Yield Token Cover is a type of DeFi cover (DeFi’s version of insurance) that protects against fund loss resulting from a yield-bearing token depeg, as a result of a stablecoin peg loss or an attack or technological failure within a decentralized finance (DeFi) protocol.
A yield token, sometimes called a yield-bearing token, is a protocol’s internal version of a stablecoin, or free-floating cryptocurrency. As Yield Token Cover applies to depeg events, the yield tokens in question are stablecoins.
Yield Token Cover is a type of DeFi insurance alternative that protects against the devaluation of a yield-bearing token: the version of a stablecoin into which a DeFi protocol user’s funds are programmatically converted when they use a specific protocol.
For example, yDAI, Yearn’s internal version of DAI, and mUSDC, mStable’s internal version of USDC, are yield tokens.
Yield Token Cover typically protects against financial losses that result from a depeg event, either as a result of a protocol hack or malfunction, or an underlying token depeg event.
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.
Similarly to Stablecoin Depeg Cover, Yield Token Cover may offer total or partial reimbursement following a yield token peg loss of a certain percentage (typically 10%).
Yield Token Cover typically protects against depegs that result from the depeg of the underlying stablecoin, or events that diminish the token’s collateral, including:
Yield Token Cover differs in terms of:
There can be an overlap between Yield Token Cover and Protocol Cover.
The benefit of Yield Token Cover is that it typically protects against depeg risks across an entire series of smart contracts — e.g. a DeFi protocol integrates with other protocols to generate additional yield — whereas Protocol Cover may only offer protocol-specific protection against depeg events if they result from protocol attacks or malfunctions.
Yield Token Cover will not apply to events excluded from the original cover language or that occur outside of the cover period. The majority of DeFi, cryptocurrency, and user-related losses fall outside the scope of Yield Token Cover, which will only protect against financial losses resulting from the depeg of a specific yield token within a specific protocol.
These may include losses resulting from:
