Title Insurance for NFT's

Has anyone considered a proposal for implementing a new product for NFTs? One of the most common issues coming up today regarding NFT’s seems to be a concern that you are purchasing a stolen NFT. OpenSea doesnt seem to be very helpful when someone accidentally purchases one of these stolen assets, leaving the purchaser out to dry.

What if there was a form of title insurance to guaranty a valid chain of title for a unique NFT? In the mortgage world we see this as a requirement for anyone purchasing a new home. Why not offer it on OpenSea prior to purchasing an asset?

Does anyone see any downsides to this? Im genuinely curious if anyone else thinks this could be implemented and would love to contribute however possible.

You’d need to have someone review every policy and have the buyer indicate which NFT they are intending to buy. You’d have to go through and verify the chain of ownership to ensure it’s not stolen. If the underwriter of the policy is wrong and the person who buys the NFT cannot resell or use it because it’s stolen, then the underwriter would be liable.

There isn’t an easy way to do this, and just selling a kind of title insurance-like cover product would likely yield greater risk than reward.

Plus, you can’t automate the process, as you’d have to verify if anyone along the chain of ownership had experienced a compromised wallet. And someone could potentially game the system by selling an NFT to a friend for a high price (above the floor price), claiming it was stolen, and allowing the friend to claim the amount covered so both parties profit.

Title insurance is a good product for mortgages or land sales because the person who underwrites the policy needs to verify the history of the deed. If you make a mistake and sell 1000 acres to someone, and another party owned 25% or 50% of that tract and the party who purchased it did so to develop a new hospital, factory, etc., then it would be a costly mistake for the underwriter.

Doing this on-chain with marketplaces that are pirmarily anonymous would bring a lot of risk. This is the same reason why the mutual cannot underwrite coverage for compromised wallets. There’s no way to verify if a claim is truly legitimate or not.

That’s my view of a title insurance-like cover product, anyway.

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seems like well thought out argument against title insurance.

So basically the largest hindrance to an effective title insurance policy for NFTs is a lack of verifiable identity among wallets? without properly identifying individuals and tying them legally to a wallet title insurance is essentially too gameable

Title insurance acts as a hedge against someone messing up when processing a property sale. My primary experience with title insurance is directly tied to non-residential property, where you’re depending on a title company to ensure that the property you are buying is 100% owned by the person selling the land.
However, it’s not uncommon to find out that someone who owned the property to grant an easement to a logging company or some other company that needs to access another section of land through your property. People will grant easements and not realize they are 100-year agreements. If you’re buying land and the title company doesn’t catch that you have a 100-year easement agreement with a company, you choose to build a house in the path of the easement, and then that company comes to access the easement they were granted, you can find yourself in court or having to modify/delay construction on a residential or non-residential structure. That can cost quite a lot of money.
And if you buy land but the owner doesn’t realize that someone owns 25% of the land you’re buying, that can lead to legal costs. In any event, you’re buying title insurance to protect yourself against financial losses related to legal costs that are due to someone’s error when reviewing the title history during the sale process.
With NFTs, the process is automated and an interface can only prevent you from using their application to sell your NFT, but they can’t seize your NFT. If you incur some legal cost or suffer a loss of funds because you’re now stuck with an NFT you can’t sell, there is no way for someone underwriting this policy to authenticate if a past sale was legitimate or not. You can’t protect against human error in an automated process.
And, what’s more, you can sell a stolen NFT, you just can’t go through OpenSea. This makes the problem all the more tricky.
Main point: the risk would be too high and, ultimately, you’d have to define what you’re covering. If you can sell a stolen NFT elsewhere, then:

  1. Is there really a loss?
  2. Does the holder of the NFT have a legal obligation to return the NFT to the person from whom it was stolen?
  3. How would one verify that an NFT was truly stolen in the first place and that someone didn’t just have seller’s remorse?

Too many unknowns involved here. Title insurance wouldn’t really work on-chain. Truly, the blockchain would likely prevent those kind of errors from being made if all transactions and legal agreements were represented on-chain anyway.

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