Hacks, Institutional Investors and The Need to Insure Digital Assets

By Bridge Mutual

Just in November of this year there were at least ten large hacks that led to millions of dollars in lost value in the decentralized world. Large financial institutions are afraid of investing or utilizing the space because their funds would be at risk.

Let’s take USDT for example, which is centralized and in my view a non-transparent stablecoin.  The company hasn’t had an audit since 2017. It is likely that Tether is no longer backed 1:1 with collateral, as its issuing company claims.  Another large player in the field, DAI has a similar issue. They are decentralized and have funds locked on China, but all decentralized projects are susceptible to hacks. Keeping money in the banks is still safer for institutions than keeping money in stablecoins. 

 

Audits, audits and more audits

When we speak of money in general, the main concern for investors is risk. For investors in the DeFi space, risk is amplified by the existence of extra concerns such as:

  1. Hacks;
  2. Rugpulls; and
  3. Exploits.

To mitigate these risks, there are yet other DeFi protocols, such as Bridge Mutual, which allows investors to insure against these risks and protect the value they hold in smart contracts, stablecoins, and centralized exchanges. Once this space is safe enough due to improved securities, audits, and insurance, the markets will likely grow exponentially as traditional finance begins to inject this industry with capital.

Roughly $3.7 trillion of the traditional insurance industry can be brought on-chain. Over the next few years, this space will grow 1,000x to 13,000x.

One of the most crucial things in the decentralized space is transparency of code. DeFi insurance protocols like Bridge Mutual are partnering with multiple companies that provide code auditing services to ensure that code is safe, secure, and can be trusted. Bridge Mutual, in particular, is partnering up with multiple auditing companies to make sure that its code is continuously audited.

In addition to auditing its own code, Bridge’s partners will audit popular and upcoming projects in the space and publish those reports, so they can be accessed by anyone. 

Right now, projects are auditing their code, but this is a conflict of interest. One or two audits is not enough to safely secure millions of dollars, and some projects are changing their code after the audit and then stealing money from their users. Only independent audits paid for by third parties should be trusted, and Bridge Mutual is working towards becoming an authority on the security of all projects.

 

How it works: Decentralized insurance process at a glance

KYC goes against the spirit of cryptocurrency; it is a roadblock to adoption. Our platform will be truly decentralized and the team will never have custody of anyone’s assets on the protocol. Also, the team at Bridge Mutual will not actively manage or invest the money in the coverage pools. All of the money will flow automatically, on-chain, without interference from the team.

The voting process is what users must care about. To start, stablecoin claims are handled automatically without human interference. If a stablecoin crashes in price and does not recover within a certain period, you will be instantly reimbursed once you submit your claim.

For smart contracts and centralized exchange hacks, it is more complicated than just watching the price. People need to collectively do research and give their opinions on how to handle these claims, so we invented a 3-phase voting process.

Those who choose to vote in the voting process can be rewarded or punished based on their input. Those who vote in the majority are rewarded, those that vote in the minority are punished. The more dramatic the difference, the larger the punishment or reward. 

There is more to this complex system. We will explain it in detail in an upcoming release of our Whitepaper. Also, we have just raised $1.6 million during our private token sale and are 5X oversubscribed. We plan to roll out a number of announcements in the upcoming weeks. Stay tuned! 

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