RFF: Yam Crop Protection

The following is simply a request for feedback, not a full-fledged proposal. Additional analysis and thought is needed to develop the design and optimal parameters, and several of the below mechanisms are likely to change. If you have experience well-suited to this design and are interested in participating, please reach out.

Basic Summary

Yam would launch DeFi bug-protection pools utilizing a novel protocol in which users are able to buy protection in case of a smart contract bug. Early protection buyers would earn a portion of later buyers’ premiums, allowing the early buyers to “seed” the protection pool and later buyers to access deep and affordable coverage, while YAM holders would act as arbiters for claims.

Abstract

Currently, the DeFi insurance market is largely limited to Nexus Mutual, which requires KYC and membership in the mutual, and there is clearly market demand for additional options. Yam is particularly well positioned to provide a permissionless protection option for major DeFi protocols. Yam Crop Protection (name tbd) would be a permissionless protocol, utilized by Yam, to launch protection pools in which early coverage buyers receive a percentage of later buyers’ premiums. YAM tokenholders would serve as arbiters for claims, and receive a percentage of all premiums for this service.

Motivation

This is a capital-efficient way to grow the YAM treasury and leverage the strong community behind Yam. While Yam could choose to leverage the treasury to be an early coverage buyer, it could also simply generate the arbiter fee.

Specifications

Initial Seeding: The initial seeding will be equivalent to buying zero-day zero-utilization insurance. These protection seeders will pay a flat rate equivalent to purchasing at zero-utilization of the insurance fund, and they will receive PCF (Premium Cash Flow) tokens. PCF will be a cToken style ERC20 that allows the owner to redeem for cash flows as they accrue in the protocol. All proceeds from the initial seeding will go into the insurance pool.

Following the initial seeding, coverage buyers will be able to purchase according to a bonding curve based on utilization of the total insurance fund. This allows insurance to become cheaper over time.

Purchasing coverage: The price of a unit of protection will be on a bonding curve that increases the price as the total outstanding units approach the total insurance fund value, with a hard cap on issued units at a utilization of the protection pool of 1 - (premium fee) - (arbiter fee). This cap is to allow for a ‘minimum protection amount’ if a bug were to occur immediately after purchase and utilization skyrockets, there is a minimum level of protection.

Premium Distribution: Premiums will be distributed as follows (percentages subject to change):

25% to PCF tokens
73% to insurance fund
2% to arbiter fee

Protection Token: Protection tokens will be a decaying NFT representing the number of protection units over protected days. After coverage ends, users will be able to redeem their protection units for PCF.

PCF Premium Cash Flow Token: The PCF token will operate as a cToken, and be used to redeem cashflows from the cashflow pool.

Protocol Deployment: The protocol will be deployed as standalone code, not deployed by the Yam DAO. Anyone will be able to launch an insurance pool utilizing the protocol. This is to decrease liability of Yam holders and increase our commitment to decentralization.

11 Likes

As soon as possible, v3. These are later words

Interested in moving forward on this.

hey all!

am a big fan of the YAM Crop Protection Proposal and made these infographics to visualize how it works.

excited with how Yam Crop Protection acts a bit like an AMM for insurance - early seeders gain benefit from future cash flow, late adopters benefit from cheaper premiums and a deeper insurance pool.

please note that the proposal is a work in progress and open to feedback / changes!

11 Likes

This is awesome! Really amazing work!

1 Like

Yes let’s move forward on this ASAP. Thanks