This is mentioned as a high level topic in the product road-map discussion but I thought I’d elaborate more on what we’re thinking.
Issue: cover for each protocol has to be bought individually and coverage is limited to smart contract risks.
Solution: use an option approach to provide stacked risk cover where the protocol is represented by a token.
Say we are looking to cover the Curve yPool. The user would purchase yPool tokens by depositing stablecoins into Curve. They can then take out Stacked Risk Cover on Nexus which would have the following terms and conditions (broadly):
- User chooses cover amount and time as usual, say 1000 USDC worth of cover.
- A claim can be submitted at any time by sending in 1.1x cover amount, so $1100 notional value of yPool tokens. Where notional value of yPool tokens assumes each stablecoin in Curve is worth $1 and then making the adjustment to allow for accrued fees (this can easily be determined by a fixed formula and abstracted from the user).
- If the user sends in the required number of yPool tokens then the claim is valid, no other claims criteria.
Conceptually, this means that if yPool tokens materially de-peg for any reason, by an amount greater than the buffer (1.1x in the example), then it makes sense for the cover holder to submit a claim. As 1000 USDC > $1100 notional of yPool.
So it covers the following broad classes of risks:
- smart contract risk of Curve plus any underlying protocol
- economic incentive failure of Curve or any underlying protocol
- governance failure of Curve or any underlying protocol
- USDT de-pegging or other stablecoins failing for whatever reason.
- The main risk it doesn’t cover against is if the token is frozen and can’t be traded, as then a claim can’t be submitted.
It would be particularly useful for any stablecoin related use case and can also be applied to any protocol that is tokenised. eg Synthetix could be covered against all risks by doing a sUSD vs USDC option.
- when a claim is made Risk Assessors would have their NXM burned as usual but they should receive their share of the yPool tokens. eg if 50% of the claim value is burned in Risk Assessor stakes, then 50% of the yPool tokens submitted are proportionally allocated to Risk Assessors.
- The remaining yPool tokens go into the mutual to be sold for ETH/DAI at a later point.
- Net claim payment is: Cover Amount - value of yPool tokens. Which is quite neat because the mutual effectively pays only the value that is actually lost.
- Add additional “currency” assets to purchase cover in (eg USDC)
- Create a deposit contract that handles the yPool tokens and distributes them to Risk Assessors as required. If the claim is denied the yPool tokens would be returned to the user.
- Way to sell the remaining yPool tokens in the capital pool and convert to ETH/DAI etc
- Product wording
- Associated UI changes
- Biggest potential issue is correlation, and accumulation of risk. If the mutual starts offering many different stacked risk covers then risk will accumulate at the lower end, eg DAI, USDT, USDC failure. This likely needs to be dealt with by setting lower capacity limits on related risks and is where more complex governance is required.
- Could release the selling aspect later if we wish to release faster (a good solution is likely gnosis protocol)