# 4. Layered insurance coverage
**Noon**’s capital protection framework mirrors the layered security models of traditional finance, combining multiple lines of redundancy to safeguard user assets and yield. Our insurance approach covers **on-chain smart contract risks, off-chain custodial exposures, and platform-level volatility**, providing peace of mind without eroding returns.
## 1. DeFi Deployment Insurance
* **Provider:** Nexus Mutual
* **Objective:** Mitigate smart contract risk in DeFi deployments
All **Noon** DeFi strategies are protected by on-chain insurance coverage provided by **Nexus Mutual**, Web3’s leading decentralised insurance protocol. Noon also strategically divides deployments across independent DeFi protocols with **minimal code overlap** to reduce correlated smart contract risk.
All scaled DeFi deployments are fully protected by on-chain insurance coverage from Nexus Mutual, Web3’s leading decentralized insurance protocol. **Noon** also spreads capital across independent DeFi platforms with minimal code overlap to limit correlated smart contract risk.
For small testing deployments (specifically those below half the size of the **Noon** Insurance Fund, mentioned under point 3) coverage may be temporarily omitted. This exception applies only to limited test-size positions; all meaningful, scaled deployments remain fully insured.
**Scale advantages:** **Noon**’s deployment scale allows access to institutional-grade coverage at a reduced cost, enhancing protection without impacting yield.
> **On-chain verifiability:** All DeFi insurance coverage is public and auditable.
## 2. Custodial Insurance
* **Partners:** Dinari, Alpaca
* **Objective:** Mitigate counterparty risk for off-chain and tokenised traditional assets
The majority of assets that reside outside CeFi or DeFi, including U.S. Treasury Bills, CLOs, and similar holdings are **held via Dinari**, who custodies all assets with **Alpaca**, a regulated U.S. broker-dealer.
This ensures that off-chain or tokenised assets are protected with **regulated insurance coverage comparable to institutional custodial standards**.
> **Regulated counterparties:** Assets are custodied under licensed U.S. institutions, providing institutional-grade risk mitigation.
## 3. **Noon** Insurance Fund
The Noon Insurance Fund is a fully segregated, self-managed reserve that serves as Noon Capital's safety net. This proprietary fund is capitalized through systematic allocation of 10% of all revenues, creating a robust buffer that enables superior risk-adjusted returns for our customers.
### Why We Maintain an Insurance Fund
The challenge facing any yield platform is simple: zero-risk assets deliver minimal returns. If we were constrained to only treasury bills and equivalents, user yields would be severely limited. Generating meaningful returns requires deploying capital into strategies with higher risk profiles, including those with temporary volatility.
The Noon Insurance Fund resolves this paradox by allowing us to deploy capital into sophisticated strategies like DeFi protocols, CLOs, and private credit that historically outperform over time, while absorbing short-term drawdowns without impacting customer account values. This approach maintains stable, attractive yields even when underlying strategies experience normal market fluctuations.
In essence, the Insurance Fund transforms strategies with temporary volatility into stable customer returns.
### How It Works
#### **Capitalization**
10% of all Noon Capital revenues automatically flow into the Insurance Fund, creating a continuously growing reserve proportional to platform success. The fund is completely separate from customer deposits and operational capital. Since this insurance fund only serves a limited purpose and builds in a strong replenishment mechanism (see below), all funds “season” over 6 months, and then are distributed to staked governance token holders.
#### Use Cases
There are 3 primary use cases for the Noon Insurance Fund:
* Absorb strategy-level volatility: Smoothing temporary drawdowns in high-performing strategies
* Meet gaps in insurance coverage: Protecting against risks that fall outside DeFi coverage
* Cover slippage or other costs for swift access to liquidity: Enable quick liquidity by covering one-time costs like slippage
**Absorb strategy-level volatility**
The fund acts as an automatic stabiliser for strategies experiencing temporary drawdowns. A few examples:
* For CLOs (Collateralized Loan Obligations), insurance covers mark-to-market volatility while underlying loans perform.
* In private credit, the fund absorbs valuation fluctuations during illiquid periods
This same principle applies to any deployment with historical outperformance but periodic drawdowns.
**Meet gaps in insurance coverage**
Noon has taken a “maximalist” approach to insurance, protecting its DeFi deployments against exploits and other vulnerabilities by purchasing coverage from the most trusted insurance provider in the digital assets, Nexus Mutual. While Nexus’ insurance policy has fairly comprehensive coverage, its policies feature a deductible for each coverage, which is deducted from the insurance payout in the event of an insurable event. The Noon Insurance Fund serves to cover this deductible in the event of an insurable event.
**Cover slippage or other costs for swift access to liquidity**
As detailed in our Liquidity section \[link], Noon’s ability to swift liquidity while maintaining market-leading yields may sometimes incur slippage costs. In this event, the Noon Insurance Fund would cover these slippage costs.
#### Replenishment Mechanism
The Insurance Fund operates on a disciplined recovery cycle. During down days, the fund deploys capital to maintain customer yield stability. Throughout recovery periods, positive performance days automatically replenish the insurance reserve. This creates a self-sustaining system where volatility is smoothed over time.
#### Strategic Advantage
The Insurance Fund enables us to offer what traditional platforms cannot: market leading yields with unmatched stability. By bearing the volatility risk internally, we can access higher-yielding opportunities in DeFi, private credit, and CLOs while optimizing for long-term returns and short-term stability. This allows us to provide customers with consistent, predictable yields using sophisticated strategies typically reserved for institutional investors.
#### Transparency & Mechanics
For a detailed breakdown of how yields flow through the platform and the Insurance Fund's operational mechanics, see our [Proof of Solvency Dashboard by Accountable Data](https://noon.accountable.capital/), and our [Risk Management Framework](https://docs.noon.capital/built-for-the-long-term/7-part-security-framework).
#### Key addresses