I audited a DeFi protocol’s smart contract. I missed a subtle re-entrancy vulnerability. Two days after launch, a hacker drained the liquidity pool of $2 million. The DAO (Decentralized Autonomous Organization) is voting to sue me.
Key Takeaways
- Standard E&O is Useless: 99% of standard policies (Hiscox, Hartford, etc.) explicitly EXCLUDE “Cryptocurrency,” “Blockchain,” “NFTs,” and “Virtual Currency.” You have ZERO coverage with a normal policy.
- Specialty Lines Required: You need “Digital Asset” or “Web3” specific insurance.
- Audit Defense: These policies cover the defense costs if you are sued for a negligent audit.
- Jurisdiction: Who sues you? A DAO isn’t a legal entity in many places, but the individual token holders can file a class action.
The “Why”: The Virtual Currency Exclusion
The Trap: Search your policy for “Virtual Currency.”
It usually says: “This policy does not apply to any claim arising out of the actual or alleged value of any virtual currency…”
Since the loss is $2M in ETH, the claim is excluded.
You need a surplus lines carrier.
The Investigation: I Quoted 3 Niche Carriers
1. Relm Insurance
- My Analysis: Relm is the leader here. They write specific policies for Crypto Audits and Devs. They accept payment in crypto. They understand what a re-entrancy bug is.
- The Cons: High premiums. Minimum
10k−10k−20k per year.
2. Evertas
- My Analysis: Focused purely on crypto risk. They inspect your GitHub repo before quoting. If your code quality is low, they won’t insure you.
3. Nexus Mutual (DeFi Cover)
- My Analysis: This is “on-chain” insurance. You buy cover for the protocol. It pays out if there is a hack. It’s not liability insurance for you, but it protects the project.
[IMAGE: Graphic showing “Standard Policy” vs “Relm Policy” coverage of Crypto]
Comparison Table: Crypto Liability
| Carrier | Covers Smart Contracts? | Minimum Premium | Audit Required? | Best For… |
| Relm | Yes | $10,000+ | Yes | Web3 Devs |
| Evertas | Yes | Variable | Yes | Exchanges/Wallets |
| Hiscox | NO | $500 | No | Web2 Only |
Step-by-Step Action Plan
- Do Not Admit Fault Publicly: The blockchain is public, but your intent isn’t.
- Hire a Crypto Lawyer: Regular lawyers don’t understand DAOs.
- Notify Your Specialty Carrier: If you bought Relm, call them. If you have Hiscox, call them anyway (for the denial letter), then hire a lawyer.
- Check “Limitation of Liability”: Did your audit report say “No guarantees”?
FAQ
Can a DAO sue me?
Technically, the members can. It’s messy, but yes.
Is the gas fee covered?
No.
Why is it so expensive?
Because the risk is total loss. $2M gone in seconds.