UMA

Overview

InsurAce is a a multi-chain mutual insurance protocol. It offers insurance on a range of DeFi protocols across a variety of ecosystems. The protocol aims to improve upon other existing DeFi insurance protocols by removing the need for KYC. InsurAce covers four types of protocols and smart contract systems: lending protocols, decentralized exchanges, derivative protocols, and asset protocols. It also includes an investment function, similar to Yearn Finance, that will use investor funds and excess insurance capital for yield farming.

3 Key Highlights

  1. InsurAce offers cross-chain coverage
  2. No KYC required to participate
  3. The protocol handles claim assessment quantitatively, rather than a binary accept/reject

Rating (To be discussed in the future.)

AAA AA A style

Value-add

Why is ecosystem valuable?

Only around 2% of DeFi assets are insured, so InsurAce can help close the gap by providing low cost insurance coverage. Other insurance options focus only on Ethereum, but InsurAce offers coverace across a wide variety of blockchains. This allows a bigger audience of DeFi users to manage their risk.

Objectives

Objective 1: Provide unbeatable low cover premiums

Objective 2: Enable sustainable investment returns

Objective 3: Continuously evolve to cater to the insurance needs of the fluctuating DeFi space

Systematic Risks & Constraints

  • Many DeFi users have a high risk tolerance, meaning that they would have low demand for buying insurance
  • The team has taken on some centralized powers like reverting transactions in the name of security, which could lead to regulatory risk

Potential Solution

  • Integrate with other yield earning protocols to sell insurance on a protocol level, rather than an investor level

Token High-Level Summary

Token Summary

 

INSUR is a native token of the Ethereum ecosystem.

Ecosystem

Chains with available coverage

  • Ethereum- 37 dapps
  • BSC- 7 dapps
  • HECO- 1 dapp
  • Solana- 2 dapps
  • Polygon- 8 dapps
  • Fantom- 2 dapps
  • Terra- 2 dapps
  • xDAI- 1 dapp
  • CEXs- 4 centralized exchanges

Market Design

Design of the environment in which the tokens and users exist in

Thickness of Market

  • both the insurance products and the investment product have INSUR incentives. If one of those sides (insurance or investment) doesn’t have enough capital, then rewards increase for that product
  • by expanding to multiple chains, InsurAce is not restricted to the available protocols on a single blockchian and can therefore offer more coverage options

Reduce Congestion

  • Offering INSUR incentives for providing capital helps increase the amount of coverage the protocol can offer, reducing competition for limited coverage opportunities

Safety

  • InsurAce has had their smart contracts audited by Slowmist and PeckShield
  • The protocol has security solutions that continuously monitor the network’s health for any issues

Ease of Use

    • Covers are well labeled for what users can expect to pay for insurance coverage
    • The underwriting section could benefit from a greater explanation of the risk exposure for that pool

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Mechanism Design

Rules of the game that people have to follow

Governance

1. Decision Making

  • INSUR holders vote for or against proposals
  • The Advisory Board is made up of InsurAce employees and independent advisors set specific rules, review proposals, and execute contingency plans to make decisions if the community voting mechanism fails

2. Implementation

  • The InsurAce team and community contributors work together to implement proposals

3. Resolution mechanisms

    • The InsurAce security team can take the following measures in the event of a security breach
      • Suspend or terminate some or all smart contract functions
      • add a pending session to some suspicious and large transactions
      • revert and trace suspicious transactions

Market Structure

1. Bargaining Protocol/Pricing Model

Pricing Model

  • Actuary-based pricing models
  • Premiums assessed as a portfolio rather than as an individual protocol, so users can buy covers for cheaper by purchasing insurance on multiple protocols in one transaction

  • Use the Aggregate Loss Distribution model with main inputs being number of claims and exposures in a given time window
  • Use the Aggregate Loss Distribution model with main inputs being number of claims and exposures in a given time window

Investment

  • Similar to Yearn Finance, users will be able to choose to deposit funds into an investment pool that automatically implements an investment strategy
  • The investment pool returns subsidize claims
  • These investments will automatically be covered by insurance
  • Excess capital from the capital pool (insurance staking principal + premiums) is placed in the investment pool with returns helping to reduce the cost of covers

Security Rating

  • Security rating is based on five factors, with varying weights and is used to measure a protocol’s risk
    • Project Implementation (10%)
    • Project Operation (15%)
    • Team Qualification (5%)
    • Audit (40%)
    • Code Quality (30%)
  • These factors will be evaluated by the advisory board, then by community members to determine the final Security Rating

Claim Payout

  • If a claim is approved, then the following rules apply
    • Claim payout will first be drawn from the premium pool, up to a maximum of 20% of the premium pool balance in a single claim
    • If 20% of the premium pool is not enough to cover the payout, principal tokens in staking pools will be used to settle the balance
    • Based on the exchange rate and pool size, a weightage-based haircut will be taken evenly from each of the staking pools

2. Community information

Claim Assessment Process

    1. Claim request- cover holder submits claim with proof of loss (15 day window)
    2. Investigation- the advisory board investigates and makes a report
    3. Voting- INSUR holders who staked to become claim assessors vote on the claim. If less than 75% of the Claim Assessor votes are used then the advisory board makes the decision (36 hours, extended to 72 if no consensus is reached)
    4. Complaint period- anyone can file a complaint with a fee of 1% of the claim amount. Advisory board makes the final decision based on the complaint (24 hour window)
    5. Payout- payment is made to the claim applicant

3. Idiosyncratic Risks

    • The advisory board has final say if a complaint is made, so could overrule the community vote. This adds centralization-related risk, where the board could collude to accept a payout they should not have. The payout could even be requested by them through an anonymous address as there are no KYC requirements.
    • This is compounded by only having a four person advisory board
    • The long staking lockups increase the risk of holding those assets as stakers cannot quickly sell if market conditions change
    • Returns are only through INSUR tokens, which could lead to a potential death spiral
    • Returns are just from inflation, not protocol yield, which may be unsustainable

Token Design

Rules of the game that tokens have to follow

Token Policy

1. Monetary Policy

  • INSUR has a total supply of 100,000,000 tokens
  • INSUR holders are eligible for earning a share of protocol fees
  • Inflation rate will be adjusted based on TVL and keeping APY’s in the 10-50% range, but target inflation is between 1.2-2 million INSUR tokens per year

2. Token Valuation 

  • the primary value of INSUR comes from it’s ability to allow users to participate in governance
  • INSUR holders can choose to be an Assessor and earn fees from that, but these fees are paid in INSUR
  • One of the underwriting mining pools is for INSUR, but the earnings are also denominated in INSUR
  • INSUR tokens do not have a clean cashflow method to use for valuation, because the earnings are just coming from INSUR token inflation

Financial Incentives

1. Platform Activities 

  • INSUR is used for voting on governance proposals
  • INSUR can be staked to become an Assessor and earn more INSUR for participating
  • Users can stake mStable USD, ETH, WETH, DAI, USDC, USDT, BNB, BUSD, or INSUR in underwriting pools and earn INSUR rewards. They are at risk of losing some of their stake in the result of a large claims payout

2. Financial Returns

  • Underwriting mining APYs currently range from 19%-50% and the Uniswap LP APY is currently 183%
  • note that even after unstaking, tokens still cannot be withdrawn for 15 days
  • INSUR token rewards are subject to 7 day per-block vesting
  • The advisory board sets the INSUR incentive amount on each proposal that will be earned by the correctly voting claim assessors

Token Architecture

Useful for non ERC-20 tokens. And how financial products are structured.

Token structure

  • INSUR is a ERC-20 token
  • stakers get ERC-20 LP tokens, but these are non-transferable and therefore not interoperable with other protocols

Token distribution

Conclusion

InsurAce is a powerful protocol allowing for both low cost insurance covers and insured yield-optimizing strategies across a variety of ecosystems. This protocol is a good improvement over existing alternatives in regards to risk assessment, allowing for better pricing on lesser-know protocols. Though notably all returns are paid out through INSUR tokens, which carries substantial volatility risk.

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