In the DeFi ecosystem, insurance is still a niche market. However, as the insurance field matures and institutional participants join, insurance may become one of the biggest pillars of DeFi.
Recently, CoinGecko analyst Lucius Fang wrote an article about the DeFi insurance market, introducing in detail the main players in the market, their operating mechanism, and future market prospects. Chaincatcher translated the original text and made adjustments that did not affect willingness.
With the continuous innovation of DeFi projects, we have seen more and more hacking incidents occur, and the losses have become larger and larger. Since the second half of 2019, there have been 21 publicly reported DeFi security incidents, causing more than $165 million in losses.
If this field only welcomes people who can withstand high risks, the development of DeFi will stagnate, and having insurance is the key to attracting more users to enter.
The meaning and mechanism of insurance
The insurance industry is a huge market. In 2019, the total global insured premiums amounted to 6.3 trillion U.S. dollars. The world is complicated, and we always have the risk of some kind of accident. The following is a simple risk management framework that illustrates the measures we should take to deal with different types of risks.
Individuals should transfer high-impact but low-frequency risks (such as natural disasters and cancer), and deal with this type of risk through insurance.
The operation of insurance is based on two main assumptions:
One is the law of large numbers. The loss events covered by insurance must be of small frequency. If the frequency of events is high enough, the result will tend to the expected value.
The second is the risk sharing mechanism. Loss events have the characteristics of low frequency and large impact, so the insurance premium paid by a large number of people subsidizes the loss of a small number of large claims.
Essentially, insurance is a tool for pooling capital and socializing huge losses so that participants will not go bankrupt in a catastrophic event.
Insurance socializes the cost of experiencing catastrophic events so that individuals can take risks. It is a risk management tool that encourages more users to participate, and it is vital for the DeFi industry to go beyond the existing audience segments. The DeFi industry needs insurance products to persuade institutional participants with large amounts of capital to join.
Detailed analysis of the three major insurance items
Two major insurance projects currently dominate the DeFi insurance market-Nexus Mutual and Cover Agreement. We will study in detail how they work below. We will also delve into the Armor protocol because it plays a key role in the development of Nexus Mutual.
Nexus Mutual
Nexus Mutual is the largest insurance item in the crypto market. It has a total lock-up value (TVL) of US$288 million and was founded by Hugh Karp, the former chief financial officer of Munich Reinsurance Company in the United Kingdom.
Nexus Mutual is registered as a mutual aid company in the UK. Unlike a shareholder-based company, a mutual company is managed by its members, and only members are allowed to conduct transactions with the company. Nexus Mutual is similar to a company that is run by members and serves members.
Currently Nexus Mutual provides two types of insurance:
The first is smart contract insurance, which is mainly for DeFi agreements that escrow user funds, because these agreements may be hacked due to errors in smart contracts. Insurance covers major DeFi agreements such as Uniswap, MakerDAO, Aave, Synthetix and YearnFinance.
The second is custodial fund insurance, which is mainly aimed at the risk of funds being stolen by hackers or withdrawal suspension. Nexus Mutual provides services covering centralized exchanges (such as Binance, Coinbase, Kraken, Gemini) and lending companies (such as BlockFi, Nexo and Celcius).
Users can purchase a total of 72 different insurances, covering smart contract agreements, centralized exchanges, lending services and custodial services.
Insurance purchase method:
To purchase insurance from Nexus, users must register as a member through the KYC process and pay a one-time fee of 0.002 ETH, and then can use ETH or DAI to purchase insurance.
Nexus Mutual will convert payments into NXM tokens, representing the rights of mutual capital. 90% of NXM is destroyed as a cover cost. 10% of NXM will be kept in the user's wallet. When submitting a claim, it will be used as a deposit, and if there is no claim, the money will be refunded.
Claim evaluation mechanism:
The user can file a claim at any time during the guarantee period or up to 35 days after the end of the guarantee period. When users submit a claim, they must lock in 5% of the premium. Each policy allows users to submit a maximum of two claims.
Unlike traditional insurance companies, the outcome of claims is determined by members' votes. Members have full discretion to vote on whether the claim is valid. Members can use NXM as a claim assessor to participate, but they are subject to a 7-day lock-in period.
When the members' votes are consistent with the overall voting results, 20% of the premium will be shared with these members in proportion. However, if the vote does not match the result, the member will not receive any rewards and the lock-up period will be extended for another 7 days.
In order to qualify for a claim, users must prove that they have lost funds. Smart contract insurance requires a loss of at least 20% of funds, and custody insurance requires a loss of at least 10% of funds.
Risk assessment mechanism:
The pricing of insurance depends on the amount of funds pledged on a particular agreement. Users can pledge NXM on these agreements to become risk assessors. The pricing formula is as follows:
- Risk cost = 1-(the number of pledged NXM / low risk cost limit)^(1/7)
- Underwriting price = risk cost x (1 + profit margin) x underwriting period/365.25 x underwriting amount
The low-risk cost limit is the minimum pledge standard required to reach the minimum price of 2%, and the limit is set to 50,000 NXM. The surplus profit is used to pay costs and create surplus for the mutual fund, and the surplus profit rate is set at 30%. Therefore, the lowest insurance cost is 2.6%.
When a claim occurs, the risk assessor bears the loss. In order to bear this risk, 50% of the insurance premium is shared by risk assessors.
The following pie chart shows where the premiums are going:
CS: The fee paid by the user to submit the claim; CA: If there is a claim submitted, the assessor gets the fee
If the user does not make a claim when the insurance policy expires, 10% of the insurance premium will be refunded to the insured buyer, and 40% of the insurance premium will go to the fund pool.
Risk assessors can invest 10 times the capital to maximize capital efficiency. For example, if a risk assessor has 100 NXMs, he can pledge 1000 NXMs in multiple agreements, and the maximum pledge limit for any agreement is 100 NXMs.
The hypothesis here is that it is rare for multiple protocols to be attacked at the same time. This approach is consistent with the insurance industry's operation on the basis of the law of large numbers and risk sharing.
If the amount of the claim is greater than the funds owned by the risk assessor, the mutual fund’s capital pool will pay the remaining amount.
In order to ensure that there is always sufficient capital to pay the claim, the mutual requirement of both parties must make the capital higher than the minimum capital requirement (MCR). Generally, MCR is calculated based on the risk of the insurance sold. However, due to the lack of claim data, both parties followed the manual parameters determined by the team.
Token Economics:
NXM token economics is an important factor in attracting and retaining capital. It uses a joint curve model to determine the price of NXM. Calculated as follows:
- A = 0.01028
- C = 5,800,000
- MCR (ETH) = minimum capital required
- MCR% = available capital / MCR (ETH)
MCR% is a key factor in determining the price of NXM because it has a fourth power in the price formula. When people buy NXM based on the joint curve model, the available capital will increase, leading to an increase in MCR%, which leads to an exponential increase in the price of NXM.
It should be noted here that when the MCR% is lower than 100%, the exit of the joint curve model will be stopped to ensure that there are sufficient funds to pay the claim.
wNXM ：
Nexus Mutual released packaged NXM (wNXM), allowing investors to access NXM without KYC. Users can pack NXM into wNXM and then sell it through secondary markets such as Uniswap and Binance.
wNXM has many shortcomings. It cannot be used for risk assessment, claims assessment, and governance voting. The launch of the Armor protocol helped solve the problem by converting wNXM to arNXM.
Shield Mining (Tillage Agriculture):
In order to encourage more risk assessors to pledge their NXM, Nexus Mutual released the Shield Mining plan, which plans to use native tokens to reward pledge users. Shield Mining helped increase the number of NXM pledged and increased the available insurance.
Agreement income:
NXM token is different from other governance tokens, and its token price is controlled by a formula. Therefore, mutual assistance and benefit will help increase available capital and increase the price of NXM. There are two sources of profit:
1) Premiums collected-claims paid-expenses.
2) The price difference when users sell NXM from the binding curve is 2.5%
Armor agreement
In order to overcome the limitations of KYC, Yearn Finance created yInsure, users can purchase Nexus Mutual insurance without KYC. yInsure was originally managed by Safe Protocol, but due to some infighting between founder Alan and well-known community member Azeem, the project was cancelled. Alan continued to release the Cover agreement, while Azeem took over the yInsure product and released the Armor agreement.
The Armor agreement has four main products: arNXM, arNFT, arCORE and arSHIELD.
arNXM ：
Nexus Mutual created WrappedNXM (wNXM), which allows investors to invest in NXM without KYC. However, as more wNXMs are created, the number of internal interactive functions (such as pledges, claims evaluation, and governance voting) that NXM can be used for has decreased.
Armor created arNXM to solve this problem. It allows investors to participate in the operation of Nexus Mutual without KYC.
To get arNXM, users can pledge wNXM in Armor. Armor opens wNXM and pledges NXM tokens to Nexus Mutual. By staking on Nexus Mutual, the pledger sends a signal that the smart contract is safe, opening up more insurance sales channels.
Armor will reserve a reserve of 10,000 wNXM to ensure that there is sufficient liquidity for transactions between arNXM and wNXM. Armor replenishes its reserves every ten days.
arNXM can be called wNXM fund pool, users can deposit wNXM in the fund pool, and it is expected that more wNXM will be obtained in the future.
arNFT：
arNFT is a tokenized form of insurance purchased on Nexus Mutual. arNFT allows users to purchase insurance without KYC. Since these insurance targets are tokenized, users can now transfer them to other users or sell them on the secondary market. These tokenized insurances will further explore the composability of DeFi.
All Nexus Mutual insurance can use arNFT.
arCORE ：
arCORE is a pay-as-you-go insurance product. Armor tracks the exact amount of user funds through a mobile payment system because they can dynamically span different protocols. The underlying technology of arCORE integrates arnft, and they are sold at a premium after being decomposed. arCORE allows more innovative product designs and demonstrates the composability of the DeFi ecosystem.
arCORE's products charge higher insurance premiums to compensate arNFT pledgers for the risk of not being able to fully sell insurance. Currently, arCORE’s premium multiplier is 161.8%, which means that the price will be 61.8% higher than the price purchased directly from Nexus Mutual.
For additional insurance premiums, 90% will be returned to arNFT supporters, and 10% will be collected by Armor as a management fee. Calculated with a premium multiplier of 1.618 times and a revenue share of 90%, the utilization rate must be greater than 69% to make arNFT investors profitable. If the amount of insurance sold is less than 69% of the number of pledges in the pool, then these pledgers have to bear the insurance costs themselves.
arSHIELD：
arSHIELD is an insurance repository of liquid market maker (LP) tokens, in which insurance premiums are automatically deducted from earned LP fees. arSHIELD essentially creates LP tokens with insurance, and users do not need to pay upfront payments.
arSHIELD only covers the agreement risk of the liquidity pool. For example, the insured Uniswap Lp token only covers the risk of Uniswap's smart contract being damaged, but cannot cover the risk of the underlying asset (such as the underlying asset agreement being hacked).
arSHIELD is just a repackaged version of arCore, with two versions with different risk levels.
Shield + vault is the safest version, which can guarantee payment. It is fully mortgaged, but the underwriting capacity is limited. It has a high multiplier of 200%, making it twice as expensive as Shield Vault.
Shield Vault is a more risky version, and the claim expenses may not be fully repaid because it depends on the funds available in the pool during the hacking period. To compensate for the additional risk, it has only a 100% premium multiplier, which means that its price is the same as the price purchased directly from Nexus Mutual itself. The insurance capacity is designed to be unlimited, so it is difficult for users not to be satisfied with the mortgage rate because it may not be fully mortgaged.
Claim mechanism:
After the user submits a claim, the review process will be triggered and submitted to Nexus Mutual for review. Armor token holders will also participate in the claims approval and payment process of Nexus Mutual. If the payment is confirmed, the amount will be sent to Armor's payment bank and then distributed to the affected users.
Agreement income:
The following is the updated profit sharing expense table of the project as of February 2021.
It should be noted that for each insurance purchased from Nexus Mutual, the project will reserve 10% of the insurance premium for claim purposes, and the claim fee is 5% of the insurance premium. Each user can apply twice for the same reason. If no claim is filed by the end of the policy period, 10% of the premium will be refunded. This is the source of arNFT's profit.
Cover agreement
As mentioned earlier, the Cover protocol was incubated by Yearn Finance and initially provided the Safe protocol of yInsure. In November 2020, Yearn Finance announced an agreement to merge with Cover to insure its yvaults, but Yearn Finance chose to terminate the partnership on March 5, 2021.
Coverage category:
The Cover agreement only provides smart contract insurance. Let's look at an example of how insurance is sold:
Market makers can deposit 1 DAI, and they will be able to generate 1 NOCLAIM token and 1 CLAIM token. These two tokens only represent the risk of a single agreement. Tokens are only valid within a fixed time frame (for example, half a year). There may be two situations after half a year:
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If there is no valid claim event, the holder of NOCLAIM token can claim 1 DAI, and the value of CLAIM token is zero.
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If a valid claim event occurs, the holder of CLAIM tokens can claim 1 DAI, and the value of NOCLAIM tokens is zero.
This is similar to the prediction market, where users bet on whether the agreement will be hacked within a time frame.
The Cover agreement introduces a partial claim mechanism, so when a valid claim event occurs, the CLAIM token holder’s expenditure will be determined by the Claim Validity Committee (CVC).
Insurance purchase method:
One is Balancer Swap (old). Users need to trade in Balancer and purchase CLAIM tokens from the Balancer fund pool.
The second is Flash Swap (new). Users only need to make one Ethereum transaction to purchase insurance from the webpage of the Cover Agreement.
Claim evaluation mechanism:
The first is a regular claim, the cost of which is 10 DAI. Holders of COVER tokens will first vote on the validity of the claim. It will then be moved to the Claims Validity Commission (CVC) to make a final decision.
The second is a mandatory claim, the cost of which is 500 DAI, which is sent directly to CVC for decision.
CVC is composed of external smart contract auditors. If the claim is approved, the Cover Agreement will refund the claim application fee.
Risk assessment mechanism:
Balancer Swap (old): As mentioned above, the Cover protocol relies heavily on market makers to expand coverage. After minting NOCLAIM and CLAIM tokens, they will have to provide liquidity in the Balancer fund pool for DAI. The following is a detailed description:
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The NOCLAIM / DAI pool ratio is 98%/2%, and the overdue fee is 3%
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CLAIM / DAI pool, the ratio is 80% / 20%, the overdue fee is 5%
Flash Swap (new): Only rely on one fund pool, instead of two different fund pools to guide NOCLAIM and CLAIM tokens.
- NOCLAIM / DAI pool ratio is 50% / 50%, overdue fee is 0.2%
The market maker's income mainly comes from overdue fees generated by the Balancer fund pool.
The new Flash Swap system has some advantages:
First, insurance costs are expected to decrease because there is only one Balancer fund pool for farming agriculture. Under the incentive measures, market makers will purchase more NOCLAIM tokens in exchange for farming and agricultural rewards or earn transaction fees, thereby pushing up the price of NOCLAIM tokens. Therefore, the price of the CLAIM token will be reduced to CLAIM = 1-NOCLAIM.
Second, market makers are expected to earn more fees, because every time they purchase insurance they need to sell NOCLAIM tokens to the Balancer fund pool. And unlike the old system, market makers only need to provide liquidity for one pool of funds.
Since each purchase involves CLAIM / NOCLAIM tokens, and a 0.1% fee must be paid during the redemption process, the Cover Agreement is expected to obtain higher platform revenue.
The insurance price is determined by the supply and demand relationship of the Balancer fund pool.
Farming agriculture:
The Cover protocol used the old BalancerSwap system for both NOCLAIM/DAI pools and CLAIM/DAI pools for yield farming. In the new Flash Swap system, only the NOCLAIM/DAI pool is incentivized.
Agreement income:
A 0.1% fee will be charged for the exchange of CLAIM and NOCLAIM tokens. Holders of COVER tokens have the right to vote on how to use the vault. Currently discussing the use of COVER tokens to obtain revenue, but the details have not yet been finalized.
Comparison of the two insurance projects
Investment efficiency
Nexus Mutual allows fund providers to leverage 10 times the funds they own, which brings higher premium income to stakeholders. Investors do have to take more risks, but this approach is more consistent with how traditional insurance spreads risk across different products.
At the same time, since each pool of funds is isolated, investors in the Cover Agreement cannot use their capital. Although it plans to bundle different risks together in the V2 version, it has revealed few details at present.
Due to lower capital efficiency, Cover insurance is more expensive than Nexus. For example, in the Cover agreement, the annual cost of buying insurance for OriginDollar is 12.91%, while in Nexus Mutual it is only 2.6%.
We can quantitatively calculate investment efficiency by dividing the effective insurance amount in the capital pool. The capital efficiency ratio of Nexus Mutual is as high as 200%. As for the Cover protocol, by design, it is always less than 100%.
Insurance coverage
The Cover agreement only covers 22 agreements, while Nexus Mutual covers 74 trading pairs. Nexus Mutual provides greater flexibility in terms of guarantee. Users can decide to start the guarantee on any day, and the guarantee period is up to one year.
The Cover agreement only provides predetermined term insurance. For example, for a specific series, the insurance period is valid until the end of May. No matter when the user purchases the insurance, the insurance will end in May. Therefore, over time, the value of CLAIM tokens will tend to $0, and the value of NOCLAIM tokens will tend to $1.
Nexus Mutual covers most major DeFi agreements, and users can find more comprehensive services. It provides a wider coverage than the Cover agreement, which is limited by its total lock-in value (TVL). Even so, many Covers were sold out due to the lack of pledgers. The release of the Armor protocol did alleviate this problem by attracting more wNXM to arNXM, thereby putting NXM under threat.
The Cover Agreement can be seen as a competitor to long-tail insurance because the project can be set up faster without having to pass a tedious risk assessment. This is because each risk is isolated and contained in a single pool, unlike in NXM, claims from any single agreement may erode the capital pool.
However, opening new insurance for less well-known projects is not an easy task. In addition to being restricted by limited capacity, insurance costs are often too expensive. For example, for a newly listed project Reflexer Finance, its payment cost is 32.46% per year.
Claim ratio
Yearn Finance suffered a $11 million hack in February 2021. Although the company finally decided to use its own fund to make up for the loss, the insurance has now decided to pay compensation to prove that their products are indeed operating as expected.
Nexus Mutual has accepted 14 claims with a claim amount of USD 2,410,499 (1351 ETH + 129660 DAI). This resulted in a loss of 9.57% of users who pledged NXM to Year Finance. If the claimant can prove that they have indeed lost at least 20% of their funds, they can fully compensate for the loss.
At the same time, the Cover agreement decided to only set the compensation ratio to 36%, because the loss only accounted for 36% of the affected vaults. If a user holds 1,000 CLAIM tokens, they can only receive $360. Yearn Finance owns CLAIM tokens worth US$409,000. In fact, the market maker lost only $147,000. Insurance purchasers should be aware that purchasing insurance from the Cover Agreement does not guarantee full payment, and the method of determining the claim amount is more similar to the prediction market.
Generalize
Nexus Mutual is currently far ahead in the insurance market and seems to have no competitors. However, its penetration rate in DeFi is very low, accounting for only 2% of the total DeFi TVL.
Competitors have enough room to catch up. In a field where innovation emerges every day, the throne of the king of insurance is always at your fingertips.
The Cover protocol has been innovating rapidly, even during the fiasco of the entire security protocol. Although the product has not yet received widespread attention, 0 to 1 innovation has never been an easy task. We must remember that the release of the Cover Agreement took less than a year. It is too early to determine which is better.
Other upcoming insurance agreements
Unslashed Finance
Currently in test mode. Unslashed Finance provides investors with a barrel-like risk sharing model. The first product is called Spartan Bucket, which covers 24 different risks and covers trading pairs such as custodians, wallets, exchanges, smart contracts and oracles.
Lido Finance purchased USD 200 million worth of insurance from Unslashed Finance for its stETH (ETH 2.0 bet) to mitigate the risk of severe penalties. Penalties refer to the punishment imposed on the verifier of the Proof of Stake (PoS) network when the verifier is unable to maintain the network continuously.
Nsure
Nsure completed a $1.4 million seed round of financing as early as September 2020, with funds from Mechanism Capital, Caballeros Capital, 3Commas, AU21, SignalVentures and Genblock. Currently, Nsure has been deployed on the Kovan testnet of Ethereum.
Nsure is a risky trading market. It relies on the equity of NSURE tokens to express the risk of the agreement and uses it to price. They are running an underwriting program in the testnet to test how pricing works in the mainnet. Participants will receive NSURE tokens as a reward.
They also proposed a risk rating scale to rate each project based on multiple criteria, including team and history, exposure, code quality, developer community, etc. Except for the mortgage part, the risk level will affect the final policy price.
InsurAce
InsurAce recently raised US$3 million. Participants include Alameda Research, DeFiance Capital, ParaFi Capital, Maple Leaf Capital, etc., but its release date has not yet been announced.
InsurAce aims to be the first portfolio-based insurance agreement that provides investment and insurance products to improve capital efficiency. Different from the current insurance products, if users come into contact with different agreements when conducting farming and agriculture, they must purchase multiple insurances. InsurAce provides a portfolio-based insurance that covers all the above investment strategies. protocol.
The project claims to adopt an actuarial-based pricing model instead of relying on mortgages or the market to price insurance. Due to the lack of claims history in the DeFi ecosystem, it is questionable whether they can come up with a reliable model.
Other insurance agreements include InsureDAO and Insured Finance.
Some derivative agreements also provide interesting insurance products, such as:
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Hakka Finance's 3F Mutual—covers DAI's fixed exchange rate risk.
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Opium Finance-Covers USDT's fixed exchange rate risk.
So far, the adoption of these insurance products provided by derivative agreements has been lacking in vitality.
Unlike other types of projects such as DEX and lending, insurance projects have received less attention. In addition to being a more capital-intensive business, the awareness of buying insurance is not so common in the crypto field. As more insurance agreements will be launched this year, we may see more users using insurance.
in conclusion
First, insurance only covers about 2% of the total lock-up value (TVL) of DeFi, which has not been widely adopted.
Derivative products such as credit default swaps (CDS) and options may reduce the need to purchase insurance. But compared with the risk sharing of insurance, the construction of these products usually requires more funds, resulting in more expensive insurance premiums. In addition, derivatives are of course more expensive because they are more price risky.
High-risk users and retail users are likely to dominate the current DeFi market. They may not pay much attention to risk management and therefore do not consider purchasing insurance. When the time is right, the insurance market will gain greater driving force and have more cooperation with institutional capital.
Second, despite rapid business growth, NXM prices have stagnated. Nexus Mutual’s basic business is functioning well, with the effective policy amount increasing from US$68 million at the beginning of the year to US$730 million in February, showing steady growth. This 10-fold increase is impressive, but the price of NXM has been stagnant.
As investors withdrew from Nexus Mutual, MCR% has reached the lower limit of 100%. Investors have more options when it comes to synthesizing the Ethereum stack. Now NXM is competing with ETH 2.0 pledge service providers (Lido's stETH, Ankr's AETH), Alpha Homora's ibETH and Curve's ETH pool.
Last year, hackers stole $8 million worth of NXM tokens from Hugh Karp, the founder of Nexus Mutual, and sold NXM through the wNXM market, causing the price of wNXM to plummet. Since MCR% has reached the lower limit of 100%, NXM holders cannot sell NXM through the joint curve model. The only way for holders to exit the position is to sell through wNXM, creating a price gap between wNXM and NXM.
As long as the price gap exists, the best way to obtain NXM is to buy cheap wNXM. Therefore, capital will flow into the mutual aid market only until the price gap narrows. According to the formula, the price of NXM will be suppressed until there is an inflow of new funds.
Nexus Mutual has proposed a number of plans to solve this problem: create community funds to motivate community members to participate more; explore ways to invest in idle capital pools, such as ETH 2.0 mortgage; through the introduction of stacked risk insurance and stable currency delinking Insurance and oracle insurance to expand the product range.
Third, the launch of the Armor agreement has brought huge advantages to NexusMutual and consolidated its leading position in the DeFi insurance market. As a wNXM fund pool, arNXM intends to replace wNXM. It has attracted so much wNXM that arNXM now contributes 47% of the total NXM, which helps more insurance purchases.
The current total effective guarantee of arNFT is approximately US$491 million, while the total effective guarantee of Nexus Mutual is US$700 million. arNFTs contributed about 70% effective coverage.
The Armor Agreement was released only two months ago, and it has already made important contributions to the development of Nexus Mutual.
Fourth, the innovation of the Cover Agreement is very fast, but the business growth is not satisfactory. The Cover Agreement provides fewer types of products and limited flexibility in terms of insurance clauses. However, it can make the project go to market faster and can be purchased with relatively little capital. Therefore, some items can only be used on Cover Protocol, but not on Nexus Mutual.
The premium cost of the Cover agreement is much more expensive, but due to the high return on farming, it is still worth buying. One can also bet on which protocol might be hacked like a prediction market. This is not valid for Nexus Mutual, as they require proof of loss.
The Cover agreement recently released a credit default swap (CDS) product along with the Ruler agreement. It should be noted here that the team of the Ruler protocol is the same as the team of the Cover protocol, and it may not be a good sign to use the same developer to issue another token. Yearn Finance has decided to terminate the partnership with the Cover Agreement. Without the inherent requirements of yVault, it may be difficult for the Cover Agreement to surpass Nexus Mutual.