Smart Contract Companies With Dumb Insurance Coverage

Opinion by: Darren Sonderman and Sydney Sonderman, financial lines insurance brokers at CAC Group

Digital assets, decentralized finance (DeFi) and tokenization are no longer fringe concepts — they are reshaping global finance. With real-world asset tokenization projected to hit $20 trillion within the decade, the race is on to establish strong legal and regulatory frameworks. 

The US is catching up as the Trump administration promotes stablecoin and crypto market structure legislation and the creation of key task forces. 

Meanwhile, governments worldwide are rapidly investing, innovating and advancing digital asset legislation. Disruptive technology is driving the global economy forward. As digital assets and decentralized technology reshape global finance, traditional insurance has failed to keep pace, leaving innovative companies exposed and highlighting the need for adaptive coverage. 

Digital assets will soon dominate the global landscape.

Is management liability insurance keeping up?

Management liability insurance is a foundational pillar for nascent industries, providing the risk transfer and financial certainty needed to attract capital, enable innovation and build trust.

Whether public or private, large or small, involved in traditional finance or disruptive technology, virtually every company needs directors and officers insurance. Companies will struggle to attract a high-quality boards of directors without functional insurance. The capital sought from investors will be forced to pay operational risk and legal costs that could have been satisfied by appropriately tailored insurance.

While some envision an onchain insurance future, TradFi insurers slowly embrace digital assets. Insurance rewards certainty, so many insurers sat on the sidelines in the early days of the technological revolution. Blockchain, crypto, DeFi and tokenization risks remain hard to quantify, leaving insurers hesitant to dive in.

When they do, insurance coverage is often porous and riddled with loopholes to allow denial of claims to provide affirmative coverage. Many in the digital asset industry struggle to find insurers willing to provide robust, predictable and efficient coverage for management liability insurance policies. 

Directors’ and officers’ liability insurance tailored to companies pursuing de-SPAC transactions or initial public offerings is challenging to secure, often lacking the necessary specificity to address the unique risks of these paths. Technology…