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Note: This article is an interview with Cover co-founder Alan, which briefly explains the situation of Cover.
Q: Can you talk about your background and the projects you are currently working on?
I am Alan, the co-founder of Cover Protocol.
I entered the cryptocurrency field during the bull market in 2017, learning how to write code to create arbitrage and market-making robots. But when I started going to university, I moved away from cryptocurrency and focused on learning. However, this year, due to the continuation of the epidemic and everything needs to be done online, I began to return to the crypto field, focusing mainly on DeFi, because I began to realize the potential of decentralized finance and its advantages over traditional finance. From then on, we began to create Cover.
The Cover Agreement is a peer-to-peer insurance market that uses ERC-20 homogenized tokens for license-free and KYC (Know Your Customer) insurance. Through our model, users can pledge collateral to produce CLAIM tokens (which can be redeemed if an attack occurs) and NOCLAIM tokens (which can be redeemed if no attack occurs).
The operation of this model is similar to a prediction market, relying entirely on premiums determined by the market. Users who want to avoid the risk of attack can buy CLAIM tokens, and those who believe that the underlying protocol is secure can buy NOCLAIM tokens. Simply put, the Cover protocol allows users to bet on the security of the underlying protocol.
Q: Is there any story behind the creation of Cover?
In the summer of 2020, there have been many attacks and running scams, but there are few insurance options. I was shocked by this. Almost every day, there are random forks of popular protocols, many of which proved to be scams, taking away millions of users’ funds. At that time, I really wanted to create a competitive insurance provider to solve many potential problems that existed at that time: KYC, non-transferable tokens, NFT, etc.
After seeing Kryptocucumber and crypto_pumpkin, we decided to create a completely decentralized, license-free insurance agreement to solve these fundamental problems. The Cover Agreement resolves all issues affecting other insurance providers. We do not require any KYC, and our insurance is fungible and tradable.
Just a few days after our mainnet went live, Pickle Finance was stolen about $20 million. Fortunately, we support Pickle Insurance and immediately start the claim process. The COVER community quickly got together and passed the snapshot vote. Our Claims Validity Committee quickly accepted the result, and we started paying the Pickle CLAIM token holders. This proves that our model is effective. We can not only quickly but also accurately determine the outcome of the claim.
Q: What is the process of making the Cover Agreement?
The Cover Protocol beta took about 2 months, followed by a few more weeks for beta testing, and finally released on the mainnet. In our development process, we have witnessed more protocols being stolen or proved to be outright scams, which made us realize how DeFi needs a way for users to easily purchase insurance. Since the Cover Agreement is an insurance provider, the safety and security of our own agreement is our top priority. Both PeckShield and Arcadia Group have audited all of our smart contracts. We ensure that the infrastructure is very simple and straightforward. This allows us to implement many sound checks and prevent more complex contract issues.
Although a reputable audit company conducted multiple audits, a small error in our reward contract was ignored by everyone and was eventually exploited, resulting in unlimited coinage. The contracts of our core protocol are not affected by this attack, but the tokens are affected. Although we are deeply saddened by this, we have learned a lesson from this costly mistake. From now on, our future deployment will undergo multiple audits, multiple code reviews by large companies, and target fuzzy boundary conditions. Perform more intensive unit testing.
Q: What is your business model?
Our business model includes collecting redemption fees when redeeming covTokens. In this way, the network can maintain itself and generate revenue, and the holders of COVER tokens can subsequently vote on the use of these fees (such as repurchase or distribution to token holders, etc.).
Our target market is those who are hesitant to deposit money into risky agreements without some form of risk protection, and those who simply want to speculate on the security of the agreement. Our model allows these two audiences to coexist so that they can help each other with fair insurance prices.
Q: What do you think of the current regulatory environment?
In today’s environment, it is increasingly obvious that cryptocurrency has begun to receive more exposure and attention from governments around the world.
However, this increase in attention is a double-edged sword. The governments of the United States and other countries are cracking down on the regulatory nature of certain encrypted assets. This is surprising, but it will only strengthen the demand for decentralized finance. In my opinion, the reason why governments are increasingly worried about and cracking down on cryptocurrencies is because DeFi poses a very real threat to traditional finance. DeFi eliminates bloated software, inefficiency, and middlemen by providing a completely transparent, decentralized, and peer-to-peer platform, making financial tools open to everyone.
Q: What is your future goal?
Our future goal is to become an insurance provider that supports DeFi, cryptocurrency and real-world binary events. The insurance industry is mature enough that it is time for subversion. We believe that the Cover Agreement will provide a better alternative to solve many potential problems in the current industry through decentralization. We are currently focusing on expanding cooperation with various cryptocurrencies and establishing in-depth partnerships with agreements that we believe are the future of decentralized finance. Cover V1.1 and V2 will enable us to achieve further expansion, not limited to the DeFi field.
Q: What do you think of the future of the DeFi market?
Although cryptocurrency has gained a lot of attention around the world, I think the potential of DeFi has not yet been fully tapped. Many of the agreements I currently see in DeFi are real game changers. These agreements can break and eliminate the inefficiencies that are common in traditional finance. Some governments are afraid of the progress of DeFi and are pushing for regulation, which shows that the agreement being made poses a threat to existing financial instruments, which makes me a stronger DeFi believer.