Decentralized finance (DeFi) platforms have suffered $7.7 billion in losses due to hacks, with April 2026 alone witnessing over $600 million in security breaches, according to DeFiLlama. High-profile incidents at Drift and Kelp DAO highlight the inadequacy of current DeFi insurance, which covers less than 2% of the total value locked (TVL) in DeFi protocols. Nexus Mutual, a leading DeFi insurer, accounts for nearly all of the sector's $123.5 million in TVL, a mere 0.14% of the $83 billion DeFi ecosystem. The evolving nature of attacks, including off-chain failures like private key compromises and phishing, poses challenges for insurers. These complex risks are difficult to underwrite, leading to high premiums that deter users. Behavioral economics also plays a role, as yield-driven DeFi users often forgo insurance to maximize returns. The market is responding with embedded insurance in DeFi products and calls for traditional insurers to address off-chain risks, but the sector remains vulnerable as it struggles to adapt to the rapidly changing risk landscape.