Last winter, I saw that little shield icon for the first time on the Falcon Finance interface. When I clicked on it, it didn't quote like traditional insurance, which is cold and impersonal, but instead popped up a community page—hundreds of user avatars flashing, with the amounts they promised to insure next to them. 'This doesn't feel like buying insurance,' I thought at the time, 'it feels more like joining a guardians' alliance.'
A heavy rain made me realize the brilliance of this design.
The accident came very suddenly. In March this year, a vulnerability in a cross-chain bridge caused some assets of Falcon on Arbitrum to be briefly exposed to risk. According to traditional insurance processes, this should be a long claims review. But at Falcon, I saw a completely different scene.
At three in the morning, I saw a message in my phone notifications: 'Potential risk event detected, the guardian network has been activated.' I clicked in to find a real-time updating page—178 insurance providers (they are called 'guardians') are voting to decide: whether this constitutes a compensation event.
What surprised me the most was the voting process: the system displayed detailed on-chain data, including vulnerability attack paths, the range of affected contracts, and the flow of funds. Each guardian needs to stake a small amount of tokens to vote, and if they vote in the wrong direction (for example, voting for a claim that should not be compensated, or against a claim that should be compensated), their collateral will be forfeited. This design ensures that voters analyze data seriously, rather than following the crowd arbitrarily.
Four hours later, the voting passed the compensation resolution with an 83% approval rate. The compensation did not come from a specific insurance fund pool, but was automatically transferred from the staked funds of the guardians according to their promised proportions. The $2000 asset that was affected was compensated in full that afternoon, along with a detailed event analysis report.
Dissecting that 'living insurance network.'
This mechanism has completely overturned my understanding of DeFi insurance. Traditional insurance products are like buying a fire extinguisher to keep at home, while Falcon's guardian network is more like forming a community fire brigade.
The dynamic underwriting mechanism is the part that fascinates me the most. Guardians do not need to stake a large sum of money at once, but can choose the types and amounts of risks they are willing to underwrite, just like a Didi driver accepting orders. Some specialize in smart contract vulnerabilities, some are good at oracle attack analysis, and others focus on governance attacks. The system assigns different weights to their 'underwriting willingness' based on each person's historical performance.
I know a guardian called CryptoDoc, who was originally a smart contract auditor. In Falcon, he only undertakes insurance needs for protocols he has audited, with an annualized return of about 18%. 'This is more efficient than taking on scattered auditing projects,' he told me, 'and I can continuously track the projects I have audited, intervening as soon as problems arise.'
The design of the compensation judgment game is even more exquisite. When a risk event occurs, the system does not immediately compensate, but rather enters a 7-day 'verification period'. During this time, any user can submit evidence to support or oppose the compensation. Submitting valuable evidence will earn rewards, while submitting malicious false evidence will incur fines.
This process has produced an unexpected effect—it has cultivated a group of professional risk researchers. Some have even developed automated monitoring tools that scan on-chain events that may affect Falcon 24/7.
That reverse incentive: making guardians understand risks better.
Traditional insurance has a fundamental contradiction: insurance companies want fewer accidents, but insurance sales want to sell more policies. Falcon's design cleverly resolves this issue.
The income of the guardians mainly comes from two parts: insurance premium sharing (a small portion) and rewards for correct risk assessment (a large portion). If an asset insured by a guardian has never been claimed, it indicates that their risk identification ability is strong, and the system will assign higher weight to their future underwriting. Conversely, if the assets they insure frequently incur claims, their reputation score will decrease, and they may even have their qualifications temporarily frozen.
This creates a virtuous cycle: the best guardians are not those who blindly take on all risks, but those who are best at identifying real risks. They are like seasoned captains, knowing how to avoid storms rather than gambling on surviving them.
I tracked the strategy of a high-scoring guardian. He almost never takes on insurance for emerging small coins but extensively underwrites the cross-chain transfer risks of mainstream stablecoins. 'While the former has high odds, the uncertainty is too great; the latter seems bland, but when problems arise, it becomes systemic risk, and my professional analysis can yield excess judgment returns.' His annualized return reached 34%, far above average.
Governance integrated into the capillaries of insurance.
Falcon's insurance parameters are not static. Every quarter, the community recalibrates key parameters: Should the risk coefficients for various assets be adjusted? Are the minimum staking requirements for guardians appropriate? Does the compensation verification period need to be extended or shortened?
The voting last month left a deep impression on me. A user proposed that insurance discounts should be provided for 'long-term deposit users'. The rationale is: long-term users understand the protocol better, behave more cautiously, and have a lower probability of claims. After two weeks of debate, the proposal passed with a 61% approval rate. Now, users who deposit in Falcon for more than 180 days can reduce insurance costs by 15-30%.
This design makes insurance not an isolated product, but a symbiotic system integrated into the entire protocol ecosystem. Insurance providers, insurance buyers, and protocol developers form a community that shares risks and benefits.
The potential cracks I see.
Of course, this exquisite system is not without its flaws. The biggest challenge is 'low liquidity risk'—when the market fluctuates violently, many users may simultaneously apply for compensation, exceeding the underwriting capacity of the guardian network.
I noticed that Falcon is testing a solution: introducing a reinsurance layer. When a single compensation exceeds a certain threshold, a reinsurance pool is triggered, where institutional-level participants provide excess coverage. However, this also brings new centralization risks—if the reinsurance pool is controlled by a few institutions, they may manipulate compensation decisions.
Another issue is information asymmetry. Professional guardians have more powerful analytical tools, while ordinary users may be at a disadvantage in compensation voting. Although the system has designed a 'randomly selected juror' mechanism, ensuring truly decentralized judgment remains a continuous challenge.
Late-night insights: Insurance as trust infrastructure.
In my research on Falcon's insurance system during this period, my greatest gain is not learning how to buy insurance, but understanding how trust is built in a decentralized environment.
In traditional finance, trust comes from licenses, capital, and historical reputation. But on-chain, none of these exist. Falcon uses a sophisticated mechanism to break trust down into verifiable actions: if you analyze risks carefully, you can gain higher underwriting weight; if you vote honestly, you can continuously earn returns; if you participate long-term, you can enjoy lower rates.
This trust is not established overnight, but accumulates bit by bit through each compensation event, each governance vote, and each risk analysis. It is like a coral reef; it takes time to grow, but once formed, it is exceptionally strong.
Last week, I decided to become a guardian myself. I staked $5000, specifically underwriting three lending pools that I had deeply researched. This feels less like an investment and more like participating in a social experiment—I am using my professional judgment to provide security for the entire community while earning the returns I deserve.
In this process, I found that my understanding of risk deepened. Previously, I only cared about the safety of my own assets, but now I begin to focus on the healthy development of the entire protocol. This shift in perspective may be the most valuable byproduct of decentralized insurance.
At two in the morning, I watched the flashing underwriting requests on the guardian panel and suddenly thought: this may be the closest moment DeFi has to an ideal state—it's not a cold code execution, but a living security network maintained by thousands. We are not just users; we are each other's guardians. In this uncertain ocean of crypto, knowing there is such a net below supporting us allows for bolder navigation.
