The Future of Insurance Is Composable: Plug-and-Play Risk Modules

Legacy DeFi insurance platforms like Nexus Mutual bundle capital pools, underwriting, and claims assessment into a single, rigid contract. This creates massive friction and inefficiency.

• Capital is siloed and cannot be deployed across multiple risk products.
• Risk models are static, unable to adapt to new asset classes like LSTs or RWAs.
• Pricing is slow, failing to reflect real-time on-chain volatility from oracles like Chainlink.

Infrastructure like UniswapX and CowSwap demonstrates that users can declare a desired outcome (an 'intent') without specifying execution. This framework is perfect for risk.

• A user submits an intent: "Cover my $1M USDC position for <0.5% premium."
• Solvers (like Across, LayerZero) compete to fulfill it by sourcing liquidity from the cheapest composable risk modules.
• Enables cross-chain coverage and optimal capital sourcing without user complexity.

The final piece is automated, verifiable claims assessment. Think of them as smart contract-native adjusters.

• Modular oracles (e.g., Chainlink, Pyth) feed objective data on hacks or price crashes.
• AIA agents (inspired by Fetch.ai) execute predefined logic to adjudicate claims against policy parameters.
• Creates a trust-minimized backend, allowing capital modules to focus solely on providing liquidity, not judgment.

Entities like Sher Labs are building the primitive: isolated, permissionless risk vaults that adhere to a common standard (e.g., ERC-4626 for risk).

• Any developer can spin up a vault for a specific peril (e.g., "EigenLayer Slashing").
• Capital providers deposit, earning yield from premiums.
• Protocols like Uniswap can integrate coverage as a plug-in module for their pools.
• This turns risk into a composable DeFi lego, similar to how AMMs use liquidity.

Legacy crypto insurance models like Nexus Mutual bundle underwriting, capital provision, and claims assessment into one protocol, creating massive inefficiency.\n- Capital is locked and idle, earning near-zero yield outside of claims.\n- Risk assessment is generalized, unable to price niche DeFi exploits accurately.\n- Voting-based claims are slow (~14+ days) and politically fraught.

Restaking transforms insurance from a passive pool to an active, yield-generating service. AVSs can be specialized risk modules.\n- Capital earns dual yield: native staking rewards + underwriting premiums.\n- Modular design allows for bespoke modules for Oracle failure, bridge hacks, or specific L2 sequencer risk.\n- Slashing as automatic claims enforces protocol honesty with ~instant payouts.

Sherlock operates as a managed security marketplace, decoupling capital (UMA-style optimistic bonding) from expert auditing.\n- Protocols pay for coverage upfront; capital stakers back specific audits.\n- Claims are challenged optimistically, resolving in ~7 days vs. weeks.\n- Model is inherently composable: can underwrite any protocol that passes its audit, from Aave to nascent L2s.

Unslashed doesn't insure 'hacks'—it sells parameterized derivative payouts based on verifiable on-chain events.\n- Payout is binary and automatic: e.g., "If ETH drops 20% in 24h, pay X."\n- Eliminates claims assessment entirely, the largest friction point.\n- Enables exotic coverage: MEV extraction, stablecoin depeg, validator slashing.

The final form is a decentralized network of competing risk modules that protocols plug into like price oracles.\n- Protocols aggregate coverage from multiple specialized modules (bridge risk + oracle risk + smart contract risk).\n- Capital flows dynamically to the most accurate and profitable risk assessors.\n- Creates a liquid market for risk, driving premiums toward efficient equilibrium.

Composability's real advantage is jurisdictional. A monolithic protocol is a clear target. A mesh of modules is not.\n- Risk modules can be licensed entities in favorable jurisdictions (Bermuda, Gibraltar).\n- Capital pools can be restaked assets already compliant in their native chain's jurisdiction.\n- This structure is the only viable path to scaling crypto insurance to $10B+ TVL without becoming a regulator's primary target.

Composable insurance relies on external data feeds (oracles) to trigger payouts. A single corrupted feed can drain the entire capital pool.

• Single Point of Failure: A hack on Chainlink or Pyth could invalidate thousands of policies.
• Manipulation Surface: Attackers can exploit price feed latency to trigger false claims.
• Resolution Lag: Disputes over oracle data can freeze claims for weeks, destroying user trust.

Modular risk pools must be overcollateralized to remain solvent, creating massive capital drag versus traditional underwriting.

• Idle Capital: 90%+ of capital sits idle waiting for black swan events, yielding minimal returns.
• Adverse Selection: Sophisticated actors will only buy coverage for the riskiest, most probable events.
• Liquidity Fragmentation: Capital is siloed across hundreds of modules, reducing overall system resilience.

Composability allows protocols to 'shop' for jurisdictions, but regulators will target the weakest link in the financial stack.

• KYC/AML Choke Points: Fiat on/off ramps (Circle, MoonPay) will be forced to block transactions from non-compliant insurance modules.
• Liability Cascades: A regulated entity (e.g., a tokenized reinsurer) using a non-compliant module could face global sanctions.
• Fragmented Enforcement: Incoherent global rules make it impossible to build scalable, compliant products.

Every new integration is a new attack vector. A vulnerability in one module can propagate through the entire financial Lego set.

• Re-entrancy on Steroids: An exploit in a yield-bearing module could recursively drain linked insurance pools.
• Upgrade Governance Risk: A malicious or buggy module upgrade can be pushed to all integrated protocols simultaneously.
• Interdependency Blind Spots: No protocol can fully audit the security of every module in its stack, creating systemic opacity.

Legacy DeFi insurance models like Nexus Mutual bundle capital pools, underwriting, and claims into one rigid contract. This creates capital inefficiency, slow product iteration, and limited risk diversification.

• Capital is trapped in single-use pools, unable to be deployed across multiple risk types.
• New product launches require forking the entire protocol, taking 6+ months.
• Risk models cannot be easily upgraded, leaving protocols exposed to novel attack vectors.

Composability turns insurance into a lego-like stack. Specialized modules for capital provision (like Ether.fi), actuarial models, and claims adjudication can be mixed and matched.

• Capital efficiency: A single liquidity pool can back multiple, uncorrelated risk modules (e.g., smart contract failure + stablecoin depeg).
• Rapid innovation: New underwriting models for novel risks (e.g., EigenLayer AVS slashing, LayerZero omnichain) can be plugged in as standalone modules.
• Competitive pricing: Capital and risk models compete in an open market, driving down premiums.

The highest-margin opportunity shifts from bearing risk to providing the core infrastructure layer. This mirrors the shift from Aave (lending) to Chainlink (oracles).

• Protocol fee capture: Earn fees on all module interactions, capital deployments, and policy sales across the marketplace.
• Zero balance sheet risk: The infrastructure provider does not act as the ultimate capital backstop.
• Network effects: The platform becomes the standard composable base layer, akin to UniswapX for intents or Across for bridging.

Composability enables embedded insurance as a feature. Any DeFi protocol can programmatically purchase micro-coverage for its users in real-time.

• Seamless UX: A lending protocol like Aave can automatically hedge its oracle failure risk for a specific vault, with the cost baked into the yield.
• Dynamic pricing: Premiums adjust in real-time based on on-chain risk signals (e.g., Gauntlet simulations, volatility from Pyth).
• New markets: Enables insurance for previously uninsurable, hyper-specific events (e.g., a single governance proposal failing).

Composable insurance creates a new yield primitive: risk-adjusted returns for capital providers. LPs can construct diversified portfolios across uncorrelated risk modules.

• Automated portfolio management: Capital is algorithmically allocated to modules based on real-time risk/reward scores, similar to Yearn vaults.
• Transparent risk scoring: Each module has a clear, on-chain risk profile powered by oracles and auditors like CertiK.
• Attract institutional capital: Provides the granular risk management and reporting tools required for large, regulated capital allocators.

The entire model's security reduces to its weakest oracle and claims adjudication module. A compromised data feed or a sybil-attacked claims DAO can drain all capital pools.

• Oracle dependency: Requires decentralized oracle networks with strong crypto-economic security, not single-provider feeds.
• Adjudication attack surface: Claims voting must be Sybil-resistant, potentially leveraging proof-of-humanity systems or specialized Kleros-like courts.
• Systemic risk: Interconnected modules can create cascading failures; a flaw in a widely-used base module (e.g., a capital pool) threatens the entire ecosystem.