Complete whitepaper — every feature explained in detail
Decentralized insurance via prediction markets. Instead of paying high premiums to a centralized insurer who keeps a large margin, you hedge directly on prediction markets — no intermediary, no paperwork, instant settlement.
Traditional Insurance
You pay high premiums to a centralized insurer who keeps 40-60% margin. Claims take weeks, paperwork is heavy, franchises and exclusions are hidden in fine print.
Decentralized Hedging
You hedge directly on prediction markets. Transparent pricing (true probability), instant settlement (smart contract), zero paperwork, zero conflict of interest.
Base Formulas
Maximum Coverage = Amount to Insure / Prediction Price
Required Capital = Amount to Insure x Prediction Price
The maximum coverage depends on the current prediction price at time T. The lower the probability of the event, the higher your coverage ratio — and the more cost-effective your hedge.
| Prediction Price | Capital for 1,000 Coverage | Coverage Ratio | Hedge Cost (%) |
|---|---|---|---|
| 5% (0.05) | $50 | 20x | 5% |
| 10% (0.10) | $100 | 10x | 10% |
| 20% (0.20) | $200 | 5x | 20% |
| 30% (0.30) | $300 | 3.33x | 30% |
| 50% (0.50) | $500 | 2x | 50% |
| 70% (0.70) | $700 | 1.43x | 70% |
| 90% (0.90) | $900 | 1.11x | 90% |
Golden Rule: The lower the probability, the higher your coverage ratio. Rare events (5%) give you 20x coverage, while probable events (70%) only give 1.43x.
Sweet Spot: The optimal zone is between 10-30% probability — real enough risk to hedge against, but cheap enough for an efficient ratio (3x to 10x).
Sophie books a Paris-New York flight for March 15 | Ticket: $800 | Risk: cancellation, strike, extreme weather
Traditional (Allianz)
Cost: $65 (8% of ticket)
Reimbursement: 4-8 weeks
Deductible: $40
Insurer margin: ~50%
Prediction Market Hedge
Market: "Air France cancels 50+ flights Mar 15"
Price: 8% | Cost: $64
Ratio: 12.5x
Settlement: Instant (on-chain)
Hedge Cost
$65
Coverage Ratio
12.5x
Savings
$0 + speed
Marc has a $300k variable-rate mortgage at 3.5% | Risk: ECB raises to 5% = +$263/month
Traditional (Bank Cap)
Cost: $900/yr (0.3% of capital)
Over 10 years: $9,000
Caps rate at 4.5% only
Prediction Market Hedge
Market: "ECB rate > 4.5% before 2026"
Price: 25% | Cost: $789/yr
Ratio: 4x
Hedge Cost
$789/yr
Coverage Ratio
4x
Annual Savings
$111
Julie travels to USA, budget $3,000 | Current: 1 EUR = 1.08 USD | Risk: EUR falls to 1.00 = -$240 purchasing power
Traditional (Bank Swap)
Spread: 3-5% = $120
Locked in rate, no flexibility
Prediction Market Hedge
Market: "EUR/USD < 1.02 before June"
Price: 20% | Cost: $48
Ratio: 5x
Hedge Cost
$48
Coverage Ratio
5x
Savings vs Bank
$72
Thomas, French expat in USA, no employer insurance | Risk: $50,000+ emergency hospitalization
Traditional (Blue Cross)
Premium: $450/mo = $5,400/yr
Deductible: $6,000 | OOP max: $8,000
Worst case: $13,400/yr
Hybrid Self-Insurance + Hedge
Emergency fund: $10,000
Hedge: "Healthcare costs inflation > 8%"
Cost: $1,200/yr + $500 cash visits
Hybrid Cost
$1,700/yr
Coverage Ratio
~3x
Annual Savings
$3,700
This strategy is for young, healthy profiles with emergency capital. Not suitable for all risk profiles.
Karim, delivery driver | 200L/month at $1.80/L = $360/mo | Risk: price rises to $2.20/L = +$80/mo
Traditional
No insurance exists for this risk.
Potential annual loss: $960
Prediction Market Hedge
Market: "Gas price > $2.00/L in 2025"
Price: 35% | Cost: $336/yr
Ratio: 2.86x
Hedge Cost
$336/yr
Coverage Ratio
2.86x
New Market
Unlocked
Lea, freelance designer paid 4,000 USDC/month | Risk: USDC depeg (like 2023) = 5-10% loss
Traditional (Nexus Mutual)
Premium: 4% = 1,920 USDC/yr
Claim process: weeks, exclusions apply
Prediction Market Hedge
Market: "USDC depeg > 2% before end of year"
Price: 12% | Cost: 288 USDC/yr
Ratio: 8.33x
Hedge Cost
288 USDC
Coverage Ratio
8.33x
Savings
85% cheaper
Pierre, wheat farmer | Annual harvest: $50,000 | Risk: drought, frost, flood = 30-100% loss
Traditional (Groupama)
Premium: $4,500/yr (9%)
Deductible: 20% | Expert visits required
Settlement: 3-6 months
Parametric Hedge
Market: "Rainfall < 400mm in 2025"
Price: 25% | Cost: $3,750/yr
Ratio: 4x | 0 deductible
Hedge Cost
$3,750
Coverage Ratio
4x
Savings
$750 + 0 admin
| Use Case | Traditional | Cost/yr | Prediction Hedge | Cost/yr | Ratio | Savings |
|---|---|---|---|---|---|---|
| Flight cancel | Allianz | $65 | @ 8% | $65 | 12.5x | Speed + no paperwork |
| Mortgage rate | Bank cap | $900 | @ 25% | $789 | 4x | $111 |
| FX EUR/USD | Bank swap | $120 | @ 20% | $48 | 5x | $72 |
| Health USA | Blue Cross | $5,400 | Hybrid | $1,700 | ~3x | $3,700 |
| Fuel VTC | N/A | — | @ 35% | $336 | 2.86x | New market |
| Crypto USDC | Nexus | 1,920 USDC | @ 12% | 288 USDC | 8.33x | 85% cheaper |
| Crop insurance | Groupama | $4,500 | @ 25% | $3,750 | 4x | $750 |
Avg. Savings
~40-60%
Avg. Ratio
5.8x
Settlement
Instant
Paperwork
Zero
2-5% Rule: Never risk more than 2-5% of your total capital on a single hedge, even if the coverage ratio is excellent. Predictions are never 100% correlated with your real risk (basis risk).
Example: Diversified Multi-Hedge Portfolio Total capital: $20,000 Max per hedge: 5% = $1,000 Hedge 1: Travel FX hedge → $300 @ 15% → Coverage: $2,000 Hedge 2: Crypto salary (depeg) → $400 @ 8% → Coverage: $5,000 Hedge 3: Gas price → $300 @ 25% → Coverage: $1,200 ───────────────────────────────────────────── Total exposed: $1,000 (5%) Total coverage: ~$8,200 thanks to ratios Diversification = Reduced risk + broad coverage
Instead of an all-or-nothing hedge, you can create tiered hedges for progressive coverage at optimized ratios:
Example: EUR/USD Protection (Total risk: $10,000) Tier 1: "EUR/USD < 1.05" @ 25% → $2,500 covers $4,000 Tier 2: "EUR/USD < 1.00" @ 10% → $1,000 covers $6,000 ───────────────────────────────────────────── Total cost: $3,500 Total coverage: $10,000 (progressive tiers) Average ratio: 2.86x Progressive coverage is more capital-efficient than a single all-or-nothing hedge.
Price = true probability (market discovery). Traditional insurance = black box with 40-60% margin.
Smart contract payout — instant. Traditional = 4-8 weeks + paperwork.
Market neutral — your payout is guaranteed if condition is met. Insurers are incentivized to deny claims.
You define exactly your exposure. Traditional = deductibles, exclusions, fine print.
Combine multiple hedges. Build a custom protection stack tailored to your needs.
Hedge things impossible to insure traditionally: gas prices, crypto volatility, weather events.
Important Disclaimer
These examples are simplified for educational purposes. In practice: probabilities fluctuate, basis risk exists (imperfect correlation between event and your real exposure), some hedges require rebalancing, and regulations vary by country. But the core principle holds: you can hedge almost any real-world risk with prediction markets, often better and cheaper than traditional insurance.