Putting aside the traditional complicated premium or claim calculation model, the “Shield Mining” of the Cover Agreement allows the market to freely determine demand and supply.
Written by: Cai Yan (llamacorn), Managing Director of NGC Ventures
Since June of this year, we have witnessed a bull market in cryptocurrency led by DeFi and have seen more and more projects emerge. The price of tokens fluctuates and is sometimes manipulated by some bookmakers. Some people made money, some people suffered losses and pain. We are tired of research projects because there is no way to make money by simply researching fundamentals. Personally, I would like to remind, the project can be forked or copied, but not its core essence.
Let’s go straight to the topic below.
A recent article written by Multicoin Capital introduced the current state of the DeFi field. Reading this article is very convenient for newcomers to fully understand the DeFi market. On the basis of this article, I usually divide DeFi projects into two categories: ” old ” and ” new “.
The “old” DeFi projects are mainly pioneers that emerged in 2019 or earlier . At that time, DeFi was still in its infancy and they seized the largest market share. “New” DeFi project (though not determined by release time), is more aggressive and innovative in the fierce competition in this year’s project.
The following table briefly summarizes my thoughts.
Compound ‘s liquidity mining is the fuse that ignited the DeFi bull market this year, but Uniswap and Year are real opportunities for retail investors to make big money. Some have called for the Uniswap value discoverer “dog feces currency Shitcoin” helped many retail investors have made their pot of gold in the monetary field encryption investment. Many people also received generous airdrop rewards when $UNI was issued. Yearn is the real dark horse this year, which allows seamless interaction intelligent contract to release liquidity, as DeFi music high school as an adhesive.
These two winners sparked my thinking, what do we need in today’s DeFi market? I think I can sum it up in three words.
- Limitless : the imagination of the agreement
- Light (light): the effectiveness of the design
- Liquidity (liqudity): willingness to participate
I will use Cover Protocol as an example to show my views.
Cover Protocol, formerly known as yinsure.finance . Under the aura of Andre Cronje funding, Yinsure was a popular project for liquid mining at the beginning of its birth. After going online, due to a dispute between the two core members of the project, the high APY of liquidity mining did not last long. (More details can be Googled). In short, after this turmoil, the young founder of the Cover Agreement chose to take a break from university and become a full-time contributor to its project. In September of this year, Yinsure was renamed Cover Protocol.
Infinity: the imagination of the agreement
When we build a new product, we need to know exactly what it should do, but we should not set limits on what it will develop into in the future. This is infinite – allow customers to release their imaginations when using the product.
The Cover protocol actually does this. In many people’s minds, insurance is always a very serious business, because it needs to protect people from accidental harm by accurately calculating the amount of claims and avoiding insurance fraud. DeFi Nexus Mutual Insurance is a pioneer of the project to achieve this goal by hiring a professional actuaries, and Cover Protocol is to go the other way.
In September, Yinsure (the name of Cover at the time) launched a new experiment-using NFT to tokenize the insurance policy so that it can be freely traded and circulated. The market is very excited about this move, and Nexus Mutual’s policy sales are booming-Yinsure has almost exhausted the entire Nexus Mutual capital pool.
Yinsure named “mining Insurance” is in agreement Cover the evolution of “mining Shield” (Shield Mining / Farming). I believe, in the first day of creation Yinsure, its founder, has decided to look for other ways – let the free market determine demand and supply.
The Cover agreement contains three elements:
- Market Maker (MM);
- Insurance provider (CP);
- Insurance demand side (CS)
Four tokens:
- DAI (stable currency) represents the deposit that the market maker needs to mortgage;
- Claim rights of the insurance demander represented by CLAIM tokens;
- The rights of the insurance demander represented by NOCLAIM tokens;
- COVER token represents reward and governance token
Three fund pools:
- CLAIM-DAI pool;
- NOCLAIM-DAI pool;
- Cover-ETH pool
I created the following diagram to show the principle of the system.
Despite the complexity of premiums or claims of traditional computing model, the entire circulation system based on market demand. Every part of the insurance process has been tokenized, allowing users to assemble freely, thereby releasing people’s imagination. Cover protocol initially launched 10 types of protocols in their insurance market. You can freely choose your role in the system by analyzing APY and APR statistical information. I think we can further customize our insurance fund pool in the future.
Lightweight: the effectiveness of the design
Why do we need long and tedious project BP to express project ideas? Code and economics will explain everything.
Good project has a lightweight core design. In the Cover agreement, the entire system operates based on a formula:
1 CLAIM token + 1 NOCLAIM token ≈ 1 Collateral (eg DAI)
Both CLAIM tokens and NOCLAIM tokens can be invested in the Balancer fund pool. This lightweight design allows the platform to be released quickly and operate smoothly.
Three days after the start, the Cover agreement encountered a claim. Pickle.finance bug Agreement for the new strategy to be hackers looted nearly $ 20 million. The Pickle agreement is one of the first 10 insurance pools deployed by the Cover agreement. The community also responded quickly to this claim, and it only took 3 days from voting to claim. Almost all Pickle.finance CLAIM (nonce 0) insurance tokens have now been paid in the form of DAI. The total payout is US$282,000 . Compared with other insurance agreements, the performance of the Cover agreement is very efficient and outstanding.
The community created an Internet celebrity meme
Meme of Cover Protocol
Liquidity: willingness to participate
What is the most important element in trading? I think it is absolutely mobility. Mobility determines people’s willingness to participate and can establish a virtuous circle in the system. In the first few months when human liquidity mining is very popular, many protocols have chosen to push up the price of tokens to create an incredible high APY in order to attract more people to participate and increase the total locked value TVL. When currency prices fall, such behavior usually falls into a death spiral.
As I previously analyzed as liquidity Cover the agreement from its first top-level design – so that every aspect of insurance have become tradable. You can easily buy and sell insurance policies by holding or not holding CLAIM tokens. By holding different tokens, you can switch your identity back and forth between market makers, insurance providers, and insurance demanders.
A beautiful description can be found in its white paper: “Once the CLAIM and NOCLAIM tokens are minted, they can be invested in the Balancer capital pool, sold on the auction platform Bounce, and even used in various lending platforms. Collateral (high risk, but technically feasible!)”.
Secondly, liquidity from the token economics. Cover tokens are defined team itself has no value as tokens of governance, but in fact the token increase liquidity in the play a very important role. Personally, I think, Cover system is the equalizer.
Take a look at the formula in the white paper:
Actual insurance cost = purchase price of ClAIM tokens-mining rewards obtained by pledge
When you buy CLAIM tokens in the market, you may actually have the real needs of their assets in the insurance agreement. If the mining reward for staking is very high (determined by the price of Cover tokens), your factual insurance cost may be 0 or even negative. (Here is an example given by the team). This in turn will motivate people in Cover insurance agreement. This is very different from the meaningless high APY of many DeFi protocols.
In addition worthless tokens Cover govern only for the claim Pickle.finance the vote. People must be strictly in Nexus Mutual KYC verification process in order to vote by identity, I think this is a bit unfair for ordinary NXM token holders to prohibit the execution of their own rights, and Cover protocol is different. I think the future will have more Cover governance capabilities.
The above is my humble opinion on the Cover protocol. Recently, Cover agreement and Year.Finance reached a cooperation. As a Cover holder, I am very happy to see that this young founder has taken the first step towards leading Cover to become a new unicorn company in the DeFi field. But I think that is not his ultimate goal, as he wrote on the Medium blog, ” Provide products that change the world “.
