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Nsure: | project introduction to contract risk hedging

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In the fast-iterating WORLD of DeFi, insurance might be an effective hedge against contract risk

As an important tool of risk redistribution, insurance plays an important role in various fields. The insurance market is dominated by a few giants because of the huge sums needed to insure it.

Lloyd's, the world's largest insurer, made a staggering $2.8 billion in profits in the first half of 2019, according to Deloitte.

Requirements for insurance for DeFi applications:

In a decentralized world, because THE DeFi application theme is updating and iterating so fast, many applications contracts are released without passing third-party audits in order to catch up with the popularity. The losses from smart contract loopholes are also numerous. Many users may complain about irresponsibility on the part of the project, but some projects do not disclose project information, and because of FOMO, users will look for contracts that have not been disclosed in order to get ahead of the game.

For example, in the early morning of September 29, the founder of YFI posted two drawings related to the project on the Twitter of the new project he was involved in developing. Subsequently, the hacker found the contract address of the project and used the lightning loan attack to steal 16 million DAI pieces. In the end, the loss must be borne by the YFI Foundation.

Contract auditing is too time-consuming for a high-speed iterative DeFi product, and insurance may be a better option.

Nsure borrows Lloyd's insurance company's concept of "providing a trading market for insurance risks, with premiums priced by dynamic models", in an attempt to provide a new hedging method for intelligent contract risks.

Logic closed-loop of insurance products:

Figure 1 Nsure product logic

Capital pool (capital mining) :

As the core of Nsure, the capital pool plays a vital role in ensuring the solvency of the whole project and is also the last resort to settle claims.

In order to ensure solvency, minimum capital ratio requirement is set in the capital pool. Whenever the user is insured, the minimum capital rate will rise. If the funds in the pool are lower than the minimum capital rate, the system will freeze the access to the pool until the minimum capital rate is reduced.

In order to ensure the amount of money in the pool, Nsure will use the form of capital mining to motivate participants in the pool. The more money in the pool, the more solvent Nsure will be.

Ethereum will distribute two Nsure mines in the pool as a reward for each block produced. At the same time, the holder can also pledge Nsure on different insurance programs and get benefits. Details of the pledge will follow.

Earnings Pool (40% premium) :

As the preferred reimbursement pool, 40 per cent of the premium will be added to the earnings pool.

When there is not enough money in the surplus pool to pay out, the pool will settle the remaining balance payment claims.

When the fund in the earnings pool reaches a certain scale, the mining speed of the fund pool will slow down, and the community can decide to use the fund in the earnings pool to buy back and destroy Nsure by voting.

Retention Pool (10% premium) :

10% of the premium will be added to the pool until the policy ends. If no claim is made, 10% of the retained funds will be pumped into the earnings pool. If a claim occurs, the retention pool allocation details will be given in the claims section.

Insurance generation:

The insured person may choose to insure one or more items using ETH, Nsure, USDT, DAI, and USDC. The contract of insurance will cover the risk, amount, premium and duration of the policy. When the premium is paid successfully, the contract will become effective immediately.

In order to attract more insurance users, policyholders can also enjoy a small portion of the pool of mining proceeds.

Nsure pledge:

Nsure holders can pledge their scrip to different insurance programs and receive 50% of the premium pro rata (revenue linear unlocking).

The maximum amount of each insurance policy is two times the total value of the Nsure tokens pledged to cover the program. The more Nsure pledges you get, the cheaper the premium will be

When the project claims, the pledge Nsure of 50% claim value will be destroyed.

All Nsure pledges cannot be transferred and require a 30-day unlocking period.

The initial insurance products will be targeted at intelligent contract codes, and later will contain more types of products.

By familiarizing ourselves with each link in the product, we can now clearly understand the product logic of Nsure insurance.

Taking Figure 1 as an example, we can see that Alex used ETH as a premium to buy Compound insurance, and at the same time, he also enjoyed the income from mining. 40% of the premium goes into the earnings pool and 10% into the reserve pool. Jeff pledged 3000 Nsure to Compound and got 50% of the premium as a percentage. If there are no problems with the Compound contract and no claims are required, 10% of the premium from the pool will be added to the surplus pool. If the Compound application is successful, Policyholder Alex will be reimbursed, 50% of the Nsure pledged by Jeff will be destroyed, and 10% of the retained pool premium will be split equally between the audit firms and the general public participating in the claims assessment.

Next, let's look at the pricing model for the two most important parameters in Nsure insurance.

Parameter model

Dynamic pricing model (premium pricing) :

The pricing of premiums in insurance is usually based on the analysis of historical event probability data. When the data sample size is large enough, the estimated event probability will be closer to the real situation.

Due to incomplete historical statistics on smart contract attacks, the newly deployed contracts will have higher premiums due to the low number of times they are tested and their security cannot be verified. As the contract is tested more and more, premiums will fall.

At the same time, premium pricing will be determined according to the supply and demand of the market. When a large number of policies are sold, the market demand is high and the premium will increase. When there is a lot of money in the market willing to pledge the project, it means the supply is sufficient and the policy price will fall.

Capital model (minimum capital ratio) :

The insurance industry is highly leveraged, so capital models of insurance products need to be able to accurately calculate the amount of money that will cover the policy, with a confidence as high as 99.5%. A more intuitive indicator of this amount is the minimum capital rate mentioned above.

The capital model will calculate and update the minimum capital rate on a daily basis according to a specific formula.

Finally, let's have a look at the process of project claim application.

Multiple claims voting

Claim assessment:

No matter for the project side or the insurance company, claim assessment is the most important part. Nsure will implement three rounds of voting to evaluate claims on projects.

The applicant can apply for a claim, and Nsure tokens equal to the insurance premium shall be pledged when applying. Nsure token holders can also report problems if they find them.

In order to prevent malicious fraud and waste of audit and public resources, the first round of voting for the policyholders themselves. If the insured group accounts for more than 50% of the insured amount to approve, or 2/3 of the insured number to approve, then the application is approved and enter the next round. If it fails, the application becomes invalid.

After the first round, the application will go into the audit group round and the public group round.

Due to the complexity of the DeFi project itself, its claims assessment requires expertise. It would be extremely unfair for the insured if the evaluation vote were given to the general public.

So Nsure will evaluate claims from five professional audit firms, selected by votes from holders of cash. The auditor needs to hold Nsure to vote on the claims, and the auditor will add a written report if required. 5% of the retained funds will be awarded to the audit firm. If 3/5 of the audit firms reach a consensus, the evaluation result will be entered into block 12345 for a period of undetermined time, during which Nsure holders can challenge through Nsure pledge during the period of pending.

If the consensus reached by the audit firm is approved and there is no challenge from the holder, the claim will be paid directly. If there is a challenge from the holders, then proceed to a third round of public voting. If the audit firm rejects the application or the audit firm participation rate is too low, it will also go to the public voting round.

The final round of voting will take place after block 30,000. All voting participants will pledge and vote. The remaining 5% of the retained funds will reward the holders of the money who vote. If the claim is rejected, the pledged token will be destroyed and all pledged tokens will be returned upon successful claim.

If any application is rejected, the insured person can pay 5% to 10% of the premium after 7 days to reapply for the claim.

Nsure token allocation

The total supply of Nsure is 100,000,000 pieces. Fifty-five percent of the tokens were used for capital and insurance mining. The seed round accounted for 1% of the scrip, raising a total of $50,000. Private equity rounds accounted for 14%, raising $1.4m. Private rounds and seed rounds will have 20% unlocked, followed by 20% unlocked every 3 months.

Nsure is expected to launch a public offering in October, with public tokens accounting for 4% of the total. The Nsure Foundation will set aside 10% of the tokens, 5% of which will be used for ecological development, and the remaining 5% will be voted on by NsureDAO. 10% of the token will be used for market expenses (airdrop, exchange market making...) . The remaining 6% will be reserved for the team for a six-month lock-up period, after which 25% will be unlocked every six months.

Nsure dropped 90,000 Nsure tokens on Sept. 23. On September 30, it announced that it had completed a $1.45 million seed and private round financing, accounting for 15% of the total agent ratio, led by Based Ventures.

Nsure team

In the team, Jeff Ren mainly played the roles of management and research. Jeff has been exploring blockchain protocols and ecology since 2017. He was the director of investment and research for the ChainFunder Stone Leaving Fund.

Alex Peng is responsible for the design and actuarial analysis of insurance models in the Nsure team. Alex has worked for AON for 10 years and has extensive experience in actuarial analysis, insurance-related securities, and reinsurance.

Leafan Chan is the lead developer of Nsure and holds a PMP certificate. Leafan is good at intelligent contracts, public chain development and project management, and has 3 years of experience in block chain field.