Blockchain Insurance: De-Risking Ventures with Custom Coverage

Companies that build, use or invest in blockchain tech face a unique mix of risks. First, cyberattacks. Hackers exploit vulnerabilities in protocols, wallets, and infrastructure. A successful breach can freeze assets, steal funds or bring down your platform’s reputation.

‘Layer 2’ protocols — built to drive speed and capacity — come with their own risks. Bridging between L1 and L2 protocols can introduce vulnerabilities. Data loss affects transaction verification and settlement. Compromised oracles threaten transaction integrity.

Then there’s compliance and governance risks. Regulations are changing fast, so staying compliant can be a challenge. Investor disputes, protocol upgrades, or treasury mismanagement can spark internal conflict.

Blockchain insurance solutions are built to match the speed, complexity, and unpredictability of decentralized ecosystems.

Blockchain technology insurance includes several types of coverage, including:

• Cyber liability: covers loss from breaches, hacks and ransomware.
• Smart contract failure liability: Covers the financial and legal consequences caused by smart contract failures.
• Crime liability: Protects against the consequences of criminal acts involving smart contract exploitation.
• D&O liability: Protects leadership from personal legal risk.
• Errors and omissions liability: Also known as ‘E&O’, this covers errors in products or services that causes losses for clients, such as mistakes in code.

Smart contracts are only as strong as the code behind them. When they fail, the consequences can be far-reaching. For example, bugs in a DeFi lending protocol could lead to exploitation and trigger a chain of liquidations. Oracle attacks, flash loan attacks, and Maximal Extractable Value (MEV) attacks are just a few of the risks. To make it worse, legal liability for these failures isn’t always clear in decentralized environments.

Smart contract liability coverage steps in where traditional policies fall short. It helps cover financial losses, legal disputes and operational recovery costs when coding errors or vulnerabilities cause harm.

Cyber insurance protects blockchain companies from disasters like hacks, breaches, system outages and ransomware attacks.

There are two main types. First-party coverage pays for your own recovery costs — system repairs, lost income, crisis PR, and beyond. Third-party coverage protects you against lawsuits from users, customers, or partners who were harmed by a breach or security failure on your end.

With blockchain, a single vulnerability can impact thousands of users simultaneously. Having both layers of protection is a wise move.

Directors and officers insurance for startups protects founders, executives and board members if they’re personally sued over company decisions.

In the blockchain space, leadership comes with high stakes. Simple missteps have been known to compound, and in some cases leadership teams have been taken court.

If the worst happens, D&O insurance covers legal defense costs, settlements, and judgments. Without it, attracting experienced leaders gets a lot harder.