With an increase in security breaches in smart contracts and the crypto space as a whole, it is indeed a scary time for us all. This proposal will help build a synergistic relationship between Idle and Cover Protocol:
Cover Protocol provides peer to peer coverage with fungible tokens. It lets the market set coverage prices as opposed to a bonding curve.
The process starts when market makers (MMs) deposit collateral to cover a product. MMs will receive two types of fungible cover tokens in exchange for their deposit. MMs can choose to sell the fungible token(s) to earn a premium, or provide liquidity in Balancer pools with the fungible token(s) and earn fees. Coverage seekers can then buy the coverage they need.
Cover Protocol allows DeFi users to be protected against smart contract risk. It stabilizes the turbulent DeFi space by instilling confidence and trust between protocols and their users. By bridging the gap between decentralized finance and traditional finance, Cover Protocol will open the doors of DeFi to all investors.
Fungible Cover Tokens
At the core of Cover Protocol are the fungible cover tokens. Fungible cover tokens are created when a user deposits collateral into a Cover smart contract. Each Cover contract specifies the protocol to be covered (ie Curve), the preferred collateral (ie DAI), the amount to deposit, and then the expiration date of coverage.
The fungible cover tokens are maintained on a 1:1 basis with their collateral. For each DAI deposited, the user receives 2 tokens, a CLAIM token and a NOCLAIM token. The NOCLAIM token represents rights to receive the deposited collateral in the event that a claim payout is NOT awarded during the designated coverage period. The CLAIM token represents a right to receive the deposited collateral (or a fraction thereof) in the event that a claim payout is awarded by the claims management process. Please see the section on “Claims Management” for more details.
Our full product paper and documentation can be found here: https://docs.coverprotocol.com/product/paper
We recommend projects becoming market makers. Market Makers hold both CLAIM and NOCLAIM tokens and provide liquidity for both fungible tokens.
Market Maker (MM)
How to become a MM
- Deposit collateral
- Receive both CLAIM and NOCLAIM tokens
- Provide liquidity for both CLAIM and NOCLAIM tokens
- Risk averse
- Cheap and low slippage coverage for your community to stay protected
- Earns liquidity provider fees by providing liquidity for both CLAIM and/or NOCLAIM tokens to balancer pools
- Participates in COVER shield mining by staking the above LP tokens with Cover Protocol
- Sells either side of the token at will
- Redeems collateral using both CLAIM and NOCLAIM tokens during an active coverage period with no claim accepted, redeems collateral on expired coverage with no accepted claim with NOCLAIM token or redeem collateral on an accepted claim with CLAIM token.
- Incentivize your own token as well!
Application for coverage can be found here : https://docs.coverprotocol.com/collaboration/new