The protection pool is the storage pool of protocol protection funds, and all compensations will be paid by this pool. Users can get Protection Pool LP tokens by putting a USDC into the protection pool. Protection pool underwrites all protocols on the platform.
The proportion of users holding Protection Pool LP Tokens represents their share in the protection pool (For example, if there are 100 outstanding protection pool LP tokens, and there are 80 USDC in the protection pool, then 1 protection pool LP token can claim 0.8 USDC). Protection Pool LP Token can be further staked into a specific priority pool.
Each project has a corresponding Priority Pool, which will be used as compensation first after a claim event occurs in this project. Underwriters can further stake the protection pool LP token to the priority pool to enjoy mining rewards, but at the same time, this also means that the user needs to bear higher risks for the project, because when this specific protocol has a claim event, the liquidity providers will lose their protection pool LP tokens staked in the priority pool and the USDC corresponding to the protection pool LP token in the priority pool will be used for compensation first.
When users stake Protection LP token into Priority Pool, they will receive Priority Pool LP token as a reward, which is the token that is used to mine protocol native token(45% of premium)
veDEG holders can propose and vote on whether the Degis platform will cover a protocol and its Base Annualized Premium and Maximum Coverage Ratio. If over 50% veDEG votes in favor, Degis will provide smart contract protection to that protocol with the initial Annualized Premium and Maximum Coverage Ratio.
Represents the base premium amount required to purchase protection for a project. For example, the initial annualized premium for protocol A protection is 3%, if someone wants to buy one-year protection for protocol A with a cover amount of 1M, he has to pay 1M*3% = 30K
Maximum Coverage determines how much covers the platform can provide. For example, if the total TVL of the Degis protocol protection is 100M(i.e. There is a 100M USDC inside the protection pool), and the Maximum coverage ratio for protocol A is 20%, thus, our platform provides up to 20M protection coverage for this protocol.
Underwriters can stake their USDC into protection pool and get protection pool LP tokens. They can stake protection pool LP tokens into different priority pools to generate extra rewards. But it also means that underwriters will take a higher risk of this specific protocol's security incidents if they choose to stake Protection LP token in to that specific priority pool.Underwriters may not able to redeem their funds 24 hours, Max(Cover/Quota) will be locked in the pool to ensure enough payout
For buyers who want to buy protection for protocol A, assume the initial annualized premium that set by community voting is a%:
The premium he has to pay for protocol A in the first 7 days with the covered days D is:
After 7 days, dynamic premium will be adopted,
The dynamic premium d%:
a% means the base premium set by community voting
C_n means that the current coverage value of Project n
X means the cover amount the user is purchasing
LP_n means that the protection pool LP tokens stake in the priority pool of Project n
N is the total amount of projects protected in Degis protocol protection
Thus, the premium one has to pay for protocol A after 7 days is:
- Note that the new pool will not participate in the dynamic pricing of other pools within the first seven days.
- The parameters in the formula of dynamic premium will use the amounts after the transaction, which will cause slippage. The more you buy, the higher the final annualized ratio will be.
After purchasing protection, buyers will receive a crToken, 1 crToken represent 1 USDC*Cover Index compensation(will introduce it in 'After Payment Part")and all the premium will be paid with the native token of protocol A.
- We only offer policies that expire at the end of this month and the next two months. (not arbitrary days)
- All covers are restricted to ending at the last second of each month
e.g. For now, all policies will only end at
a) Aug 31, 23:59:59 b) Sep 30, 23:59:59 c) Oct 31 23:59:59
- Premium will still be calculated with the real length he bought
- The purchase slippage needs to be within 5% (for example, in a transaction, the front end and the contract price exceed 5%, the transaction cannot be completed
The premium is charged in the form of the project native tokens. 50% of which will be exchanged to USDC and become the yield of protection pool. The reward will be distributed directly in to the protection pool and increase the pool balance of USDC (For example, 1 protection pool LP tokens can redeem 1 USDC at begining, after 1 month operation, it may can redeem 1.05 USDC) 45% of which will be the yield income of protocol protection pools directly. (This part will still use the farming mechanism to get native token reward)And 5% will be charged as the platform fee.The premium will be linearly distributed, for example, if the the Protection buyer purchase a 30 days Protection, then the yield income will be distributed in 30 days.If a project pool is reported as hacked for fully compensation and passes the voting, the remaining reward will be distributed immediately.If the project is partial compensated, the origional priority pool LP tokens' mining share will be reduced, the new buyers will receive new priority LP tokens with the origional mining share.
Users can stake 10000 DEG to report a protocol security event. If the report is verified to be true, the first reporter will be rewarded with 10% of the platform income of the reported protocol in USDC and an extra 10000DEG. If the report is verified to be false, the staked 10000 DEG will be rewarded to users who voted against it.
After reporting, the protection pool and the corresponding priority pool will be locked.
Users can use veDEG to vote on the authenticity of the report. For the voting, 100% voting weight belongs to veDEG holders.
If more than 50% of the votes believe the event to be true, the report is deemed true, the platform will payout compensation to protection buyers. For voters who voted against them, they need to pay P amount of DEG to redeem their voting veDEG as punishment for wrongly voting, which will be used to reward voters who are in favor. The number of DEG punishment P is determined as follows:
50% of the DEG punishment will be given to the right voters as rewards, and the other 50% will be set as protocol reserves.
If less than or equal to 50% of the votes are in favor of payout, then the report is considered to be false and the same P amount of DEG will be punished for the one who voted for it. Punishment distribution is the same as above.
If someone reports a protocol security issue, the platform will start the claims process, starting with a 3-day calm-down period for all platform users and third-party auditing companies to investigate this incident. When the clam down period ends, the voting period will be opened, and all veDEG holders can participate in the voting.
The Voting Period is 3+1+1
- The initial voting period is 3 days. If the voting result does not change within the last 24 hours or tie at the end, the final result will be determined.
- If the voting result changes at least once in the last 24 hours/tie at the end, the voting period will be extended by 1 day; if the voting result does not change on the fourth day and does not tie at the end of the voting period, the result will be finalized.
- If the voting result on the fourth day changes again(or ties again when voting ends), it will be extended to the fifth day. Regardless of whether the result is changed or not, the voting period will not be extended, and the voting result on the fifth day will be finalized.
- If the final result on the fifth day doesn't tie, the final result will be determined by the choice of the majority.
- If the final result ties at the end, the platform will not pay for this event, but all voters can 100% get back their veDEG, and those who voted for it will not be punished.
When the voting period ends, if the event is voted to be true, the claim period will open for all Protection buyers to claim their compensations. The punishment DEG will be distributed to those who vote for the right result according to their share.
The minimum of Cover Amount and Loss in Protocol Security Event will be paid.
If a payout event occurs, e.g. Protocol A is being hacked:
- 1.if Priority Pool A has the enough amount to cover the payout, then the corresponding amount of protection pool LP tokens in Priority Pool A will be burned. Meanwhile, the real asset, USDC in protection pool, will be used for the payout.
- 2.If Protocol Pool priority A does not have enough amount to cover the payout, then all protection pool LP tokens in Priority Pool A will be burned and the corresponding USDC will be used to payout first. The insufficient part will come out from the remaining protection pool funds, but no protection pool LP tokens will be burned. Then, one protection pool LP token can claim less than one USDC, which means all protection pool LPs share the remaining funds.(will introduce in detail later)
After the payout event,
- if situation 1 happens(i.e. Priority pool has enough protection pool LP token):
The stakers can claim back their remaining protection pool LP tokens according to their shares(for example, before claiming, there are 100 protection pool LP tokens in the pool, one has 20% share, which means he can redeem 20 protection pool LP tokens; after payment, if there are only 80 protection pool LP tokens left in the pool, he can only redeem 16 protection pool LP tokens back)
- If situation 2 happens:
As all protection pool LP tokens in Priority Pool A are burned, stakers in that pool can not redeem anything back.
For the protection pool, part of the USDC that was used for compensation, and no more protection pool LP tokens are burned, which means 1 protection pool LP token can redeem fewer USDC from the protection pool than before the compensation.
After the claim event, total fund in the protection pool will decrease. Thus, for some protocols, Cover Amount may greater than the (Current TVL*Maximum Coverage Ratio)
As a result, we have to reduce the cover amount for these protocols by reducing the cover index to ensure Cover Amount = Current TVL*Maximum Coverage Ratio
In the meantime, for the buyers who buy these protocol protection later, as 1 crToken represents less compensation than before, to ensure buyers get the cover amount they deserve, they will receive more crToken than before.
If partial payout happens, the policy purchased by the user is still valid, but a part of the insured amount will be consumed(As part of the compensation is paid)To achieve this: the crToken holder needs to use crToken to claim compensation and a new crToken that represent a lower cover amount.
Here is an example for better understanding:
If the protection pool has 100U in total initially
Project A Project B Project C
Minimum TVL Requirement 100 50 100
Quota 30% 40% 40%
LP Token in Priority Pool 20 20 40
If Project A is reported to be hacked and the voting is passed,Users who bought A-cover will get 30 USDC as compensation
- 20 from burning LP tokens in A priority pool
- 10 directly from the protection pool(no protection pool LP token will be burned)
Thus, after compensation, there are in total 70 USDC in the protection pool together with 80 outstanding protection pool LP tokens.
The minimum TVL requirement for project B is 50 < 70, no need to cut the cover amount
But for project C, the minimum TVL requirement is 100 > 70 . We need to reduce the cover amount(Change Cover Index) and make sure: Cover Amount = 70 -> reduce Cover Index from 1 to 0.7. After that, every user's cover amount will be cut down by 30% (10U cover => 7U cover)
For the new buyers, if they purchase 10U cover amount, instead of getting 10 crTokens, they will receive 10/0.7 crTokens to ensure the cover amount.
In addition to voting on new protocols and voting on compensation, veDEG holders can also propose and participate in voting for the following events:
Community can come up with a proposal and vote to change the quota for any insured protocols. In the meantime, we will also propose quota changes every time we insure a new protocols.
In the meantime, both the community and third-party auditing companies can propose repricing the base premium (i.e. Repricing a%), the approval of the repricing proposal will be decided by veDEG holders.