Insurance for Staked Assets (Custodial) vs Insurance for Staked Assets (Non-Custodial)

Comprehensive, Underwritten Coverage: Policies from entities like Coinbase (via Lloyd's of London) or BitGo cover a wide range of risks including exchange hacks, internal fraud, and custodial failure. This provides a single, clear claims process for events like the $450M FTX insurance payout. This matters for institutions requiring balance sheet protection and regulatory compliance.

Counterparty & Slashing Risk: Coverage is tied to the custodian. If you move assets off-platform or the custodian's policy lapses, you are exposed. It also does not cover protocol-level slashing risks from validators you delegate to (e.g., Ethereum penalties). This matters for users who want continuous, protocol-native protection beyond the custodian's vault.

Protocol-Native & Continuous Coverage: Protocols like Nexus Mutual or Unslashed Finance offer coverage for specific smart contract and slashing risks that persist regardless of where you stake. You can insure a Lido stETH position or a Rocket Pool minipool directly. This matters for DeFi-native teams building on composable staking derivatives.

Limited Scope & Capital Intensive: Coverage is typically for specific, smart contract exploits (e.g., a bug in Lido) and requires active underwriting from capital pools. It does not cover custodial theft or private key loss. Total coverage is capped by the protocol's capital pool (e.g., Nexus Mutual's ~$200M capacity). This matters for entities with large, multi-vector risk exposure.

Specific advantage: Premiums are typically 0.5-2% APY, significantly cheaper than non-custodial options. This is due to the insurer's ability to pool risk across a large, centralized validator set (e.g., Coinbase, Kraken, Binance) and their direct control over slashing events.

This matters for institutions and high-net-worth individuals staking large amounts where cost efficiency is a primary concern.

Specific advantage: Claims process is managed by a single entity. In a slashing event, the custodian (e.g., Figment, Blockdaemon) handles the insurance payout directly, often with automated reimbursement to user accounts.

This matters for teams lacking dedicated risk/ops personnel who prioritize a hands-off, integrated experience over granular control.

Simplified Claims Process: Claims are typically adjudicated by the insurer's DAO or committee based on verifiable exchange/validator insolvency events. This is crucial for institutional clients who require a clear, auditable path to payout for black-swan events like a CeFi platform collapse.

Counterparty & Jurisdictional Risk: Coverage is tied to the specific custodian (e.g., Coinbase, Binance, Lido). If the insurer itself faces regulatory action or insolvency, the policy may be void. This adds a centralized failure mode on top of the staking risk you're trying to mitigate.

Smart Contract & Slashing Focus: Policies are explicitly designed for protocol-native risks like consensus failures, validator slashing penalties, or bugs in staking contracts (e.g., on EigenLayer, Rocket Pool). This is essential for DeFi-native protocols building on decentralized staking infrastructure.

Complex Risk Assessment & Payout Triggers: Determining a valid claim for a smart contract bug or slashing event is highly technical. This can lead to disputed claims and longer resolution times. It's less suitable for teams seeking simple coverage against a custodian's bankruptcy.

Higher Coverage Limits & Liquidity: Established providers like Nexus Mutual often have deeper capital pools (>$100M), allowing for larger policy sizes suitable for institutional staking portfolios. This matters for funds and treasuries staking eight-figure sums.

Alignment with Self-Custody Principles: Maintains the core DeFi ethos by not requiring asset custody to a third party. This is critical for decentralized autonomous organizations (DAOs) and protocols whose governance mandates non-custodial operations.