Tidal V2 public testnet launch
We are excited to launch Tidal V2, an on-chain de-risk platform that
- Empowers underwriters to create and manage any insurance policy
- Protects digital asset holders with a wide range of policy types
- Offers diversified, high yield investment opportunities for liquidity providers
Introduction
Since 2020, many insurance products have been launched in the DeFi space. None achieved significant adoption and most capital providers (insurers) have lost money due to the high risk policy default of smart contract exploits. Why has this been the case? By our observation, insurance marketplaces currently suffer from numerous issues:
- High risk of policy default — smart contracts get exploited often.
- Low risk diversification — one smart contract default leads to a large sum payout.
- Limited policy types due to on-chain data — e.g. you can’t offer life insurance without a feasible, trustless way to validate a claim.
- Unstable sales cycle due to withdrawal of insurance collateral — collateral providers can withdraw liquidity, largely affecting the ability of issuing new coverage.
Of course, insurance is just one fundamental pillar of the financial industry. In contrast to the above issues in the decentralized insurance space, there have actually been a host of recent innovations in the industry.
- Security auditors are starting to offer refunds in the event of a hack (indirect insurance).
- Liquidity providers / funds are demonstrating greater interest in having their own insurance pool to protect their liquidity.
- Projects are beginning to explore their own insurance models — e.g. aave’s safety module, Lido slashing risk modeling
- More on chain data is becoming available which could be used to validate real world insurance claims — Chainlink’s insurance module.
Leveraging these exciting new trends of market demand, we are proud to launch Tidal V2, an open platform to host a wide range of underwriters and insurers by providing simple workflows for them to effectively set up their own customized insurance pool and policies. Digital asset holders and liquidity providers can now benefit from a more diversified range of insurance contracts.
How does the platform work
The graph below illustrates the relationships among participants within the protocol.
Insurer/underwriter: Customize liquidity pool and policies. Each
liquidity pool can include multiple policies.
Liquidity provider: Deposit assets to the liquidity pool.
Policyholder: Purchase policy and pay premium.
Participants scheme
In detail, the liquidity pool holds the collateral to payout potential claims for policyholders and collects premiums in return for taking on such risk. The capacity of each policy depends on the collateral amount and collateral ratio. For example, assume 100 USDC in the liquidity pool, and policy A’s collateral ratio is 0.5, the capacity of policy A would be 200 (100 / 0.5) USDC, meaning policy A can cover up to 200 USDC for policyholders at any given time.
Each policy has its own premium, which drives the revenue of the liquidity pool. Premiums paid by policyholders will be directly deposited into the liquidity pool, allowing liquidity providers to accumulate profits proportionally with the value of their deposit assets inside the pool.
Certain percentage of premiums can be directed to the insurer/underwriter as a management fee, as well as to the liquidity pool under insurer/underwriter’s address (apart from other liquidity providers). The mechanism provides incentive for insurers/underwriters to manage liquidity and policies, and also provides an opportunity to grow the insurer/underwriter owned liquidity pool.
Premium flow chart
Policy duration depends on a withdrawal pending period of the liquidity pool, which is customizable by insurer/underwriter. A short withdrawal pending period can only support short duration policies, vice versa, a long withdrawal pending period can support policies with long durations.
Payout can be processed by the insurer/underwriter under a valid claim. Payout amount can be deducted from the liquidity pool, and liquidity providers share the loss proportionally with the value of deposit assets inside the pool.
The way ahead
We have been working on Tidal V2 design since March last year and are excited to finally bring it to life. With Tidal V2, more types of insurance pools will be launched by working with funds, ecosystems, security experts, while continuing to support current clients with the new version in a more efficient and sufficient manner.
In terms of the release, we are currently on the public testnet on mumbai network. Community members are welcomed to try out by clicking the link below (our bug bounty program will be available soon).
https://tidal-angular-v2.vercel.app/get-cover
Security is our top priority and we are currently undergoing our initial security audit, with a second security audit scheduled before mainnet. We will keep the community updated with the process. Meanwhile, our codebase is open for public testing.
github.com/tidalfinance/tidal-contracts-v2
In conclusion, we want to thank everyone who has supported us since the beginning of our journey. V2 opens a new chapter for Tidal, and, with your help, we can’t wait to revolutionize the insurance industry with the power of web3.
