DeFi New Playbook | Understand Red Yams Insurance Protocol Umbrella Protocol in 3 Minutes

DeFi之道

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As of now, the team is developing the alpha version code of the Umbrella Protocol, and will then proceed to conduct internal testing within the Yam community.

Original Author: Overnight Porridge

Original Source: DeFi Way

Preface: Remember the sweet potato (Yam Finance) project that pioneered food-based DeFi liquidity mining? Today, the project team has announced a new insurance protocol project called Umbrella Protocol. As of now, they are developing the alpha version of the Umbrella Protocol code and will continue to conduct internal testing within the Yam community. This article will provide a brief introduction to it.

Throughout the history of DeFi, smart contract development has always faced threats. The rapid development and composability have shown that security cannot be guaranteed by audits alone. Currently, there is insufficient coverage in terms of smart contract protection, both in terms of coverage and innovation.

A recent series of DeFi hacking incidents have underscored the need for new risk management solutions in the ecosystem. We believe these new solutions should be DeFi-native, leveraging Ethereum's unique capabilities to operate in an open and permissionless manner, balancing decentralized governance and immutability.

The design of the Umbrella Protocol takes these factors into account. Its features include perpetual ERC20 streamable insurance, an immutable insurance coverage pool, and permissionless factory pool creation (allowing for customization and iteration over time).

The construction of the Umbrella Protocol draws inspiration from Uniswap and Balancer's pioneering factory design, Compound cToken's token functionality, and the funding model of the crypto perpetual futures market. This is a new experimental result.

Feature Overview

The core component of the Umbrella Protocol is the MetaPool, which is responsible for safeguarding the funds deposited by policyholders and collecting insurance premiums from them.

Each MetaPool is composed of multiple insurance coverage pools, with each insurance pool covering a specific protocol or contract, and policyholders can individually insure specific protocols or contracts.

These MetaPools are reportedly created through a Factory, where the fees and funding rates are highly configurable and immutable once created. This open customizability is key to iterating and building new DeFi Legos, with immutability being crucial for transparent and unstoppable protection.

To get protection, policyholders need to deposit funds into the insurance coverage pool and receive an ERC20 token tracking their deposit balance. Policyholder protection corresponds to the total amount of their staked funds in the insurance coverage pool and the protection they provide in the MetaPool.

The funding rate function is one of the parameters set by the factory when creating the pool. In its simplest form, it can be a utilization rate function (insurance coverage pool staked/MetaPool pool staked), although the factory's openness can leverage other metrics or data sources.

If an attack occurs on a protocol covered by a MetaPool pool, policyholders can submit a claim to the MetaPool's arbitrator. The arbitrator is also set when creating the pool and must actively determine the validity of the claim based on the parameters established during MetaPool creation. If an arbitrator deems a claim valid, the amount paid by the MetaPool is equal to the currently staked funds in the insurance coverage pool plus any unused funds from other insurance pools in the MetaPool.

For example, consider a MetaPool where a policyholder has staked $1000, with $100 staked in each of the 3 insurance coverage pools. If one pool is hacked, the payment would be 100 + (1000-300) = $800. In the event of an attack, the other two pools ensure that at least 100% of the staked funds are recoverable.

What's Next

At present, the project team is developing the alpha version code of the Umbrella Protocol, and will continue to conduct internal testing within the Yam community. It is important to note that the protocol is still evolving, and developers may make changes to the design after testing.