DeFi and Staking Insurance Startup Unslashed Raises $2M

Crypto insurance startup Unslashed Finance has raised a $2 million seed funding round, the company announced Thursday, including investment from Lemniscap, P2P Capital, Bitscale Capital and ChainLayer. 

Crypto asset insurance of one sort of another is a fast-growing space, with major insurance broker Aon announcing a pilot this week that looks at risks associated with the booming decentralized finance (DeFi) space. 

Launched in January 2021, Unslashed designs decentralized insurance products that players in the crypto industry can purchase to cover the various risks they might encounter. That could be a DeFi lending platform going bankrupt, for example, or cover against the penalties incurred if a set of nodes has unexpected downtime. It might also include more esoteric risks like stablecoins losing their peg, smart-contract oracle failures and so on. 

Similar to some other decentralized insurance products, crypto holders or investors are invited to underwrite the risk by depositing capital and earning premiums. Currently, those investors can earn between 4% and 5% yield on the crypto they deposit with Unslashed. 

The startup’s first product, called the Spartan Bucket, comprises a diversified mix of crypto risks and therefore qualifies as “low risk,” according to Unslashed founder Marouane Hajji. The first bucket currently contains seven policies but will eventually house 24, at which time the yield will be between 15% and 20%, Hajji said.  

“We're taking a lot of different policies, representing a lot of different risks that have low correlation or that are uncorrelated,” said Hajji. “A smart contract hack of Compound, for example, and the slashing event of Lido; those two risks are really uncorrelated.”

British Virgin Islands-based Unslashed’s insurance offering is entirely unregulated, like the blockchain platforms it covers. The policy guidelines are clearly set out, said Hajji, and there is a maximum amount of exposure that the capital suppliers can have for one policy.  

As it stands, Unslashed says it has sold over $400 million worth of cover and collected $90 million in capital deposits. The firm is yet to make any payouts. Hajji explained it does use a decentralized “court,” in the form of Kleros, an Ethereum-based dispute resolution system.  

In addition to selling staking cover to hosting service Lido, Unslashed says it has provided cover to crypto hedge funds such as Techemy Capital, to cover risks relating to DeFi stalwarts like Uniswap, Compound, ParaSwap and Kyber.

“This first structured insurance product is low risk and we are expected to pay out once every two or three years with this one,” Hajji said. “But we are going to have another one that is going to be way more risky. Obviously, the yield collateral suppliers are going to receive will be much higher.”