Thank you for your questions!
Following are the replies to your questions!
Why is it that you have much lower TVL & underwriting than other insurance providers incl. smallcaps such as Insurace?
We haven’t allowed users to provide liquidity as underwriters so far. We will open the underwriting function this week and start to incentivise underwriters in December.
The projects you support on Optimism have all reached their ceiling. What’s holding you back from getting more organic liquidity/underwriting and consequently offering more insurance cover?
They haven’t yet reached ceilings, but little liquidity left for some covers such as for Lyra. Once we open the underwriting function, we will initiate a dynamic pricing model for premiums so that premiums for popular covers become higher which attracts users to provide more liquidity.
Who is part of the reporting committee?
Members are the followings:
More members can be elected or they can be excluded based on the governance voting by tokenholders.
Will automatic payouts be similar to Risk Harbor’s small vault on Optimism that underwrites a couple of different protocols and “pays out within 3 blocks if the SUSDC token does not redeem for enough of the underlying token”) or will it follow the claim process from your docs?
Depeg insurance pools only underwrite their own subject stablecoin so this part is different from Risk Harbor’s vault. Additionally, their cover amount will be hedged by the short position for their subject stablecoin, so underwriters won’t lose their funds even if the payout event occurred. We believe this mechanism attracts more underwriting liquidity than any other depeg insurance on other insurance protocols.
But yes, the payout will be similar to the Risk Harbor model. Claims will be automatically valid when a subject stablecoin is depegged based on Chainlink’s Oracle, therefore, buyers don’t need to submit proof of loss for claims but only have to send the USDC for the cover amount and can claim the full amount regardless of their status.
The default ratio and the payout ratio are still under adjustment but will be more purchaser friendly on InsureDAO.
You can read more details in the tweet thread below.
Pricing, Calculations, Risk Framework, Risk Management? (maybe refer to the following points)
Once we open the underwriting function, we will initiate a dynamic premium pricing model which is based on demand and supply. Each starting price will be determined by the analysis of risks by the reporting committee.
Short-position for stablecoin comes at a continuous cost vs. potential payoff in the future
As for the de-peg insurance, the hedge cost for short-position is paid by cover purchasers, and purchasers don’t need to pay the additional cost. By using InsureDAO, users don’t need to deposit collateral to build a certain short position, therefore more capital efficient.
On the underwriters’ side, their rewards are derived from the supply yield in the lending protocol used to short a subject stablecoin. As a result of the short position, underwriters will get leveraged returns, so they can earn more returns rather than simply lending their funds directly to the lending protocol.
Liquidity investment should generate yield but adds additional risk
You’re right. So, with the reporting committee, we analyse risks and choose the protocols that got audited multiple times and even have their own security funds such as Aave at the moment.
Single & Index pools: Unslashed Finance’s top pool (Spartan Bucket) got overused and they had to racalibrate and de-risk, for example by removing USDN peg policy
Firstly, Index pools are created only by the core team based on the risk analysis by the reporting committee, and only selected pools will be included in the index pools.
Moreover, as our insurance pool model is not the all-in-one pool and there will be 4 index pools which are segregated from each other, risks are diversified not only inside the index pool but across multiple index pools.
The reserve pool is rather small…
We will incentivise users to provide liquidity to the reserve pool as well when we start the farming for underwriters. Moreover, the reserve pool will grow along with the insurance purchases since a portion of the premium will go and be locked to the pool. The leverage rate will also increase based on the amount of the reserve pool.
Insuredao had no claims yet, correct?
InsureDAO is not the first offering insurance on Optimism as Risk Harbor and Nexus Mutual also offer cover for Op projects. On other protocols, the stablecoin and leverage farming pools are most used as professionals lock-in returns. Insuredao offers support for more protocols on Optimism than any other but reached limits.
InsureDAO is the first insurance protocol launched on InsureDAO. As Risk Harbor is deployed on Optimism recently, we are not the only insurance protocol but still provide cover for more protocols that are not covered by Risk Harbor.
Users can purchase covers for Op projects from Nexus Mutual as well, but the protocol is not on Optimism. We believe purchasing cover without switching chains brings a better experience to users on Optimism.
From what we’ve seen, InsureDao is a microcap with rather small underwriting, small reserve pool and little liquidity for cover purchasers so far. With incentives, the underwriting could indeed significantly grow and help your protocol as well as the listed protocols
The proposal looks reasonable in size and value-add. We mainly hope to get some insight to risk management to avoid surprises for insurance purchasers before incentivizing vault growth.
Yes, with incentives, we would like to increase capacity and protect more funds in the Optimism ecosystem. Hope this reply answers your question.
Finally, thanks again for your time and questions!