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
So the idea here (from a smart treasury market maker perspective) is to incentivise balancer’s LPs just with $IDLE instead of $cover (we could sweeten a good deal for balancer LPs, of course) ?
A 2nd question I have is if it´s possible for insurance buyers to go thu the entire process without leaving Idle´s page?
Last, what can users expect from cover v2 ?
Thanks @ted9423 for your detailed explanation on how Cover works!
The starting point of the discussion is the creation of the Balancer pools, that are now live here: https://app.coverprotocol.com/app/marketplace/protocols/IDLE
There are 3 business cases now available, according to the needs of the users:
- Buy CLAIM tokens to cover your assets in Idle protocol
- Become a Market Maker
- Become a Coverage Provider
This pool needs liquidity to bootstrap, lower the premium, and allow coverage seekers to buy the protection.
To become a Market Market or Coverage Provider, deposit $DAI and mint CLAIM/NOCLAIM tokens
Become a Market Maker
Deposit both tokens in Balancer pools to earn trading fees.
CLAIM pool: Pool management - Balancer
NOCLAIM pool: Pool management - Balancer
Become a Coverage Provider
Sell CLAIM on the market: Balancer
And deposit NOCLAIM in the Balancer pool: Pool management - Balancer
Go long on Idle protocol
Buy NOCLAIM and bet on the survival of Idle on long-term, getting the fees if the protocol is not hacked and there is no loss of funds.
Enable Shield Mining to foster liquidity
$COVER holders can cast their vote and enable Shield Mining on Idle coverage. This allows liquidity providers to earn also $COVER tokens on their deposits. https://app.coverprotocol.com/app/governance/
How can Idle protocol incentivize the provision of liquidity?
- Reward liquidity providers with $IDLE incentives, a sort of liquidity mining
- Use a portion of the Treasury’s fees to provide liquidity. As reported by @Simoneconti some weeks ago, DAI fees represent only 0.75% of the total earning, so in this case we can expect some exchange costs (e.g. 0.3% trading fees on other assets) and tx costs.
On the other side, if Idle protocol becomes an AMM it receives the trading fees of both pools (e.g. 2-3%) and $COVER tokens.
This could be the first step, while topics related to composability (aka embed the coverage directly in idleTokens) or Idle-owned coverage products might be discussed in a second moment.
What should be the next step? Let’s brainstorm on it!
Shield Mining on IDLE is absolutely the next necessary step.
After the smart treasury goes in production mode, I support @Davide and @simoneconti suggestions that the treasury is allowed to become a market maker and also that IDLE is used to incentivise LP´s on COVER’s balancer pools.
In combination, these measures will promote cheaper premiums for insurance buyers (depositors on idle protocol).
I cant really say it much better. IDLE incentives will really help with liquidity and drive LPs to provide. This will offer way cheaper coverage and also way more coverage available. We have seen it work very well with, for example: Badger, CORE, Frax & BoringDAO. If IDLE has their own bonus token and possibly $COVER token as incentives via the gauge, I can foresee liquidity growing greatly.
Having a portion of the treasury go towards market making or coverage providing will greatly help as well!
You guys honestly seem to “get it” and hit the nail on the head. Let me know if i can further assist.