1Hive Insurances

DeFi insurance products such as opium.finance offer insurances for few products, things such as USDT protection and bridge protections to sidechains.

Seeing the recent DeFi scam explosion (looking at everything on the rekt.news leaderboards) it could be sensible to create essentially insurance for high beta yield bearing opportunities (aka shitcoin farms) on Polygon or on future chains 1Hive and these shitcoin farms will be deploying to.

I suppose the system could work by having an obviously high premium for the insurances, which should anyways attract buyers since they expect to make much more than the high premiums. Insurance payouts would be voted on by Celeste and the only tricky part that remains is calculating the premium prices / coverage for the protocol. I would be excited to work on this if you guys also have interest in it.

Premiums would be payed for in stablecoins and if the insurance is used it would be paid out in stablecoins, there exists the option of using HNY in a Maker-DAO type of way to collateralize insurances, but then there would liquidations ratios etc, so to not reinvent the wheel, it would possibly make more sense to integrate this with Agave and give the user an option to automatically deposit their HNY in Agave, borrow stablecoins, and stake those stables for insurances, it could even be incentivized.

Furthermore, I said that 1Hive could deploy this to any chain it is on, but effectively, this unnecessary, as with Celeste insurance payouts can be handled for ANY protocol that was rugged / exploited on ANY chain.

Effectively this could turn xDai/1Hive into an insurance hub.

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This is an interesting concept. I would want to see a credible plan for a single product offering with specifics and a detailed action plan before making an assessment one way or another.

This seems like a thorough article detailing defi insurances and how they work at 3F Mutual.
My first impulse was that it would be a regulatory nightmare.
Then I remembered “This is defi!”
:wink:

Hopefully that helps you out @ceresbzns.

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I’m interesting in thinking more about this as well. I have recently been thinking about this insurance idea in the context of quantifying regulatory/centralization risk of custodial coins like wbtc, usdc, tether, etc.

My gut tells me a dynamic insurance rate that is driven by supply and demand makes the most sense. But for such a derivative to be efficient it has to be fairly liquid.

I can imagine this would work though as long as the insurance protocol took collateral such as ETH or RAI which did not have associated regulatory/custodial/smart contract risk and locked it to maintain >100% collateralization vs the amount insured. You’re basically constructing an options market.

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Yeah, I mean insurance are options. On a side note when you mentioned dynamic rates → was thinking of options markets where you can stake say USDC as an example in an insurance contract. The contract then deducts USDC over time and returns you tokenized (so partial amounts) of insurance on the thing you’re insuring yourself against.

I think simply both options would be niced but fixed rates are easier to implement and given the speed at which the market moves it would be only beneficial to open all options. When it comes to regulatory/centralization risk that is a whole other story for itself. When it comes to USDT look at opium.finance, also when looking at options markets look at their TURBO call options I think we could learn from that code if we would be doing stuff like this.

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When it comes to regulatory nightmares I don’t see the real problem actually.

I call this insurances to simplify it, but from my perspective this is just a function f(x) → y where part of the input comes from funny internet people clicking buttons on court video game.

EDIT: To be precise I mean it really depends on how you construct:

Imagine there was a case where a protocol just dumped but wasn’t exploited and somebody is mad because they can’t cash in their insurance.

The product has to be constructed in such a way that it visually and technically explains to the user that they are literally locking in their ERC20 balance in a contract that will do x if y / Celeste decides (and we can make programmatic proofs for Celeste that something was exploited / dumped, imagining generalized observer contracts ) so they don’t get their wrong idea that they are “entitled” to something. DeFi is x → y and people have to get over it

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Interesting. Seems like a good use case because there will be a steady stream of cases and financially imcentivized parties. I am wondering where you’d find qualified jurors able to make good decisions in complex cases. Lots of nuance and even ideology mixed up in judgements I see on forums and social media about this.

I am wondering where you’d find qualified jurors able to make good decisions in complex cases. Lots of nuance and even ideology mixed up in judgements I see on forums and social media about this.

Celeste is in the plurality based voting so that is something people who buy the insurance need to understand. The insurance would guarantee a payout in the following case:
dsasas

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Insurance with USDT is like creating sub-prime crisis of 2008.

Tether is backed by “Commercial paper” and “Stonks”!!! If the “Stonks” crash so does USDT.

DAI and RAI could be viable stable coins for insurance. Even USDC could wotk as it is audited, but USDT … never!

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This seems like a super interesting idea and I think one that the market really needs. I know there was a few options to get insurance on the main net but I never really looked into them because for the smol bags I had, I always assumed the worse and was prepared to loose it all. But now if you say that there could be a cost efficient way to provide “insurance” with Celeste as the judging body, I think even for my small bags, if cost efficient, I would look at insuring atleast the base funds (i mean the staked funds).

I however did not understand why the process flow chart is drawn as such? So what you mean to say is even if it was’nt a hack and the ‘Keepers’ selected to be the judges decided that the claim is to be paid out - the claim will be paid out?? I thought we had other ‘challenge’ mechanisms which would stop this from happening?

I however did not understand why the process flow chart is drawn as such? So what you mean to say is even if it was’nt a hack and the ‘Keepers’ selected to be the judges decided that the claim is to be paid out - the claim will be paid out?? I thought we had other ‘challenge’ mechanisms which would stop this from happening?

Um, it doesn’t show that?

Nope - I guess the flowchart shows that it will always payout regardless, but I guess if the guidelines and precedence are set right then with the challenge mechanism, only hacks should be paid out? Anyways … i digress, the post is about the insurances and its a cool concept … will be good to see how this evovles.

Thought it showed that for a second, realized that couldn’t be true and ignored it. But still don’t understand why that box needs to be there. As far as I understand, cases are only heard when there’s a challenge - presumably a hack in this use case.

Sur, educating on the risk is important. But if you don’t have a pool of keepers capable of making good decisions, you might need to disclose that up front, which would be a turnoff.

Good idea, just raising a common concern I see in general, and complex cases specifically.

I mean the point is that the risk within the insurance is also the keeper decision which is assumed to be correct in 90% of the cases since exploits are very clear when they do happen.

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Good point. That 10% could b problematic, but one of the strengths of Celeste I believe is that is quickly and efficiently creates legitimacy in those 90% of decisions. So that a vocal minority can’t claim unjust decisions out of their own financial interests, corruption or simple ignorance. They can’t point to the small handful of leaders in most projects and unfairly claim corruption. In these cases you more need legitimacy than complex abstract arguments.

it could work if the “insurers” overcollateralized their insurance in the same way crypto loans are overcollateralized. The subprime mortgage crisis happened due to a number of events, and lack of transparency. Back something with ETH though and all you have to worry about is volatility risk.

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you can reframe an insurance claim as a “challenge”. Celeste is able to make generalized decisions like this.

Also, I think fries “90%” he threw out was a random number. Celeste becomes more robust the more keepers are in the system, and if someone doesn’t like a decision, it can always be appealed to recruit more keepers. The assumption is that with a large enough number of keepers on a case the ruling should be the truth. It’s incredible unlikely that the majority of all keepers in the system would collude to rule on a case in a way that was counterfactual.

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Finally the bird shows up to comment.

Yes, the 90% were a random number. The reason I proposed this was specifically because I believe the real case is way better than that percentage, but also more complicated.

One system would be to basically “sign” a contract with Celeste, which then keeps a record of all signees, which provide this collateral premium for their insurances, and once some event happens a vote is held to bring the insurance case to Celeste. If this is done prematurely due to bad actors, there would be a premium loss, since Celeste would vote against payments if there was no exploit.

Thus signees could be incentivized to trigger their insurance when appropriate and not always. Luna (when it comes from the Bahamas) could be asked to exactly calculate the premiums. There could be a high flat price to help with collateralization for the insurances, where the high flat price is determined by protocol risk. Since people expect very high returns with high apy farms, there should be no problem paying out high premiums no? There could also be scaling premiums which are paid out by staking tokens and deducting, like some kind of gas mileage. Again, Luna could make some kind of informed decision here. Ultra-low premiums could be had for core 1Hive contract failures. Which would make our products some of the safest on the markets around.

Just brainstorming.

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Also, if price oracles for certain tokens could be found and generally created this would also work well, because then you wouldn’t need that last Celeste decision, only the approval of the insurance contract + oracle. Oracle could be pretty easy constructed (I think?), common cases are rug pulls → price goes to 0 so the equivalent of a zero could be found for each coin something is insurance against. It really comes down to an options market, will have a little research into option protocols, because although Opium, hedgie (?! something like that) are around, didn’t see them ALL to used (which I’m wondering about, IL anyone?).