If you hold digital assets and want to protect yourself against losses caused by security exploits or other similar incidents, parametric cover policies could be the answer. These policies are set up to pay out in the event that a verifiable qualifying event occurs. Rather than investigating individual claims on a one-on-one basis, parametric cover policies are based on the process of verifying the event, which, if confirmed to have triggered the policy parameters, then pays out to everyone with a policy; this dramatically speeds up the payout process and makes it more reliable.
Purchasing a Cover Policy, Step-by-Step#
- Before purchasing a cover policy, choose the network that you want the cover to be on. At Neptune Mutual, we offer cover for pools on the Ethereum mainnet and Arbitrum.
- Once you've chosen, go ahead and launch the app, and you'll have the chance to select the cover pool you're interested in from a dropdown list. There's an extensive list of pools to choose from, such as the OKX Exchange Custodial cover and DeFi cover pools like Sushiswap and Uniswap.
- The graph on the left-hand side of the page offers an at-a-glance overview of the size of the cover pools, Total Value Locked (TVL), gas fees on Ethereum vs. Arbitrum and other metrics. Simply choose the metrics you're interested in via the dropdown above the chart, and use the sliders below the chart to customize time ranges.
- The calculator on the right-hand side offers the opportunity to select the amount of cover you would like and the duration of the cover to get an idea of cover costs. Cover amounts are expressed in USDC, regardless of the type of currency you hold on the DEX/CEX in question.
- If you'd like to see more information about the pools, the liquidity in each pool, and the utilization rate of the pool (the amount of cover purchased vs. the amount of liquidity available, expressed as a percentage), scroll down and read the summary information presented on the cards of each respective cover product.
- Once you've decided which cover pool you're interested in, click on “Buy Cover” at the top of the screen, or "Purchase Policy" on the relevant cover pool's screen.
- Enter the amount of cover you would like in USDC. There is a minimum cover requirement of $10, and the maximum will vary depending on the available liquidity in that specific cover pool.
- If you have not already done so, you'll be prompted to connect your wallet. Follow the prompts to connect your Metamask or compatible exchange wallet.
- You'll be shown some information about the cover pool, including the liquidity in the pool, cover fees earned, and the reporting period (this is the length of time the community has to vote on incidents that people have reported). You'll also see the cover fee expressed both in USDC and as a percentage of the cover you're purchasing. Review the terms of the cover, and if you're satisfied that it covers the kind of incidents you're concerned about, you can proceed with the purchase.
- Approve the transaction in your wallet.
- Once the transaction is approved, you'll see the policy listed in the "My Policies" tab. You'll receive cover tokens matching the value of the policy. If you need to claim on your cover, you do so by redeeming these tokens.
Dedicated Cover Pools are exclusively devoted to a specific project, and they guarantee payouts to all policy purchasers if a qualifying incident occurs. Cover fees vary depending on a number of factors, including the amount of cover you're purchasing and the duration of the policy.
This is in contrast to Diversified Cover Pools which may underwrite more cover policy liability than the amount of pool underwriting capital. Diversified cover pools can be beneficial for liquidity providers because they have the chance to earn a higher return for the capital they commit to the pool. However, they do not offer cover purchases an absolute guarantee of payout because of the small possibility that multiple projects in the diverse portfolio could be hacked at the same time, requiring multiple payouts. If there was an incident affecting multiple pools, the cover provider could find themselves unable to pay everyone.
In the brick-and-mortar world, many insurance providers work this way. It's highly unlikely that every customer of an insurance provider would crash their car on the same day, and insurance companies spend a lot of time and money calculating risks and assessing claims to work out how much they're likely to need to pay out and how much liquidity they need.
The parametric cover system used in the Neptune Mutual marketplace is designed to streamline the DeFi insurance process as much as possible. Cover is offered on a selection of CeFi and DeFi projects. Users who hold NPM tokens (once available in the market) can use these tokens to report incidents or vote on incidents reported by other users, helping ensure the validity of claims made to cover pools.
The marketplace is one where blockchain projects, asset managers or investors, create their own cover pools to protect the community of their project, or portfolio of projects. If you are currently building a product and you'd like to know more about how to protect your community please don't hesitate to contact us. Our team would be happy to answer your questions.
You can also start a discussion on our community forum, and not just our team but the entire Neptunite community will be able to assist you. If you’re a project exploring how Neptune Mutual can help you protect your community, you can ask them directly on the Neptunite portal what it is they want to see from you.
