Let’s talk about Umbrella! We know that many of you have been asking for updates on this front, and we hear you. I will be taking the lead on Umbrella we are going to start pushing hard on it (alongside Degenerative and DAOhouse).
In the last few months, the contract has gone through an Audit by Peckshield, we have been working on the website design and UI, and have been researching competing products to try and determine where we will find the best product market fit.
In that we have learned a number of valuable lessons about the DeFi protection space and continue to grapple with some thorny problems that still need to be solved. Here are a the main issues that we are working on:
- What is the state of the Market for DeFi protection and what is the demographic that is most likely to want and use our protection products?
- Where do we sit in the field of other Protection products that are currently coming to market? How do we differentiate ourselves and how can we best compete? What kind of expertise do we need to do so?
- How can we attract deep liquidity to our products?
- Where do we start on the chicken and egg question of getting protection providers without projection seekers, and vice versa.
As we continue to work on answering these questions, we are committed to moving from the concept phase into the Minimum Viable Product phase, and start by getting the community involved and aware of everything that is going on. To begin, we want to get community input on which MetaPool to launch with.
Before we jump into that, let’s do a refresher on how Umbrella works:
Here is a link to the most recent lite paper: https://yam.finance/static/media/Umbrella_Protocol_Lite_Paper.223e0066.pdf.
Updating this document is on my agenda, but it is still accurate, if a bit light on details.
Umbrella is a two-sided protection protocol, kind of like a prediction marketplace where one group of people can bet on one outcome and the others can bet on another. These 2 parties are the protection providers, who lock funds and protection buyers, who pay the providers a set amount with the promise that if there is a hack, they will get a payout.
The Umbrella Smart contracts handle all the logic to facilitate transactions between these two parties, from the pricing of protection, to rules about how funds are locked up and for how long. The price of protection is set per-pool and is based on a pricing curve (kind of like how the interest rates are determined in Compound.finance).
This is all pretty standard fare for protection protocols like Cover and Nexus Mutual, but one big difference is in how the pools work. In Umbrella, the pools are interacted with differently depending on whether you are a protection provider or a protection buyer. Protection providers provide funds into what we call “Meta-pools.” There are pools that contain the coverage contracts for multiple different products (i.e. MakerDAO, Compound, Aave, and Uniswap). Coverage providers cannot choose which projects within this metapool they want to provide protection for. If they choose to provide for this pool then they are protecting all of them. Protection buyers, on the other hand, can choose which products they want to buy protection for and will buy from “Coverage Pools” which are just individual parts of a larger metapool.
I will go into pricing quickly since it has an impact on choosing metapool assets. All coverage pools in a single metapool are priced along the same utilization/pricing curve. Using the metapool example above, this means that if Alice buys protection on Compound first, and Bob comes in a day later to buy protection on Aave, He will pay a little more because some of the pool funds have already been claimed by Alice. It wouldn’t matter whether Bob wanted to buy protection for Aave, Compound, MakerDAO, or Uniswap, he would pay more because Alice’s buy shifted the price curve.
There are other elements to the protocol that are important (like arbitration, and the shape of the utilization curves) but those are out of scope here, and I will write other posts about them separately.
On to the choices!
Eventually, we hope that anyone will be able to create a metapool and fund a protection market for their project, but right now we want to start small and pick one pool that we will debut as a beta launch for Umbrella that will help us gather information and insight into the state of the market. In the future we can have all of these and more. Here are the choices:
You might consider this the safest of the pools. It contains a collection of different “blue-chip projects” across multiple verticals that have proven track records and are considered industry leaders. These include:
- (3) Bluechip protocols: MakerDAO, Compound, and Uniswap. These are commonly seen as the most battletested and trusted DeFi projects on Ethereum.
- (2) Centralized exchanges: Coinbase and Binance. These are the most popular and generally considered to be most reputable exchanges around. *note: Payout occurs only if Safu funds or the exchange’s insurance do not cover losses.
- (2) Hardware Wallet companies, Ledger and Trezor, including the Ledger Nano S and X, and the Trezor Model T and One. This would cover large scale exploits in their hardware or firmware and would not cover individual loss due to phishing or poor security.
This pool targets newer projects on Ethereum that are considered reputable and have high TVL but are less battle tested and therefore may be more risky. While they may be more risky, this may mean that there is more demand for coverage for them in the market. This list is preliminary but internal discussions considered including:
This last option focuses more closely on YAM products, specifically DegenV2 and the constituent protocols that it uses. This option would let us insure our own users and potentially test out our products in a more limited environment. The covered protocols would be:
- Sushiswap/Uniswap depending on where our pools live
- Any YAM contracts that are used
- Any future contracts included in future versions of Degen.
We want to hear your thoughts on the above choices! Which would you be most willing to use (if any)? Which do you think has the most use in the market right now? Or do you think we should stick with the safest contracts to start and test things out? Or should we focusing on dog-fooding our own products and use them in protecting YAM products first.
This initial launch is our “experimentation phase” where we test Umbrella with our community all the way through (all phases, including arbitration). We are working toward achieving a significant milestone in the development of Umbrella and further developing and refining the right models for it within the market. This is an evolving process where we will be testing our assumptions with the goal of finding product market fit.
- Blue Chips MetaPool
- Hot Products MetaPool
- Integrated Degenv2 Metapool