Would like to start a conversation around insurance tiers and why they might be useful going forward.
Why Have Different Insurance Tiers?
- reduce risk to the Bancor protocol and BNT holders
- increase the breadth of projects that can take advantage of Bancor’s v2.1 upgrade and hence opening up more potential flows of liquidity + volume into the protocol and the awareness boost that comes with it all
- increasing the hype/prestige factor of being one of the higher tier insured assets on Bancor and the negotiation power boost that grants us with project that wants to gain access to the Bancor Protocol IL insurance. If everyone gets top tier insurance treatment, it’s hard to ask anything of these projects for even top tier insurance access let alone one of the lower insurance tiers.
- Use the current v2.1 tech and transform it into a much more flexible and uniquely customizable form
Initially I can see three different tiers that seem necessary but this is certainly open to more given that it addresses a specific usecase:
THE THREE INSURANCE TIERS
Gold Tier Insurance (for vetted large/mid caps):
Essentially what we have now. It’s possible we can actually have a tier above this (less time needed to get full IL coverage perhaps in case things get competitive in this space) with some super reliable / high volume / not too volatile assets (WBTC) but that would need risk simulations.
Silver Tier Insurance (for vetted mid/small caps):
This insurance plan would be for projects that could potentially expose the protocol to high IL insurance coverage costs, and in a general sense these would be smaller caps which are prone to high non-correlated volatility and potentially move in different direction than BNT price thus leading to more IL risk.
The insurance plan here would be much less thorough than the gold one with things like:
Max capped protection at both on an individual level and potentially on a TKN based level before being cut off entirely
Longer time frame for IL insurance to kick in, with slower rise in coverage than 1% per day.
Swap fees generated by the TKN side are used first before tapping into any BNT minting to cover IL
There would be less pressure for the community to whitelist these projects through as the risks would be much less pronounced, and it could be a “starting point” that projects aiming to receive Gold Tier Insurance need to pass…a trial phase of sorts.
Bronze Tier Insurance (automated permissionless insurance for micro caps, shitcoins, and unknowns):
Looking at the volume data on DEXs it’s clear that new hot tokens generate a lot of volume, there’s a certain culture that’s developed around them and it’s not likely to go away anytime soon. There’s also quite a long-tail of smaller crypto projects that probably wouldn’t qualify for the above two tiers. So while in the current state none of the projects can join the Bancor protocol due to the risk factors associated with them, it’s certainly volume that would be nice to capture if we can fit into a workable model.
One of the important aspects of these projects is that they’re quite time sensitive in needing a place for liquidity and thus the above tiers and the time / coordination needed to get them through would likely dissuade these projects from even trying.
Ideally a standard set of requirements could be set, and the whole thing setup to be automated without needing anyone’s involvement given of course the requirements have been met. Such a smooth process to gain access to the v2.1 feature sets of single token exposure and IL (partial) insurance would be a great way to democratize access in a permissionless way.
The requirement would be something like locking a certain amount of both BNT and TKN to make v2.1 access work without putting any additional burden/risk on the rest of the protocol / BNT supply beyond what is supplied. How the mechanism would work to calculate when to halt / cut off the pool due to lack of collateral to cover IL insurance running out is above my IQ level.
BONUS: DIY INSURANCE PLAN?
Brainstorming through that last bit about the bronze automated insurance gave me an idea that might stretch the idea further. It’s essentially the same concept requiring a pool creator to lock collateral to create a v2.1 pool, but there can be different dials they set to essentially make those collateral funds “go further” by adjusting the parameters of the insurance policy.
Examples of tunable attributes:
- How many days staked need to pass until IL calculation tracking begins.
- What the time thresholds are for the IL insurance protection rising in % coverage.
- Max amount of coverage offered.
- Duration of the IL insurance coverage.
Putting all these metrics in could spit out some different calculations on how much their initial collateral would provide coverage for given different external factors such as (which again could ideally be played with in calculator like fashion):
- BNT and TKN price volatility and shock levels
- Volume flows
- Liquidity depth
In the end it would be something like Mario Maker but for creating your very own custom pool insurance policy. Silver Tier insurance policy makers could even apply for a certain amount of protocol granted co-investing to help stretch their own provided collateral even further (if they wanted something more custom than the standard Silver Tier package).
TLDR: Maximize liquidity/volume flowing through Bancor whilst minimizing risk to Bancor protocol and BNT holders through adding customizability to IL insurance parameters to better target and suit different projects and their IL insurance needs.