Cover
Risks from digital assets - and what of them can be transferred
What risk transfer means
Transferring a risk does not mean making it disappear. It means somebody else carries the financial loss if the case occurs.
For every risk there are four options, and only the last has anything to do with cover: avoid it (do not use the protocol), reduce it (put in less or spread it), retain it (accept the possible loss deliberately) or transfer it.
A risk can only be transferred if what would have to happen can be described exactly. “My money is gone” is not a describable condition. “Smart contract X was exploited between day A and day B and funds flowed out as a result” is one.
Why cover is not automatically insurance
The two words describe the same intention but not the same thing. The difference lies in who is obliged when a loss occurs and who decides that.
| Who carries the risk? | With insurance, a supervised company with its own funds. With a cover it can be members or capital providers putting up their own money. |
|---|---|
| Who decides on the loss? | With insurance, the insurer, reviewable in court. With a cover it can be a procedure inside the protocol. |
| What is promised? | An insurance contract creates a legal claim to the agreed extent. Whether a cover does so depends on the model. |
| Who supervises? | Insurers are subject to supervision. That does not automatically apply to a cover protocol. |
None of these lines says cover is worse. They say you cannot infer the effect from the label. What a particular product does is in its terms - and only there.
Six terms that come up everywhere
These six decide, for every cover, whether a loss is covered. They are used throughout this section in the same meaning.
| Sum insured | The amount up to which a payment can at most be made. Not the amount that is paid when a loss occurs. |
|---|---|
| Term | The period within which the event has to occur. A loss before or after it is not a covered event. |
| Premium | What the cover costs. It says nothing about how likely a payment is. |
| Covered event | The exact description of what must have happened. The most important part of any cover. |
| Exclusion | What is expressly not covered, even where it would otherwise fit. |
| Wording | The binding text. It beats every summary, every product page and every explanation - including the ones on this site. |
Where to go next
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What can go wrong with digital assets, how that turns into a financial loss and whether such a risk can be the subject of a cover at all. The recommended way in.
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Wallet, smart contract, protocol, stablecoin and the remaining terms - briefly explained, each with the question of which risk arises from it. To look up, not to read through.
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From the asset through the risk to the possible payment: sum insured, term, covered event, claim.
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One provider as an example: which model is behind it, who carries the risk and how a claim is assessed.