Cover Product Spotlight: Compound Finance
A spotlight article on Compound Finance with its features, financials, & security record.
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A guide to providing liquidity to cover pools in the Neptune Mutual marketplace app.
If you have stablecoins that you'd like to earn a yield on, you might consider joining the Neptune Mutual ecosystem and providing liquidity to a cover pool in the Neptune Mutual cover marketplace.
Liquidity providers (LPs) earn fees from users who purchase cover policies from the cover pools that they have provided liquidity to. In addition to these returns, Neptune Mutual is developing a whole number of other benefits that can be accrued by LPs.
In the Neptune Mutual marketplace, CeFi and DeFi projects, asset managers and investors can create parametric cover pools to protect their respective communities from security and custody risk. Cover pools are either called “dedicated”, if the liquidity and cover products are dedicated to a specific project, or diversified, if the liquidity is fed into a diversified portfolio of cover products.
Cover products in a diversified cover pool each have their own cover parameters and cover policy pricing and are purchased independently of each other. For a more detailed description of the difference between dedicated cover pools and diversified cover pools as well as a guide to navigating the risk and returns as a diversified cover pool liquidity provider, you might want to have a read through our blog “Enhanced Liquidity via Diversified Cover Pools”.
Diversified pools generally offer LPs higher returns than dedicated cover pools because of the leverage of underwriting capital that can be employed as a result of the diversity of the risks covered.
Once the transaction is complete, you can go to “My Liquidity” to view a record of the liquidity you have supplied in the marketplace. If you wish to unlock your liquidity and withdraw it, you can do so when the unlock cycle is open.
Liquidity providers have the opportunity to unlock access to NFTs within the Neptune Mutual ecosystem.
Liquidity providers must stake NPM tokens in order to provide USDC liquidity (this requirement will come into force after the end of the transition period following the launch of the NPM token).
The lockup period is typically 6 months; however, this can vary depending on the terms of the cover pool. You can see the unlock cycle dates at the bottom of the liquidity provider form. Check those dates before providing USDC liquidity to confirm that you're happy with the lockup period.
Liquidity providers earn a portion of the fees from users who purchase cover policies from the cover pool that you have provided liquidity to. The fees are allocated to LPs based on their percentage contribution to the cover pool.
A liquidity provider contributes funds that are used to underwrite risks. This means that the funds are used to pay out cover policy holders in the event of a qualifying incident, and therefore LPs risk losing the capital they have provided. LPs are strongly encouraged to read the cover terms and do their own due diligence carefully before providing liquidity.
If you'd like to know more about providing liquidity for Neptune Mutual cover pools, or are interested in participating in any other parts of our marketplace, please contact us. Our team would be happy to assist you. You can join our Discord and we will answer ASAP, or start a discussion on our community forum and get assistance from everyone in the Neptunite Ecosystem.