AC takes you to understand the DeFi insurance project Cover Protocol
Editor's Note: This article comes fromBlock beats BlockBeats (ID: BlockBeats), reprinted by Odaily with authorization.
Editor's Note: This article comes from
Block beats BlockBeats (ID: BlockBeats)
Block beats BlockBeats (ID: BlockBeats)
, reprinted by Odaily with authorization.
On December 3, YFI founder Andre Cronje published an article titled "Understanding Cover Protocol" on his blog. Briefly introduced the three important core roles in the Cover protocol and their participation methods, and also mentioned that with the help of yearn.finance, the Cover protocol will optimize the user experience and make three important improvements.
The following is the full text translation:
It took me a while to understand Cover Protocol. In this article, I will try to simplify what I have learned to help the 3 core roles in the product better understand and use the product:
Policyholders (Coverage Seekers)
Liquidity Providers
Prediction Market Users
Policyholder
As an insurance seeker, I would like to purchase a fixed-term insurance for the protocol I use to protect my funds in the protocol, so how should you proceed?
When you go to app.coverprotocol.com, you will see the following screen:
Those who need to insure only need to pay attention to the option of the market (Marketplace). If you want to buy a yearn insurance, you can choose yearn.finance in this interface.
Here are a few things to note;
Validity: This policy is valid until February 28, 2021
Insurance is paid in stablecoin DAI (as collateral)
As a policyholder, you only need the claim token (CLAIM), so we can ignore the no-claim token (NOCLAIM), which will be covered in detail later.
To buy insurance, you choose to buy (BUY), and the page will jump to the Balancer trading platform:
liquidity provider
In the event of a claimable accident, you will need to file a claim for:
In the "Claim Selection" category on the left side of the page, click "+File Claim (+ FILE CLAIM)"
If the application is approved, you can exchange your claim tokens at a ratio of 1 Dai per token.
liquidity provider
As a liquidity provider, I hope to earn fees from the funds I provide as support for the agreement within the scope of my risk tolerance.
When you go to app.coverprotocol.com go to Mint, select the protocol you want to provide collateral for, choose the maturity date you want to adopt, and enter the amount you want to provide collateral.
In the following example on that day, yearn.finance is still used as an example to explain, the expiration time is set on February 28, 2021, and the pledge amount is 10,000 DAI.
Next, approve and cast.
The next display screen will have a familiar page display (mentioned above):
This will show how many claim (CLAIM) and no claim tokens (NOCLAIM) you have. Let's take a quick look at the explanation of the value mechanism of the two tokens:
In case of an accident, the claim token value is 1DAI;
If there is no accident at the expiration date, there is no claim for token value 1DAI;
Claim Tokens and Non-Claim Tokens cannot be redeemed at the same time until the event occurs or expires.
As a liquidity provider, you have the following options:
As a liquidity provider, I believe this protocol will not have any claimable events:
Then hold your claimless tokens until they expire, and sell your claim tokens to the Balancer pool for a profit.
As a liquidity provider, I believe this protocol will have a claimable event:
Then hold your claims tokens until the accident happens, then sell your no-claims tokens to the Balancer pool for a profit.
As a liquidity provider, I just want to earn fees from policyholders:
Put your claim tokens and DAI in the balancer pool to provide liquidity, and you will be able to earn transaction fees every time the policyholder buys claim tokens.
As a liquidity provider, I just want to earn fees from policyholders and users of the prediction market:
Put your claim token +DAI and non-claim token +DAI in the balancer pool to provide liquidity, and then you will be able to earn transaction/speculation/insurance fees.
Prediction market users
As a user of a prediction market, I hope to make a profit on the perceived risk of a given protocol. In the final analysis, the fundamental question of the Cover protocol is, will protocol X have an accident before the insurance expiration date?
This is perceived risk. Let's look at a few use cases:
Claims tokens are purchased in the Balancer Pool and held until the protocol crashes.
epilogue
As a prediction market user, I believe the protocol will have no claimable events:
Buy no-claims tokens in Balancer Pool and hold until the agreement's insurance expires. Both products have expiration dates, but users can also make risk adjustments. Maybe some kind of dangerous event will happen next month, so while the risk is small now, but the risk will escalate in the future, then you can buy claim tokens now and then sell them when demand increases.
These are all based on perceived risk to the underlying protocol.
epilogue
I didn't discuss (or I don't want to discuss) in this article about Shield Mining. At present, when liquidity providers provide liquidity to claim and claim-free pools, they are rewarded excessively, and a large part of their rewards is realized through the issuance of COVER.
The problem with this is that miners are buying claim and claimless tokens to secure mining, so the cost of tokens should be priced very high relative to their actual perceived market value.
As long as protection mining continues to be active, the market cannot provide a reasonable ratio or figure. With the redesign of the user experience with the help of Yearn, these operations will become easier.
There are three improvements that I'm really looking forward to:
