Web3 Security Podcast Series: Decentralized Insurance with Solace Finance
On June 12th we launched our Web3 security podcast series, a place where we talk about all things crypto from a security standpoint. We created this podcast because we believe education is the bridge to mass adoption, and when the average user knows better, projects must step up to do better. We aim to use this podcast as a way to educate users on best security practices, how to do their due diligence, and things they should look out for when navigating the crypto space.
In our first episode, we spoke with Nima, Head of Growth at Solace. Solace is a decentralized insurance DApp that allows DeFi liquidity providers and market makers to hedge their risk in the event of smart contract exploits. In this conversation, we talked about decentralized insurance; its benefits, its challenges, and security measures users can take to avoid getting rekt.
Tacking Issues with Decentralized Insurance
Whether you are new or you have been in crypto for a while, we all have heard the horror stories of multimillion dollar hacks, wallet drains, and scams. It is clear that security must be a priority for every project.However, even when audits and bug bounties are in place, exploits still happen. This is when insurance plays a critical role in mass adoption.
From our conversation with Nima, we learned that some of the biggest security risks lay on protocols itself. Users face a high risk when interacting with projects that are exploited, including loss of staked funds and decrease in value of compromised assets. We also learned Web3 security has many similarities to Web2, including malware, phishing, and password loss. However, because of its decentralized nature, there is a higher need for extra layers of security.
In the traditional finance world, insurance policies take into consideration historical data as well as personal information like age, credit, and life history. Crypto levels the playing field by allowing users worldwide to access financial services, including insurance. However, decentralization also introduces complexity when defining premiums, understanding who is behind a claim, and discovering if attacks are self-induced. Because of this, decentralized insurance must be careful on what they can cover. For example, to this day Solace is able to cover protection loss for minting vulnerabilities, flash loan attacks, trojan fake tokens, proxy manipulation, and re-entrancy attacks. All of these issues affect the project itself, not the wallet.
At this moment there is a growing need for wallet protection and NFT related insurance, but because of the lack of data regarding NFT pricing it is hard to underwrite the value of an NFT. Until more guidelines and insurance data develops, users must be aware of security measures they can take to avoid risks.
Outside of having insurance for their portfolio, users can decrease their risk by educating themselves on crypto security. One way to do it is by reading journals like Rekt News that inform the public of hacks, and how they happened. Users can also do their own diligence by using strong passwords, creating burner wallets, limiting smart contract approvals, and checking if projects have been audited or have active bug bounties. Everyone should also use cold storage for valuable assets and check if their emails and phone numbers have been pwned.
The Future of Insurance
Talking with Nima, we discovered that crypto insurance is still in its nascent form. However, we envision a future where insurance is easily available to every DeFi user in the world in the same way the FDIC exists to protect citizens today. Ideally insurance should be available whether users decide to buy it or not, but from a UX perspective, it would be ideal to have a pop-up option allowing users to buy insurance as soon as they interact with a project.
Before insurance reaches mass adoption, crypto must first go through regulation. It is still unclear how regulation will shape the future of crypto, but from an insurance perspective, it is essential to have some type of regulation that protects users and condemns cyber criminals. Crypto insurance has tons of potential that will improve the credibility of crypto, but in the meantime, it is imperative that users remain aware of its risks and due their own diligence before investing.
About Hats Finance
This podcast is possible thanks to the support and education driven mission of Hats Finance. Hats is an on-chain bug bounty platform that allows anyone to contribute to bug bounty liquidity, keeping users protected and encouraging hackers to do the right thing. You can learn more about Hats mission by visiting the website. For more content regarding crypto insurance and security, make sure to listen to the full conversation with Nima on Spotify and follow Hats Finance on Twitter for the latest crypto security news.