As decentralized finance (DeFi) continues to attract investors globally, ensuring the safety and reliability of smart contracts and financial protocols becomes crucial. For insurers, understanding the inherent risks associated with these technologies is essential for developing new products, pricing, and claim processing.

While smart contracts offer remarkable efficiency and reduce costs since these blockchain-based innovations can self-execute contracts without human intervention, they also introduce significant security risks and have become targets for more and more cyber-attacks. On the other hand, they also present unique research opportunities due to the high transparency of DeFi systems, which publicize details on smart contracts, financial protocols, and transactions.

This research project aims to identify potential vulnerabilities within these technologies, develop a framework for riskiness measure, and assess how the associated risks have been priced by DeFi insurance. Throughout the semester, we will review both academic literature and industry reports to understand the architecture of existing smart contracts and financial protocols, their historical vulnerabilities and exploits, and current security considerations. We will then create a comprehensive risk assessment framework that considers factors such as code vulnerabilities, business models, activity levels, and governance. This model will be applied to analyze the current DeFi insurance policies on pricing and claim processing.

Supervisor: Xiaochen Jing

Graduate Supervisor: Zhonghe Wan