Cryptocurrency markets are full of variables, and black swan events happen from time to time. How can we make investment returns more stable? Recently, a hedging strategy has emerged using a USD1+ insurance pool, locking in principal safety with small premiums while still earning investment returns. It sounds a bit like traditional financial insurance concepts, but in DeFi, it’s played with new tricks.

What is the core of this system? The insurance pool is jointly funded by the DAO community, specifically designed for DeFi investment scenarios. It covers issues like impermanent loss, protocol risk, and extreme depegging—problems that trouble investors. In simple terms, it’s like buying peace of mind with a small amount of money.

How does it work in practice? It’s a three-step process. First, choose insurance based on your USD1 investment plan. Investing in the PSM pool buys stablecoin depegging insurance, while participating in LP mining buys impermanent loss insurance. How are premiums collected? Usually, it’s about 0.5%-1% annually of the investment amount, which isn’t too high. Second, invest the USD1 into the target sector, pay the premium to activate the contract, with the coverage period matching the investment cycle. Finally, if a risk event occurs (such as stablecoin depegging over 5%, or impermanent loss exceeding 10% in LP mining), you can apply for a claim from the DAO, potentially recovering up to 100% of the principal.

Here’s a concrete example. Investing $100,000 into an LP pool, paying a 1% premium, costs only $1,000 to buy impermanent loss insurance. Later, market fluctuations cause an impermanent loss of $15,000. The user can recover this loss through the claim process, while still earning fees during the investment period. In this way, spending $1,000 hedges against a $15,000 loss risk—an obvious and worthwhile trade-off.

Why is this approach worth paying attention to? Low cost, high protection. With minimal premium costs, it directly hedges large losses in extreme market conditions. It’s especially suitable for investors with lower risk appetite—those who want DeFi yields but don’t want to be caught off guard by black swan events.

What should you watch out for in operation? First, carefully read the insurance contract terms, clarify coverage scope and claim trigger conditions, so you don’t find out later that there are restrictions. Second, prioritize products with more policyholders and larger fund pools, which improve claim efficiency and fund security. Third, Lista insurance pools are governed in a decentralized manner, with transparent fund flows, boosting investor confidence.

Overall, the combination of USD1 investment + insurance pool adds an insurance layer to DeFi yields. In a market with increasing uncertainty, this structured risk management tool could become a standard option for many investors.