Catastrophe Bonds (Cat Bonds) are financial instruments that provide additional capital to insurance and reinsurance companies during natural disasters, transferring some of the risk to bondholders.

Cat Bonds are used in natural disaster insurance, the reinsurance market, and DeFi to manage risks like hacking and smart contract vulnerabilities, providing additional protection.

A DeFi protocol issues Cat Bonds, setting a $1 million hacking loss as the trigger condition. Once triggered, smart contracts automatically pay out, helping the project quickly recover.

A stablecoin project issues Cat Bonds, setting a 5% de-pegging as the trigger condition. Once triggered, smart contracts automatically pay out, helping the stablecoin restore its peg.

Cat Bonds offer high returns but come with high risks. Using partial payout mechanisms and diversified investment platforms can enhance investment rationality and safety.