Over the next few weeks we will systematically be releasing yinsure.finance, a prototype for a new kind of tokenized insurance. This post is a draft in detailing the architecture and how a decentralized insurance mechanism can be created. It is also a request for comment with feedback on gov.yearn.finance
There are three core components to describe;
- Insurer Vaults
- Insured Vaults
- Claim Governance
Insurer Vaults are LPs providing insurance. The first vault will be yiUSDC. LPs provide USDC and earn initiation and weekly fees paid by insurees. Should a claim be approved USDC is deducted from the vault and paid out to the claimant.
Insured Vaults hold the tokenized asset being insured. Taking USDT as an example, if you wish to insure USDT, you provide USDT to the vault, generating yiUSDT. On deposit you will be subject to a 0.1% initiation fee. Each week, you will be deducted a 0.01% fee. At any time you can withdraw USDT or deposit more USDT. Your insured sum is the amount of USDT deposited.
Claim Governance, allows the insured to create a claim by staking their yiUSDT. Insurer LPs vote with their yiUSDC. This follows the standard voting rules, 3 day voting period, 33% approval, 25% veto, all of which scale based on the claimed sum. Should a claim be approved the yiUSDT is distributed to the yiUSDC LPs and USDC is paid out to the insured.
The design of this system allows any asset that has a financial primitive to be insured, be it a base asset such as DAI, or a composite asset such as aDAI or yDAI.
LPs are rewarded with initiation fees and weekly fees, however, they are responsible for claim management, the base system does not have a minimum quorum and as such LPs should manage claims proactively.
Should LPs largely decline valid claims, insurees will simply move their funds out, making it unprofitable for LPs and thus aligning incentives.
The design further allows “passive” payments, similar to debit orders, where the insured does not have to make active monthly payments.
The first Insurer Vault will be USDC, and the first Insured Vault will be yUSD (wrapped yCRV) from yVault (yearn.finance/vaults)