Danish Red Cross sponsors $3M blockchain-based volcano catastrophe bond

Crypto and blockchain adoption for humanitarian causes is set for another expansion as the Danish Red Cross has sponsored a catastrophe bond aimed at providing relief in the aftermath of a volcanic eruption.

According to CIR Magazine, the catastrophe bond — often shortened to cat bond — has the backing of private firms and other humanitarian establishments with investors like Solidum Partners and Plenum Investments associated with the project.

Using blockchain technology developed by Replexus — an insurance risk securitization outfit — the cat bond aims to raise funds for humanitarian relief and expedite its release in the aftermath of a catastrophic volcanic eruption.

The blockchain-based cat bond plans to raise about $3 million and will focus on 10 active volcanoes around the world. According to the report, these chosen volcanoes pose significant humanitarian risks to the over 700,000 people living within a 60-mile radius of each volcanic mountain.

The 10 active volcanoes covered by the cat bond include Popocatépetl in Mexico and Nevado del Ruiz in Colombia. Others include Merapi and Raung in Indonesia, as well as Fuego in Guatemala and Villa Rica in Chile. Mt. Cameroon in Cameroon and Ecuador’s Pichincha, Cotopaxi, and Tungurahua are also covered by the insurance fund.

Commenting on the project, Replexus CEO Cedric Edmonds said:

“The volcano CAT bond will be placed on an insurance-linked securities blockchain, making the transaction particularly cost-effective for the aid agency and enabling secondary market trading among ILS investors.”

Indeed, multi-hazard risk management outfit Mitiga Solutions developed a modeling system to facilitate the distribution of the funds. The system analyses the height of the ash plume generated by the eruption event as well as wind direction to determine the risk profile of vulnerable communities living around the volcanoes.

Once the ash plume crosses a certain height and the prevailing winds are in the direction of these communities, the system developed by Mitiga will automatically enable a payout from the cat bond. Replexus has also created a permissioned blockchain responsible for dematerializing the bond with the system touted as being able to reduce settlement costs by up to $400,000 per bond issuance.

Crypto and blockchain firms continue to play active roles in providing humanitarian relief during periods of natural and man-made disasters as part of their corporate social responsibility. As previously reported by Cointelegraph, crypto companies contributed funds to help people affected by the Texas winter storm earlier in the year.

Back in January, the American Cancer Society partnered with crypto charity organization The Giving Block to create the first-ever cryptocurrency cancer fund.