Protect the stable coin contributors like an insurance?

There have been some questions and doubts on the possible drawdowns in the net value in the USDC/USDT stable coin pool, as normally the stable coin contributors would expect their contribution to be no-loss or at least protected.

I have introduced the financial performance in the options collateral pools in this article here, but the mechanism in the FinNexus pool is still quite new and not well-known to many.

I am thinking of the possibility to launch an insurance mechanism to protect the value in the stable coin pool with $FNX, like what Bancor does to protect the possible Impermanent loss on their platform, http://bancor.network/ .

For example, if someone stays in the pool for some time like 6 months, the assets in stable coins will be fully protected and insured by FNX. The loss will be compensated. I believe with this mechanism, USDC/USDT contributors will be more encouraged to participate in the pool.

What do you think?

2 Likes

Great idea Ryan. A lot of people are hesitant because of the risks involved. Paying a premium for insurance would be much better over incurring a loss in the pool. It would also increase the likely hood of said liquidity provider to stay longer in the pool. It’s a yes from me

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I think this is a great idea to promote the stability and growth of the pool in the early phase, when the risks from volatile prices might discourage participation in the pool, particularly when the fee income from the premiums does not yet offset the risk due to low collateral utilization.

The pool payout mechanism can get really creative with its incentive structure to encourage longer term participants over any short term behavior like claiming and dumping.

For example the pool can payout differently based on time of withdrawal after any sudden drawdown event. This will discourage a mass exodus in response to any drawout event that meets the criteria for a payout.

1 Like

I agree.
Right now the Bancor’s mechanism is to encourage long-term contributors.
They implemented a threshold for 100 days, and the protection increases from 0% to 100% as time coming close to the 100-day period.

I believe we could deploy something similar and simpler. Like 3-month contributors will have 50% protection, 6-month contributors will have 100% protection.

FNX may not be as liquid as stable coins, the insurance payout could be like over 20% of the loss value.

4 Likes

I am providing liquidity on Bancor and they attracted a lot of TVL recently.
I like the idea!

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Just do it. No need for voting.

2 Likes

Yes, from me too! This is great idea and will increase long term participants. great thinking!

How would the insurance mechanism work, if you start to add more USD into the liquidity pool? so is it 6 months from deposit date into the pool?

for example month 1 I add $2000 usd of liquidity, then month 5 add 4000 usd of liquidity. Is the $2000 usd fully covered on month 7 and $4000 usd covered in month 11?

We had some discussions with the dev team. To make the contracts more simplified, the easiest way is to count the months from the last time of deposit. Therefore if multiple deposits are made, it will be restart from the last one.

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Thanks for looking into it further. Even though it’s simpler, it may put off people from making further deposits because of fear of loosing their insurance. A scenario could be where a user makes $20000 deposit month 1 and then month 4 decides to deposit $5000 or even $1000. However with your mechanism there is a barrier, because the user’s initial deposit of $20000 will not be covered by insurance. I would suggest remove such barriers so users can deposit anytime and will not be penalized by making a deposit by restarting their insurance period.

It seems difficult with the current smart contract structure according to the devs. Well we will surely keep digging into this and find a proper solution.

1 Like

totally understand, hopefully your team finds a solution to this.

Any progress on the insurance? Would be great to implement and raise TVL

We are still designing the mechanism.
It is not so easy as it might seem to make it decentralized in contracts. Also, we need to think about the gas problems, we do not want to make the contract too complicated.

Very much looking forward to