Protocol Cover is designed to protect funds employed within a decentralized finance protocol against losses due to technological errors or attacks.
Protocol Cover, sometimes referred to as Smart Contract Cover, is a type of DeFi cover (DeFi’s version of insurance) that protects against fund loss resulting from the use of a specific decentralized finance (DeFi) protocol: an application built on a blockchain.
Unlike a bank account that takes custody of account holders’ money, a DeFi protocol is self-custodial, or non-custodial, meaning that users maintain control of their funds.
Protocol Cover is designed to protect against DeFi’s risks, which are mainly technological.
Protocol Cover is DeFi’s version of insurance, designed specifically for decentralized finance protocols. It typically applies to fund loss resulting from a pre-specified list of events, e.g. smart contract code failures or governance attacks, within a singular protocol.
As DeFi insurance providers may not be insurance companies or mutuals, and cryptocurrency is not legal tender in most countries, cover is a more accurate term than insurance for this type of fund protection.
Protocol Cover offers DeFi protocol-specific protection against code failures and hacks, of which there are many kinds, including:
Unlike traditional insurance policies, which have been standardized over the decades, Protocol Cover varies in terms of its scope.
Protocol Cover will not apply to events excluded from the original cover language or events that occur outside of the cover period. Though it is possible to bundle cover or purchase Protocol Cover with a large scope, there are risks associated with DeFi and cryptocurrency that will most likely fall outside the scope of cover, including losses resulting from:
Stablecoin depegs (see Stablecoin Depeg Cover)
Yield token depegs (see Yield Token Cover)
Off-chain scams (e.g. phishing)
User error
The use of another DeFi protocol besides the one for which cover was purchased, even if automated through the covered protocol For example, if a protocol for which a user has purchased cover integrates with another protocol, do not assume that the Protocol Cover will cover losses resulting from the use of the second protocol, unless explicitly stated.
