Provide cover

Providing cover is the decentralized alternative to underwriting insurance risk

Providing cover is a new earnings option enabled by decentralized insurance. Instead of insurance companies now receiving fat fees (a.k.a. premiums), they will now go to the community.

In order to buy a decentralized insurance product, capital should be provided by the community. This capital will be paid out in case the person buying a cover successfully submits a claim. Providing cover is the process of providing this capital and taking a the risk covered by the insurance product. The person will receive a flat fee from the person which is buying a cover.

Some parties also refer to "providing cover" as "staking a cover".

Leverage

The power of smart contracts is that any capital locked can never be taken out by a human or any event which isn't defined in the smart contract. In the early days of decentralized insurance the capital provided had to be for the same (or larger) amount than the amount of assets for which capital is bought. The advantage of this approach is that the payout of a claim can always be guaranteed. The downside is that the yield on providing capital can never be higher than the fee which is paid for buying a cover.

Example:

In case a Risk Platform offers a protocol failure cover for 10 protocols and locked $1M in capital for each. Should the Risk Platform then allow only 10x$1M=$10M worth of assets to be insured? The answer is NO, As it's highly unlikely that all 10 protocols will be hacked at the same time. Hence the Risk Platform can look for Leverage of Capital Efficiency which allows them to use the $10M of locked capital to ensure a higher value of assets.

Providing cover at Nexus Mutual Nexus Mutual offers the user to provide cov