Sentora founder: Using correlated assets for DeFi insurance is risky

Jesus Rodriguez, founder of the institutional DeFi platform Sentora, has warned that using ETH or other DeFi-native assets like wrapped or liquid staking tokens as collateral for insurance can render the coverage ineffective during a crisis such as a hack. In a post on X, Rodriguez argued that relying on collateral that loses value at the same time as the insured asset limits not only the ecosystem's stability but also its growth. He noted that of the $94 billion in total value locked (TVL) across DeFi, less than $1 billion is allocated to insurance. "Institutions often halt their investment plans during the due diligence phase if they find that insurance is collateralized by ETH or other DeFi cryptocurrencies," he added. Rodriguez suggested that external collateral not directly entangled with DeFi could be the solution. He highlighted Firelightfi's recent decision to use assets like XRP or Stellar (XLM) as an example of a strategy designed to prevent the collateral's value from being compromised during a DeFi crisis.