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    NFT Insurance? How does that work?

    Non-fungible tokens are decentralized digital assets. You can sell them, buy them or create them, but can you insure them? As a complicated digital asset, there are few coverage options available to NFTs.

    Being new in the market and having too many risk factors and an uncertain future potential, a full-fledged insurance scheme for an NFT is impossible as of now. But still, there are some insurance options that you may go for.

    Why do many companies do not offer insurance for NFTs?

    Insurance is simply a form of risk management that protects a buyer from financial loss. When we buy a physical asset, like a car, we immediately insure it so that in the case of an accident, the insurance company can provide us money or cover our repair costs, etc. This coverage depends upon the type of insurance scheme that the car owner buys.

    It is the same concept in the case of non-fungible tokens. But here, a huge problem arises. The price of an NFT is subject to market valuation- it can drop to as low as 1ETH and rise to as high as 500ETH in a very short time!

    Apart from this, there is also a problem of disappearing links- some NFTs disappear from the market! This can be because of various hacks and frauds in NFT Marketplaces. Then there is also a headache of human error- imagine forgetting your account’s password, and boom! The NFT and the user account are forever sealed. This is what happened with Stefan Thomas, the man who lost 250 million US Dollars because of a forgotten bitcoin password.

    So, the fluctuating market value of an NFT, the scope of human error, and various security threats (hacks) make NFTs a dangerous asset to insure, and the companies cannot afford such a huge risk.

    What is a decentralised insurance company?

    In the Decentralised finance sector, decentralized insurance is a risky segment for the companies, but it can provide insurance for an NFT’s smart contract. A smart contract is a computer generate transaction protocol that uses blockchain technology and is used for the transaction of NFTs securely.

    A decentralized finance company provides the insurance cover for Crypto Wallet, Crypto loans(backed with collaterals only), and the NFT’s Smart contract.

    How NFT insurance work in some places.

    Different companies provide different coverages for NFTs; we have listed a few of them for your reference.

    • Nexus Mutual
      It is a blockchain based solution provider, powered on Ethereum, so that people can share the risk together.
      It provides a smart contract cover which insures for events like the DOA(Decentralized Autonomous Organization) hack, potential bugs in the contract code or Parity multi-sig wallet issues.

      Terms and conditions:
      The Smart Contract Cover is not strictly an inusrance cover. The claims will be decided by the fellow community members (since it is a decentralised platfrom). The membership rights, participation in claims and assesments are all represented by tokens which can be purchased.
    • Insured Finance
      Similar to Nexus Mutual, Insured Finance provides Smart Contract covers. It is powered by Polygon and is a decentralized P2P insurance marketplace.
      Insured Finance also provide Rug Pull covers. Rug Pull is a scam that happens after an NFT is purchased, the originally high value at the time of settlement drops down to almost zero. The insurance covers such possibilities.
    • Covered Protocol and Tidal Finance
      Covered protocol, now merged with Yearn Finance, provides cover for smart contracts in Defi.

    Unlike traditional insurance schemes, NFT insurances are usually based on a “mutual” claim community. Before diving into the world of NFTs, an investor needs to know about all these things.

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