DeFi Insurance for NFT Finance Protocols

Detailed Instructions

Begin by analyzing the smart contract risk of the underlying protocol (e.g., NFT lending vault, fractionalization platform). Review audit reports from firms like OpenZeppelin or Trail of Bits, focusing on unresolved issues or recent upgrades. Next, evaluate collateral risk for the specific NFT collection. Calculate key metrics: the collection's 30-day average floor price, its liquidity depth on major marketplaces, and historical price volatility. For a loan position, determine the loan-to-value (LTV) ratio; a position at 40% LTV on a stable collection is lower risk than an 80% LTV loan on a volatile PFP project.

• Sub-step 1: Query the protocol's smart contract for the specific position's collateralization details and liquidation threshold.
• Sub-step 2: Use a blockchain explorer to verify the NFT's provenance and check for any associated malicious activity flags.
• Sub-step 3: Cross-reference the collection's trading volume on an aggregator like Blur to assess exit liquidity.

Tip: For complex DeFi-NFT integrations, model tail risk scenarios like a 50% floor price drop combined with a spike in gas fees preventing timely liquidation.

Detailed Instructions

Research providers like Nexus Mutual, Uno Re, or InsurAce, focusing on their support for NFTfi coverage. Do not rely on marketing claims; inspect the capital pool size and composition directly on-chain. A well-capitalized pool with diversified assets (ETH, stablecoins) indicates stronger claims-paying ability. Scrutinize the policy wording in the smart contract. Key clauses to verify include the definition of a 'covered event' (e.g., smart contract exploit, oracle failure), the claims process, and any exclusions for 'gradual value decay' or market-wide NFT downturns.

• Sub-step 1: Use a provider's dApp interface or subgraph to query the available coverage capacity for your target protocol and the current premium rates.
• Sub-step 2: Compare the claims assessment period; a 14-day period is standard, but longer periods may delay payout.
• Sub-step 3: Check the governance forum for recent disputed claims to gauge the community's risk assessment rigor.

javascriptCopy
// Example: Fetching cover capacity from a hypothetical provider's subgraph
const query = `{
  covers(where: {protocol: "${protocolAddress}"}) {
    capacity
    premiumRate
    expirationTime
  }
}`;

Tip: Prefer providers that use on-chain claims assessment with clear, objective triggers over those relying heavily on subjective multisig votes.

Detailed Instructions

Premiums are typically quoted as an annual percentage rate (APR) of the coverage amount. Calculate your total premium cost: Coverage Amount * Premium Rate * (Coverage Period in days / 365). Inputs are dynamic; a protocol with a recent audit may have a 2.5% APR, while a newer one might be 8%. Decide on the coverage amount, which is often a percentage of your position's value (e.g., up to 90%). Set the coverage period; 30-90 days is common for active positions. You must also specify the sum assured in the correct currency, typically the stablecoin or ETH used in the position.

• Sub-step 1: Use the provider's premium calculator, inputting your protocol address, coverage amount (e.g., 50 ETH), and desired period (e.g., 60 days).
• Sub-step 2: Account for the staking requirement; some protocols require you to stake their native token (e.g., NXM) to purchase cover, adding to the capital lock-up.
• Sub-step 3: Verify the policy's payout ratio; some covers may only pay out 90% of the loss after a deductible.

Tip: For long-term positions, consider the cost and process of renewing coverage, as premium rates and capacity can fluctuate significantly between periods.

Detailed Instructions

Connect your wallet to the insurance protocol's dApp. You will interact directly with their cover purchase smart contract. The transaction typically involves two steps: approving the spend for the premium (and any staking tokens), then calling the buyCover function with your parameters. Essential parameters to double-check in the transaction preview: coverAmount, coverPeriod, protocolAddress, and premiumAmount. After submission, confirm the transaction on-chain and save the policy ID and proof of insurance (often an NFT or a unique on-chain record).

• Sub-step 1: Before signing, simulate the transaction using Tenderly to ensure no revert and to verify the exact token transfers.
• Sub-step 2: Store the policy details in a secure record, including the policy ID, expiry block height, and claims assessor address.
• Sub-step 3: Set up monitoring (e.g., via OpenZeppelin Defender Sentinel) for events emitted by the policy contract, such as ClaimSubmitted or CoverExpired.

solidityCopy
// Example structure of a typical buyCover function call
interface ICover {
    function buyCover(
        address _protocol,
        uint256 _coverAmount,
        uint256 _coverPeriod,
        address _coverAsset,
        address _paymentAsset,
        uint256 _premium
    ) external returns (uint256 policyId);
}

Tip: Consider using a multisig or smart contract wallet for large coverage purchases to add a layer of transaction approval and recovery options.