Only two parties won’t make P2P coverage a success. Should introduce market makers.
What is $COVER
$COVER is the governance token of Cover Protocol, a peer to peer DeFi insurance platform. One can provide insurance for crypto assets or DeFi platforms by ultilising the protocol. Of course one can also buy coverage there (without KYC). Currently supported protocols are Yearn/Curve/Balancer/Bancor/Aave/Compound/Uniswap.
How does the insurance protocol work?
Participants of the protocol : Coverage providers (P)and coverage seekers (S).
What does P do?
1)P deposit 1 DAI to the platform, minting 7 CLAIM tokens (1 for each of the 7:Yearn/Curve/Balancer/Bancor/Aave/Compound/Uniswap) and 1 NOCLAIM token.
2)P sell the 7 minted CLAIM tokens to coverage seekers, for a price that he is satisfied with. (e.g., if he sold each CLAIM for 0.01 DAI then he gets 0.07 DAI. The coverage is for 3 months)
3)If Yearn was hacked (but the other 6 was not) during the 3 months coverage period, P lose a portion of the deposited 1 DAI (according to how much was lost due to the hack).
4) If none of the 7 protocols was hacked, P will happily keep the 0.07 DAI and claiming 1 DAI back after 3 months. The APR is thus 0.07/3*12=28%.
What does S do?
1)S has one dollar deposited in Yearn.
2)S buys one CLAIM token for Yearn for 0.01 DAI.
3)If Yearn was hacked (but the other 6 was not) during the 3 months coverage period, he will be reimbursed by the portion of the loss by claiming using the CLAIM token he bought.
4) If none of the 7 protocols was hacked, S will not get back the 0.01 he paid for the CLAIM token.
How does the mining program work?
It rewards its native token for providing liquidity on order books. Official announcement can be found here.
What about the APR?
What is the current problem of the mining program?
As discussed above, there are only two roles in the protocol. P (Coverage providers) need to finish two major tasks in order to profit:
1)Selling all of the 7 CLAIM tokens, at a price that satisfis both S(coverage seekers) and himself.
2)Bear the risk of the 7 protocols being hacked.
Asking a guy to do one thing is always easier than doing two, especially when both are not easy.
A third party should be introduced. The third party should act as the middle man between P and S. We can call it market makers (M).
How does the 3-party model work?
M mint CLAIM and NOCLAIM tokens.
M sell NOCLAIM tokens to P. (P bears the risk of all 7 protocols being hacked).
M sell CLAIM tokens to S.(M does the work to sell CLAIM and NOCLAIM tokens and bears no risks)
S gets coverage by buying CLAIM tokens from M.
What is the benefit?
Life will be much easier with M and P share the work (M does the hard work, P bears the risk).
M is more likely to be a risk averse guy that got much time. He doesn’t bear the risk and just make life easier for P, by taking his time selling all the 8 tokens.
P tends to have funds and is tolerant.P just buy NOCLAIM tokens to provide coverage for a bunch of protocols ( 7 protocols as in this example). It is quite easy for P.
The protocol should incentivise selling/buying of NOCLAIM tokens to introduce market makers (M), who will simply buy NOCLAIM to provide a wide range of coverages for a bunch of protocols. This will much simplify using of the insurance platform and attract much more users.