Industry Overview

What are the opportunities in the current DeInsurance market?

DeFi insurance is a severely undeveloped market. The ratio of current Total Value Locked (TVL) of insurance products in DeFi is less than 1% (as of Jan 2023), while the ratio of the counterpart in the real world (TradFi insurance) is 8.6% (Statista, 2022). Therefore, the potential market gap is multi-billion dollars. Indeed, many crypto participants are speculators, but there is a genuine demand for hedging and protection of crypto assets subject to malicious cyber-attacks and unexpected volatility. To meet the intertwined needs of value investors and speculators, Marquee aims to provide a product for “insured speculations and speculative insurances.”

Three substantial gaps in the current DeFi insurance market hinder the growth of DeFi as a whole.

1) The first gap exists between the crypto and real worlds in the crossover circulation of value and information.On the one hand, DeFi players cannot go to a traditional insurance company to insure their crypto assets like cryptocurrencies and NFTs. On the other hand, conventional insurance needs (e.g., health, vehicle, pension, war, catastrophe) can rarely be insured in existing DeFi insurance products.

2) The second gap lies between DeInsurance and other DeFi projects in the external circulation of value and information within the crypto world.Less than half tokens can be insured in DeFi. Specifically, it is difficult to find insurers willing to provide insurance for the most insurable high-risk projects due to a lack of data and excessive uncertainties. Let alone the availability of different types of insurance for different needs.

3) The third is the gap between the supply and demand for liquidity in the internal circulation of value and information within each DeFi insurance project.

DeFi insurance needs a sufficiently sized fund pool to exploit the Law of Large Numbers. Lack of liquidity makes it difficult to bootstrap the project from scratch while providing low-cost, wide-coverage insurance.

Underlying any successful DeFi project is a sustained business model, and adequate liquidity is key to the growth of any DeFi protocol. After countless failures in the first generation DeFi (or DeFi 1.0) due to liquidity drain, the concept of DeFi 2.0 has become popular among investors in the crypto world after the demise of projects which had yields that easily exceeded 2000%.

Essentially, DeFi 2.0 alters the relationship between fund providers and protocols through Decentralized Autonomous Organizations (DAOs), where various incentive mechanisms retain funds in the protocol. Instead of simply using liquidity mining to reward and attract “mercenary liquidity” with meagre retention rates as in DeFi 1.0, the Protocol Controlled Liquidity (PCL) aids in the increase of liquidity and retention rates within a protocol ecosystem.

The PCL design incentivises and encourages a sustained, interconnected decentralised financial architecture and ecosystem that facilitates an interdependent relationship among all platform members. As a cornerstone, the Vault (also termed a repository or reserve in other DeFi 2.0 projects) plays a crucial role in supporting the ecosystem and avoiding liquidity battles among yield farmers. Only by achieving a fair and reasonable distribution of power and revenue, rather than crafting a tool merely for reaping profit, can we bring long-term prosperity to DeFi applications.

Regardless of the precise definition of DeFi 2.0, some new DeFi applications have emerged with great potential for the latest stage of DeFi models. Marquee aims to lead the trend with its innovative application in DeFi insurance. We will first paint a big picture of the architecture of the tokenomics model and the business model of Marquee before digging into the details in subsequent sections. Head over to Structure Overview to understand further.