Insurance to Protect Against Loss

đź—‚ Proposals đź’ˇ Ideas & Improvements
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The main reason why I don’t move my entire savings accounts to Idle is that it is not ensured. My real world bank account is insured for up to 100k USD, However, Idle is not, so I am cautious to deposit too much of my savings and it. There are some options for insurance already out there, For example, Nexus Mutual, however you can see that the cost of insurance is about 30%, at that rate, you’d almost certainly lose money rather than gain by using it with Idle.

I believe that if more people contribute their NXM tokens to the Nexus Mutual Idle pool that insurance costs would go down, but I am not so well versed on how Nexus works, so if someone knows more and can confirm that it would be great.

There are crypto insurance platforms out there, Nsure is one I have been hearing about recently, and I’m certain there are others out there, but I’m not certain which ones are best.

If we can lower the cost of Nexus Mutual insurance by incentivizing people to add NXM to the Idle pool on Nexus Mutual, then I think it might be a good idea to use part of the idle treasury funds to do that. Many of the insurance coverages offered on Nexus are as low as 2.6%, like for ETH 2.0, Uniswap, Curve, Balancer, etc.

I certainly know that I would be very happy to pay 2.6% to guarantee the safety of my Idle assets, they would still be earning a far higher rate than any brick and mortar savings account, even minus the 2.6%. Of course cheaper insurance would be better, but I don’t know how easy that would be to do.

Perhaps we need to connect with the Nexus Mutual team to learn more about how this works and how we might be able to lower the price of insurance?

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Hi @noahniuwa, glad to see you in the forum!

Love the topic, and I agree an insurance service would drive more adoption, particularly from users with a risk-averse profile.

We’ve already connected with Hugh Karp from Nexus Mutual to have an overview of how we can ease our premium there. The pricing is based on how much people have staked which is a combination of a few things: 1) perceived security and 2) likely demand for cover (as stakers only get rewarded when cover is actually purchased).

So there are two main options here.

We might offer some shield mining incentives to encourage people to stake on Nexus (or other insurance providers). This has worked well with tBTC and Hegic recently. And/or there is the possibility of including buy cover buttons on Idle website: this will increase demand for cover and encourage more staking.

I will take a deeper look at Nsure, seems definitely interesting but they will release on mainnet in Q1 2021, so it wouldn’t be a ready-to-use solution.

Other possible insurance/hedging services can be:

Idle, as an aggregator, can bundle and offer different insurance services to users and even (and this is my capital efficiency obsession talking :slightly_smiling_face:) reallocate covered funds to minimize premium over time. Of course, this is way easier to say than to model, and code complexity + TXs fees might cut down this optimization.

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Thanks for bringing this up @noahniuwa, and @Teo I concur, you offered a comprehensive response on Nexus’ mechanisms and what we can do to lower the costs of Idle cover there.

I believe some shield mining incentives on Nexus and potentially some of the others you mentioned may be appropriate in the early days of Idle. When premiums come down, it then makes sense to offer it on the Idle website (bad UX to offer it before it makes financial sense).

On another note:
An interesting idea you alluded to is bundling insurance. Where it becomes very exciting is bundling insurance on Idle contracts AND the contracts for which Idle deploys capital to (somewhat proportionally), if (when) the premiums are low enough for this product to make sense.

At that point, you can create the first “risk-free rate” in DeFi (yield - cover cost).

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Can’t wait to hear more! Is there anything the community can do to help speed up the process of getting insurance implemented?

I’ve heard good things about Cover recently as well, but I haven’t looked into it too closely myself.

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Hey all - thought I’d quickly chime in here.

The quickest and easiest way to drop Idle prices on Nexus Mutual is to provide some shield mining rewards. We can easily set that up if it’s of interest.

The other main reasons the price is relatively high right now is perceived demand for cover is likely low. So the other option is to include backlinks or integrations on the Idle site to improve this. Of course both options can be done if you wish.

In terms of bundled cover, this is something we’re working on and will hopefully release early in 2021. It will cover the full-stack of risks, not just the Idle contracts, so I believe it would be a great option for your users and would help attract liquidity to Idle. It would be great if the user could simply choose two options when depositing, one with cover for a lower interest rate and one without.

More than happy to work with you to make this happen.

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Hi there, I stumbled across the thread and thought of sharing some insights.
There’s some great points you mention, comparing Idle to “real world” banking services.
When looking at a low risk-profile product/aggregator like Idle, insurance can certainly provide an edge to both existing and potential users with a risk-adverse appetite.
Also, the concept of a bundled “risk-free rate” on DeFi is an interesting vertical to explore, if structured in an appropriate manner.

Overall, my thought is that Idle could benefit from a coverage add-on for users to select, if desired and could be structured in different ways:

  • Allow for users to freely decide on wether one would be interested in coverage, implementing the existing alternative services out there with the UI (I’m assuming this is the one that you were picturing).
  • Embed coverage at protocol level for selected pools, having the smart contract rebalance in real time according to inflows/outflows/policy expiration, offering an already adjusted APY to users, could be one alternative format. This would offer some added benefits I can think of, like incrementing capital efficiency & utilisation-rate of the purchased coverages (as the policy is not user-attached). This could impact the overall cost of coverage as idle coverage scenarios would be minimised (e.g. if I have bot coverage for 3 months, but end up withdrawing my funds from the pool prior to policy expiration).

In general, you could benefit from a combination of different solutions instead of having to choose one, specifically if we talk about higher volumes of demand that could affect pricing and/or capacity depending on the insurance protocol you look at.

As you mentioned Nsure, I can brief you in from our side. Nsure is not live yet, currently in process of rolling out Alpha and targeting full-product launch for early 2021. Once live, we’d be happy to explore implementation for Idle.
A proof-of-loss type product would make the most sense in this case for price optimisation, also able to drop insurance rates if your governance module decides to incentivise staking capacity.
Our Capital Pool could as well be of interest if you look to expand your product range.

Long story short, there’s plenty of ways in which I could picture a reciprocal relationship between Idle and the different Risk marketplaces/Mutuals out there like Nsure, Nexus or Cover.

Best,
Alvaro

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Hi Hugh,
Welcome to IDLE brother, we are happy to have your talent here.

Thanks for the update, from where I stand, I am particularly interested in Nexus bundled cover (out “soon”) and because I am lazy and Idle´s website has the best UI EVER, I would love to have shield mining and/or insurance subscription on Idle’s website directly.

Merry Xmas.

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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.

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

  1. Deposit collateral

  2. Receive both CLAIM and NOCLAIM tokens

  3. Provide liquidity for both CLAIM and NOCLAIM tokens

Benefits

  • Risk averse

  • Provides cheaper coverage to the community and users of idle wanting coverage

  • 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.

Application for coverage can be found here : https://docs.coverprotocol.com/collaboration/new

Our full product paper and documentation can be found here: https://docs.coverprotocol.com/product/paper

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@hughkarp @AlvaroFernandez @ted9423 would idle users need to KYC?

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There are options to implement Nexus Mutual cover without KYC

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Nsure’s approach is fully decentralised as a marketplace, where users would not have to KYC

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