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Insurance Could Be The Next Industry Revolutionized By Hybrid Smart Contracts

With over $60 billion currently secured by the decentralized finance (DeFi) industry, billionaire investor and Shark Tank star Mark Cuban said there are “a lot of financial institutions that should be concerned” with the rise of DeFi in a blog post this week. Cuban, who has invested in several DeFi projects, was also recently brought on as a strategic advisor for Chainlink Spring Hackathon winner Vulcan, a blockchain-powered derivatives marketplace that allows anyone to insure themselves against the weather.

Chainlink Co-founder Sergey Nazarov, who recently outlined four reasons why banks should take DeFi seriously on the Exponential View podcast, also spoke to Jill Malandrino on Nasdaq TradeTalks about how banks should prepare for DeFi and what he expects will be the next industry to be revolutionized by hybrid smart contracts: insurance. 

“Insurance, in terms of what I’ve seen, is a very important global industry that underpins a huge amount of how the world manages risk and the type of activities that people can commercially do,” Nazarov said. 

“In fact, the ability to even sail across the Atlantic Ocean is based on there being an insurer who can minimize the risk of whether or not you can transport yourself or your goods.”

He said decentralized insurance exceeds the capabilities of centralized insurance because the former “fundamentally solves” a host of trust issues that exist in both developed and emerging economies where local governments and legal systems inhibit traditional insurance for people who need it most. By contrast, Nazarov said decentralized insurance has “the ability to take parts of the world from zero to one in terms of risk management.”

Decentralized insurance is already democratizing economic destinies around the globe. For example, parametric insurance products allow anyone in the world to mitigate the impact of weather events, drought and climate change on their livelihoods.

Ethereum Co-founder Vitalik Buterin recently spoke to Lex Fridman about the importance of Chainlink’s decentralized oracle networks (DONs) in delivering real-world weather data to blockchain-based crop insurance such as Etherisc, which integrated Chainlink DONs to deliver crop insurance in Kenya.

“You need some kind of oracle to tell you, ‘Did it actually rain in this particular area?’” Buterin said. 

The ability to generate wealth is quickly followed by the need to protect it. As DeFi continues to grow in TVL, decentralized insurance should grow in tandem. Wrapping up his TradeTalks interview, Nazarov said he believes that decentralized insurance products “will be quite meaningful in the impact they will have, not only on commercial aspects of people’s lives, but really just how the world is able to cope with various new risks.”

Watch Sergey Nazarov’s full interview with Jill Malandrino on Nasdaq TradeTalks.

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