Just a few days ago, I came across a comment by @bonnazhu on on-chain insurance that closely aligns with my perspective: Building an on-chain risk transfer layer is genuinely difficult. The challenge isn’t just about “whether insurance products exist,” but: 1) DeFi risks are hard to price accurately Risks are highly composable and lack long-term claims data, making traditional insurance pricing models difficult to apply directly. 2) Capital yield for underwriting is too low Compared to lending, Pendle PT/YT, or arbitrage, insurance pools offer insufficient returns, making it hard to retain capital long-term. 3) Supply and demand logic doesn’t hold If risk compensation isn’t high enough, who will consistently provide capital to absorb tail risks? 4) Scaling is extremely challenging Without a sufficiently large underwriting capital pool, it’s impossible to truly cover black swan losses in the hundreds of millions of dollars. Of course, the on-chain insurance / risk transfer layer has already begun forming a preliminary architecture: Underwriting (e.g., @NexusMutual) Embedding layer (@0xcatalysis / @OpenCover) Risk assessment (@CredoraNetwork / @LlamaRisk) Verification (@AccountableData / @chainlink PoR) Real-time monitoring (@HypernativeLabs / @BlockSecTeam) But the core issue remains: The returns on insurance capital still don’t match the risks being assumed. The concept of tranching was previously overlooked—but it’s critical. Depositors’ primary goal shouldn’t be to actively assume risk; it should be to earn higher yields or leveraged exposure—risk assumption should be a byproduct. Therefore, for on-chain risk transfer to succeed, we can’t rely solely on “selling insurance.” We must repackage risk absorption into yield structures that better align with DeFi users’ incentives.