How to use it
- Enter the amount of cover in CAD.
- Enter the yearly premium rate and the cover period in months.
- Enter your own estimate of the yearly probability of a covered event.
- Enter the share of the cover you expect to be paid if a claim succeeds.
- Compare the premium with the expected payout and read the breakeven probability.
What the comparison shows
Buying cover is rarely positive in expected value for the buyer: the premium has to pay for the provider's costs and its own risks. People buy cover anyway because a large loss they could not absorb matters more than a small, certain cost. The calculator makes that trade-off explicit by setting the premium against the payout you would expect on average, given your probability estimate.
The breakeven probability is the yearly event probability at which the expected payout equals the premium. If you believe the true probability is higher, the cover is worth more than it costs on average; if lower, you are paying for protection against a loss you could not otherwise bear.
Worked example
Illustrative inputs: $20,000 of cover at a 2.6% yearly premium for 12 months, a 2% yearly chance of a covered event, and a 90% expected payout if a claim succeeds.
For a six-month period, the premium and the expected payout both halve, to $260 and $180, and the breakeven stays at 2.89% a year, because both sides scale with time. In this model the breakeven is simply the premium rate divided by the payout share.
| Measure | Result |
|---|---|
| Premium for 12 months (2.6% of $20,000) | $520.00 |
| Expected payout (2% × 90% × $20,000) | $360.00 |
| Expected net | −$160.00 |
| Breakeven yearly event probability | 2.89% |
Claims are not automatic
Most of the real-world risk sits in the payout-share input. Claims on DeFi cover may be decided by a vote of the provider's members or token holders, by an assessor, or by a pre-defined on-chain trigger, and the wording of what counts as a covered event matters. Losses from a phishing attack on your own wallet, a stablecoin depeg or a flaw in a protocol's economic design may be excluded.
Claims usually have deadlines and evidence requirements, such as proof that your funds were in the affected contract at the time. The cover may also apply only to one protocol or one version of it, so a position moved elsewhere can be left uncovered without notice.
The cover provider is a counterparty too. If one event hits many policyholders at once, the provider's capital pool may not stretch far enough, and the pool itself carries smart contract risk. Payouts may be made in a token whose value has fallen.
Using the calculator well
Try several probabilities and payout shares. A cover that looks reasonable at a 90% payout looks very different at 50%. Compare the premium with the yield of the position it protects, too: a 2.6% premium on a position yielding an illustrative 5% gives up more than half of the yield.
No one can supply a reliable probability of an exploit for a particular protocol. The smart contract risk page covers factors that change it, such as how old the code is, whether it can be upgraded and how much value it holds. For yield comparisons that include a loss estimate, see the stablecoin vs GIC calculator.
Canadian context
Cover offered through a DeFi protocol may not be an insurance policy issued by a licensed insurer. Read the terms to see whether a payout is a contractual right or at the discretion of members, which jurisdiction governs them, and how disputes are resolved; see regulation.
CRA has not published guidance on the tax treatment of DeFi cover premiums or payouts. Keep records of each premium and any payout in CAD, with dates.