It has been pointed out that if DeFi insurance collateral is set as ETH or other DeFi assets (such as wrapped tokens, liquidity staking tokens, etc.), the collateral value decreases when a crisis like a hack occurs, preventing the insurance function from working properly. Jesus Rodriguez, founder of institutional DeFi platform Sentora, stated via X, "Using assets whose value declines together during a crisis as collateral limits not only ecosystem stability but also growth. The money allocated to insurance in DeFi amounts to less than $1 billion out of a total value locked (TVL) of $94 billion. Institutions abandon investments during the due diligence phase if the collateral is ETH or other DeFi cryptocurrencies before investing in DeFi." He continued, "External collateral not directly intertwined with DeFi could be a solution. The reason Firelightfi recently announced its intention to use XRP or Stellar Lumens (XLM) as collateral is to avoid being tied to a collateral value crisis in the event of a DeFi crisis," he emphasized.
