Crypto Insurance as an Asset Class with Danielle Wall Elliott

Uh, welcome to crypto insurance as an asset class. If you're uh lingering in the back and you want to come in, my talk just started. Um, my name is Danielle Wall Elliot. I fell down the crypto rabbit hole in 2014. Um, I've attended every ETH Denver, so I'm so excited to welcome you to Denver.

Um, this is massive. I'm overwhelmed by all the sites and the people. It's so exciting to have you here in Denver and us to have graduated to such a large uh conference. My experience in crypto, I started at ShapeShift in 2016. ShapeShift was a digital asset exchange.

We wanted to be as non-custodial as possible. So, it's a bit like a vending machine. Put in one token, get out another. Uh our ethos, our foundation was no KYC, no accounts, no custody. Now, this changed.

The regulators came down. The business was pretty much gutted with all of its volume. Um, and they really had to redesign themselves. So, took KYC for a while, that wasn't great. Decided they were able to use uh decentralized exchanges, uh, Thor Chain, Zerox, and really offer that same platform.

Then they took it a step further. Hey, if we don't need to do KYC for exchanges, maybe we don't need to have a full business. Maybe they can go full DAO. So, I was able to work there for six years doing the operations and treasury management of over a hundred million dollars. And uh I learned so much about crypto going through the bare and bull market, you know, growing a team from 12 up to 150 back down to 75.

um taught me a lot about what it is to be in crypto, what the foundation is, you know, what what I believe in. Now, I'm the COO at Names. Names is a digital insurance marketplace. Um what we believe is that insurance is going to be this missing link, this gateway uh that crypto needs for mass adoption. Uh so, I'll get into that a bit more as I go on.

Um, I'm currently the co-host of The Missing Link, a podcast where we discuss crypto and insurance, how it all comes together and talk to, you know, founders and leaders in the space. Um, would love to have you subscribe or take a listen. So, you know, what you need to know about me is I have a passion for decentralization and taking power away from governments and corporations and banks and returning that power back to individuals. Very passionate about the crypto space and this global economy that we're all building together. Today my talk is going to we're we're going to talk about some problems.

One, the crypto industry is severely underinsured. Uh custodians can't afford enough insurance to protect its users. Um and individual crypto insurance, that's kind of my take is like that's the future. Uh why would we trust these custodians any more than we already do uh to protect us when we could protect ourselves? uh the overall insurance and reinsurance industry needs capacity um and so they're always looking for alternative sources of capital.

Well, we think they can find that in the crypto ecosystem. uh risking your capital for reinsurance via names or just this overarching crypto insurance ecosystem as a tokenized real world asset that's earning real Uh-oh. Hold on. Technical difficulties. Hey, there we go.

Thank you. You guys give me a sign if it goes back out. Okay. All right. So, sorry if that point over.

So, you know, risking capital for reinsurance allows this tokenized real world asset that's actually earning real yield on an uncorrelated risk to the market. So, what does that mean? Uh, you know, the hurricane isn't paying attention to what the stock market's doing. You know, uh, the car insurance opportunity, you know, the cars don't care what the, uh, S&P is doing, if they're going to break down, if they're going to get in an accident. So investing in insurance gives you a diversified portfolio which I think we all could use.

I'll wrap with my prediction which is in the future I believe that there'll be you know basket assets wrapped assets that give you exposure to many different insurance risks. So the current crypto insurance landscape uh less than 1% of all crypto is covered and insured and less than 3 uh less than 3% in DeFi. So, DeFi does have some more opportunities than uh traditional crypto and there's a huge market opportunity for us to realize. So, one point is it's mostly insured in dollars. So, if you've tried to sign up for like a Fireblocks account or some custodian account, they will tell, oh, we have $50 million in insurance.

And I'm like, oh, is that is that for me for for my account? No, that's that's across the board for the whole uh anyone that's on, you know, having funds with this custodian. We all know what the crypto market can do. We know it can double overnight. That's not unheard of.

So, you know, insuring in dollars, I don't think is the most effective way to do this. I believe in native token amounts, which you can do if you're doing the policies on chain. Uh that's the future. We all know the hacks in 2021. Uh you know, they accounted for 2.

6 6 billion in losses, 10 billion in the wider crypto space. Uh obviously 2022, we're still uh racking up the numbers there, but it's way way past that. Um I think most of us when we're thinking about our dollars, we don't typically think about insuring it. But the rest of our lives is like wholly insured. you're insuring, you know, your health, your car, your house, your concert tickets, your flights, every aspect of your life we see insurance in.

And um, you know, find for dollars. Maybe in the US you have FDIC insurance. Um, maybe if you have cash at home, maybe your homeowners insurance might cover it a bit. Um, but why not? If if we're all about self- sovereignty, if we're all about responsibility of our own crypto, why would we not be insuring our crypto, especially if we're taking really big risks?

uh the current crypto insurance landscape. I picked three players out to highlight. I think Nexus Mutual is the one I always hear the most about. Um and so to tell you they are shared they have shared risk as a mutual. They eliminate the need for an insurance company and they utilize their DAO and a token to vote on the validity of claims.

Another standout and star uh in the insurance landscape right now is Insurase also a Dow. Um they have 142 protocols actually protected. So you can go there right now and uh get insurance for some of these at the bottom. Cold wallet coverage, custodian risk, smart contract vulnerabilities. Um the reason I say they're the star or a standout in the space is they've actually paid out.

They've proven that it works. So they paid out uh almost $12 million to 155 US DPEG cover holders. So people that saw, okay, Tara, maybe it's a little risky. Uh bam, they they were made whole. Breach.

Uh I got a breach policy. It's the most easy insurance policy I've ever gotten. You know, I love to tout uh self-custody, but you know, I believe custodians have a space or, you know, have a place in our space. Um, and so I was able to get uh, you know, policy for I have some crypto on one of these uh, exchanges and it was super easy, you know, really clear, affordable, um, and it gives me that extra layer of protection. So, we talked about some I mentioned some of these, but I'll say it again.

So what you can get right now um and albe it is a small industry but cold wallet coverage custodian risks uh your smart contract vulnerabilities as I' I've seen initial dick dex offerings so it's kind of like the ICO when you're first investing in a token um stable coin DPEG and then NFTTS I I see that a lot as being like a hot hotter topic uh in the space I got to go faster all right custodians need insurance. So, they're they're getting it. It's out there. We talked about that. You know, this is an example of copper.

Got a $500 million uh insurance cover. It covers, you know, their assets in cold storage. Um cover against employee collusion, third party theft, physical loss or damage to the digital digital assets. Uh this cover was organized by AON. AON is the largest UK insurer by market cap.

So they're from the traditional space and they're taking notice of the crypto world. They are participating. Um I like to t talk about you know CZ and Binance team. They're doing a form of self insurance. So it's amazing.

It sounds so good. Wow. A billion dollars of self- insurance in this Safu fund. That sounds epic. And they've they've used it.

They've made their customers whole. But when you look at the exchange total holdings, it's about 75 billion. So if they have any large scale attack, uh the Safu fund's not going to hold up. You know, there I don't need to waste too much of my talk on this, but what the FTX, SPF, $10 billion of theft. And you know, even if they would have had insurance, if it was actual negligence, you know, by the team, would that have even been covered?

So then we see the contagion throughout the industry, BlockFi, Salt and so on. Uh so again, these custodians, we trust them uh to some level, but could we trust them more if they had more uh insurance coverage? I don't think that they could afford nor could they find enough coverage to ensure all their customers assets. So a few examples, okay, Coinbase, Bitstamp reportedly have some crime policies. BitGo, uh, FTXUS had a $7.

5 million policy from AON. Again, these are drops in the bucket. What I believe is the future of this crypto insurance industry is that individuals are more likely candidates to get policies. So, I foresee a popup for insurance, just like concert tickets, flights, and so on. We're already seeing this with some DeFi protocols.

Uh, GMX uh, exchange allows liquidity providers to purchase coverage. You can see it there at the bottom. Purchase insurance right at the checkout step. Um, so why, you know, I feel like I I say this a lot, but like my team, hi names team. We come to this uh these crypto conferences, we talk about insurance and it's kind of like, oh, insurance like that's that's what you guys are doing.

It's not very sexy. It is. Um, but then we go to these insurance conferences and they're like, crypto? really crypto that's what you're doing? It's like kind of like a joke.

So, we're right in this uh middle stage. We've got one foot in the traditional space and one foot in the crypto space. Um and I believe, you know, why do we need insurance in crypto? One to promote the mass adoption. Uh institutions, you know, what are they waiting for?

They always talk about how it's so risky. Well, how can we, you know, bring that risk down? Insurance. Uh reducing the risk to investors. uh if a company is public uh they have a fiduciary responsibility and so crypto seems risky so if they can mitigate that risk and then we all know crypto is a honeypot for bad actors it's easy to misappropriate so that crypto is gone there's no customer support to call um so you know why not protect your uh risks why does the traditional insurance world need crypto or blockchains so traditional insurance It's old school.

It's antiquated. Lloyds of London's been around for like 300 years. Um, you know, let's move it into the 21st century. Let's let's use these tools that we all know and love. Uh, insurers, they don't let liabilities sit on their balance sheet.

They get reinsurance. So, hedge funds, pensions, they put up this capital as reinsurance. They earn a return from premium payments and they're on the hook if something happens. if a claim uh needs to happen, their capital gets used. But these positions are not liquid in the traditional markets.

And so, let's take that hurricane example again. If the hurricane's off the coast, well, they're just going to have to deal with it. If it's tokenized, if it's onchain and it's tradable, then, you know, now there's a market to go in and out of these positions. Uh just, yeah, making it more accessible, opening up this idea that they can have access to this alternative capital. I said this earlier, but crypto and cannabis are the punchlines at the insurance conferences.

They say, "Oh, there's not enough data for crypto insurance. That's all we have. We got data coming out of our ears. It's all on chain. We have chain analysis to tell us about these hacks."

Um, we are tracking it. So, I I actually don't think the problem is not enough data. It's just not enough education on how to utilize the data. So if you'll forgive me, I'll do a quick shill of names. So names, what we're working on, uh, call it powerfully smart risk transfer.

Um, we are using the Ethereum blockchain to facilitate efficient insurance processes. Um, you know, outsourcing the trust to smart contracts. Um, allowing you to write your coverage in native assets so you can ensure your ETH in ETH. Um, again, this idea that new sources of capital, the insurance industry needs new sources of capital. Hey, we need to have real yield on our crypto.

I'm sick of fake yield. I'm sick of rewards. I'm sick of pump and dumps. I want my crypto to earn real yield on real world assets. Um, also it taps into this uncorrelated investment opportunity.

Again, holding this insurance risk diversifies your portfolio more fully. um it allows you to earn these real yields uh again uncorrelated to the market. All right. And my last uh prediction here um so with this idea that you can have native tokenized risk um h so right now with names okay like I said we're kind of in this um one foot in centralized like we're fully regulated the capital that comes in has to be accredited investors. Um but I being this kind of like how can we give access to the full wider crypto market.

So my prediction is either through us through other methods in this space they'll be index tokens. There'll be these basket tokens that can represent a portion of you know each of these cells each of these risks and users can just buy one token uh that gives them this diversified exposure to multiple insurance risk and you don't have to be the fully accredited you know do do the whole deep dive into the industry. So that's where I see it going. Um again I love to just say like I want crypto to mature. I want crypto to actually have something that backs it to give us the yield so that we can have a sustainable industry long term rather than these like really big like spikes and peaks the ICO boom you know DeFi summer it's like let's build the sustainable long-term uh yields and you know I think insurance is the way to do that one of the ways.

So to reiterate, um the crypto industry is severely underinsured. Um you can go out and find some policies on your own and I would recommend doing that rather than relying on these custodians for you. Um one, they can't afford enough insurance to protect all the users and you know, we're we value self- sovereignty. We value responsibility in ourselves. So let's take that um responsibility on and and and ensure our own assets.

the insurance and reinsurance industry, it needs capacity and it's looking for alternative capital and in crypto, we have that capital. We have it. We want to earn yields on our um on our crypto. So, I think that they're a match made in heaven. Uh risking capital for reinsurance is earning yield on an uncorrelated to the market risk.

And my prediction in the future is that we will have more widespread access to like the whole cryp the whole crypto industry will be able to buy this like basket asset or index asset um that could give you exposure to many different insurance risks. Um I'll wrap up and say thank you so much ETH Denver, John Paul, Danny um Kent, my friends, people that I've worked with for many many years. Thank you for putting this on for us. It's a gorgeous event. Thank you all for coming.

Follow me on Twitter and a shameless plug for the podcast again, the missing link, wherever you subscribe to podcast. Thank you. [Applause]