One of the most popular ways for bootstrapping a DeFi project is through Liquidity Mining. Most DeFi projects are two-sided marketplaces for some type of financial service — for example, Compound is a marketplace for borrowers/lenders and Uniswap is a marketplace for LPs/traders. Bootstrapping a new two-sided marketplace is difficult because of the cold-start problem: if there is no demand, there won’t be supply, and if there is no supply there will be no demand. This is where tokens come in handy — projects can incentivize one (or both) sides of the marketplace through distributing their own token to kickstart the demand-supply flywheel.
Another side effect of executing liquidity mining program is that the project is able to distribute their native token to more people. More holders of the token often leads to broader support for the project, or greater level of decentralization if the token is used for governance. This dual-benefit often makes LM programs a no-brainer.
However, the primary drawback of Liquidity Mining programs is that it often gets farmed and dumped by whales or yield aggregators — the capital committed to providing liquidity often dries up the moment the incentives stop flowing. Projects often find it difficult to have sustained benefits from the LM programs after they are done.
The idea of Decentralized Insurance has been one of the classic examples for ideal use-cases of blockchain applications. Insurance providers may have incentives to withhold claims for as long as possible, and users have little transparency into the process — leading to an overall poor user experience. The idea of putting these insurance processes on-chain is an appealing one: insurance claims can be programatically & immediately paid out if some conditions are met, and everyone has full transparency on the state of the entire system at all times. For example, someone could buy travel insurance for their flight, and a smart contract could automatically payout if Google Flights reports that the flight was delayed.
Many attempts at decentralized insurance have been tried over the years, but anything that touches the real world has not gotten much traction at all. Firstly, there are many concerns around getting trustworthy data on-chain — if a contract can be maliciously fed data that says a hurricane happened when it didn't, that on-chain weather insurance market is as good as useless. Secondly, the current set of Ethereum/DeFi users are not generally looking for vehicle/household/travel insurance on-chain — they are looking for something more crypto-native.