Binance Smart Chain needs Insurance
Insurance is the key piece missing on Binance Smart Chain and in all of Decentralized Finance. Without insurance, DeFi and the crypto markets will continue to see extreme fluctuations and enormous drops from all-time-highs as investors produce massive sell-offs due to volatility. There is simply nothing pleasant about nervously trying to go to sleep, hoping your portfolio doesn't lose 75% of its value overnight as Europe wakes up and dumps on you. 📄 ✋
The reality is that investing in emerging markets carries inherent risks from the technology and environment. Insurance allows investors to take larger risks by reducing the costs associated with catastrophic events. If all investors were exposed to the risks associated with their investments, they would assume more reserved positions in their capital expenditures. When insurance is readily available, investors are more confident in moving capital to riskier, emerging financial markets such as the Binance Smart Chain.
We spoke of Rugpulls previously, as a way that developers and/other bad actors are able manipulate the liquidity on exchanges and cause loss of funds to investors. However this is just one of the many risks a typical DeFi investor is exposed to. There are recent examples of exchange exploits known as “flash loans” that have the ability to rapidly change the price of tokens as well.
A recent attack on the exchange PancakeBunny succeeded by manipulating the price of the BNB/USDT pairing as well as the native token of the site. The attacker manipulated the price of the BUNNY/BNB pairing prior to removing close to 200 Million USD from the Pancake Bunny exchange.
An elaborate and thoughtful attack, with a permanent note left behind in the transaction hash by the attacker:
“ArentFlashloansEaritating” — PancakeBunny Attacker
PancakeBunny was one of the top 5 Decentralized Exchanges on the Binance Smart Chain. It is to be seen if their reputation will recover from this type of catastrophic event.
This type of event further indicates that insurance is needed on both the exchange and individual level in the DeFi space.
There are a number of challenges to insuring the DeFi market, and currently not many proven solutions. We will go into some of these challenges in Part II of this article. 🍪