized service guards against three major risks: hacks (code exploits), theft, and fraud. Additionally, Etherisc brings in the business of reinsurance from the world of traditional insurance.
What Is Reinsurance?
Otherwise known as stop-loss insurance, reinsurance is a type of insurance coverage used by insurance companies. In exchange for a portion of premium payments, a reinsurance company assumes the risk for another insurer’s policies. That means the policy has to pay a settlement, the reinsurance company is on the hook.
How Does Etherisc Work?
In the last 25 years, the experience of using air travel has been made exceedingly burdensome and time-consuming. Now add flight delays to that default degradation of service. What one then needs is insurance against flight delays, executed in the most convenient manner possible.
Etherisc’s FlightDelay Portal offers just such service. Covering for at least 80 airlines, the dApp used the Gnosis Chain (former xDai) to process payments. Here is how it works:
- Etherisc token holders use their DIP tokens to generate an insurance risk pool. This is similar to liquidity providers on Aave depositing tokens into liquidity pools so that borrowers can issue loans based on their collateral.
- But instead of taking loans, people can use Etherisc to automate risk conditions with smart contracts.
- They sign up for a policy that secures their timely flight online, thanks to oracle networks. The latter track real-world conditions in order to relay them to smart contracts (flight policies). In this case, Chainlink would feed airport travel data.
- For example, if a flight is delayed for longer than 45 minutes, Etherisc users receive reimbursement directly into their MetaMask wallet with which they signed up for the policy.
In other words, just like borrowers have their collateral liquidated if a certain smart contract condition is met, so do Etherisc users receive funds if their insurance policy is met. At the other end of the insurance equation — liquidity providers — they count on there being more conditions that are not met, just like insurance companies.
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Nonetheless, because there is no employee/software/labor overhead with a blockchain protocol, Etherisc’s insurance automation is drastically leaner as it focuses on the core service. Although Etherisc DIP tokens are ERC-20, the example of Gnosis Chain for Flight Delay insurance shows that Etherisc can be integrated into other networks as well.
In particular, Etherisc picked Gnosis because its blockchain network is 100x cheaper and 10x faster than Ethereum. With that said, Etherisc is still largely in the development stage, lacking crypto-backed lender insurance. Instead, its insurance premiums are paid in either stablecoin or fiat.
Etherisc DIP Token (DIP) Tokenomics
Short for Decentralized Insurance Platform, DIP Token (DIP) is the governance and utility token powering Etherisc. Its total supply is capped at 1B DIP, mainly held by Etherisc Foundation.
Similar to ICOs, TGE refers to token-generating events, which serve to supply more DIP tokens to registered Etherisc contributors at a set exchange rate. In addition to TGEs, the Foundation engages in grants to expand Etherisc’s insurance ecosystem.
In November 2020, Etherisc launched a 50M DIP Token grant program, issued by the Board of the Decentralized Insurance Foundation of Etherisc. Developers use Etherisc’s Generic Insurance Framework (GIF) to build insurance products.
The purpose of Etherisc grant programs is to entice more development for open source insurance products. That’s because DIP tokens provide three key utilities:
- Staking in risk pools
- Staking for quality and reputation
- Staking for governance
Equal to lending dApps such as Aave or Compound, DIP token holders can stake them in risk pools as collateral (bond) to provide liquidity for insurance claims. In return for this service, DIP stakers receive rewards according to the Etherisc staking model.
Etherisc’s African Foray
One of the first historical use cases for insurance was for crops against volatile weather conditions. The need for such insurance today is no different. This is why Etherisc partnered with Chainlink and Ethereum Foundation to launch ACRE Africa, a blockchain-based weather index crop insurance.
Primarily aimed at smaller farmers in East Africa, ACRE provides microinsurance to broaden insurance access in developing communities. As of October 2022, ACRE has integrated over 1.7M farmers, with insurance premiums going as low as $50 cents.
To further such projects, Ethereisc launched Impact B.V. as a separate company within its ecosystem. Led by Jan Stockhausen and Michiel Berende, Impact B.V. has been making a microinsurance foothold in Kenya since 2021.
In late 2022, Etherisc is focusing on upgrading its existing key products, such as FlightDelay. This not only includes adding cryptocurrencies for risk pools, but also making policies into NFTs. This way, even insurance policies could be tradeable, as smart contract logic yielding optimal insurance.
Moving forward, Etherisc plans to expand its partnerships, on top of existing ones with Mercy Corps Ventures, the Swiss Agency for Development and Cooperation (SDC), the Ethereum Foundation, and the Climate Ledger Initiative (CLI).
This series article is intended for general guidance and information purposes only for beginners participating in cryptocurrencies and DeFi. The contents of this article are not to be construed as legal, business, investment, or tax advice. You should consult with your advisors for all legal, business, investment, and tax implications and advice. The Defiant is not responsible for any lost funds. Please use your best judgment and practice due diligence before interacting with smart contracts.