For those of you that want to try this new feature, we have now enabled Cover protocol in the Idle beta website!
In the tool section, you can try to buy coverage protection or become a liquidity provider.
Coverage purchases are then listed in the user dashboard and claims can be filled with a few clicks.
While we continue to discuss the long-term coverage approach here below, we would be thrilled to know your feedback on this experimental interface (some minor improvements affect fiat-onramp and token swap UX).
That’s a good question @unicorn, and @idal correctly presented the differences between coverage solution and tranche systems.
Despite those products having different use cases, they can provide similar coverage protection in some scenarios.
Here are some risks that an Idle user would face today:
| Cover protection | Tranche A protection | Not covered | |
|---|---|---|---|
| Funds completely locked/stolen due to Idle smart contract bug | X | ||
| Funds partially locked/stolen due to Idle smart contract bug | X | X | |
| Funds completely locked/stolen in underlying protocols | X | ||
| Funds partially locked/stolen in underlying protocols | X | ||
| Underlying asset default | X |
The loss of the entire pool’s TVL would be the worst-case scenario and it would be covered only by an insurance policy. No products are currently covering loss of funds in underlying protocols, but Tranche A could do this.
Furthermore, I’d like to share with you this personal thought: we need to allocate some hundred thousands $IDLE to incentivize deep liquidity provision in Cover to make economically sustainable the coverage purchase (e.g. the premium should be lower than 2%, so supposing an average Idle APY of 10%, the net user profit would be 8%). Liquidity does not come all together and premium adjustment would require some time to reach an affordable cost.
If we implement the tranche system, the end-user might get the same profit by buying Tranche A, which provides the average APY minus a premium (10%-2%=8%). The premium is addressed to Tranche B, but this “hidden” cost in Tranche A is equivalent to the purchase of a coverage solution.
The goal of Tranche A is the embedding of a sort of coverage protection, and everyone can directly buy that product to get that feature. The protocol does not need to incentivize LPs with $IDLE rewards.
Idle is in its early stage and we might think twice about capital allocation across deliverable tasks.
I agree with @ETM612 on this statement: