Solutions to Major DeFi Liquidity Pool Issues

5 min read

Learn about Neptune Mutual's solution to issues faced by DeFi liquidity providers.

Attention DeFi users! If you've ever dipped your toes into the world of DeFi insurance as a liquidity provider, you know that it's not always smooth sailing. But here's the good news: Neptune Mutual is here to help you navigate the high seas of DeFi with ease.

A Quick Heads Up! Before diving in, we want to clarify that Neptune Mutual operates on the principle of transparency. We believe in constructive criticism and responsible disclosures, as they are the heartbeats of growth and innovation in the DeFi industry. We want to inform you about some key risks and challenges tied to the DeFi insurance world and how we've innovatively addressed them. But remember, the final decision always rests with you.

We recommend you go through our Risk Factors to understand the associated risks and make informed decisions. Let's make sure you know what you're signing up for.

Current Roadblocks in DeFi Insurance and Liquidity Pools#

Roadblock 1: The Forever Lock-in#

Locked indefinitely in a DeFi insurance pool? That's a risk that doesn't sound appealing. No one wants to be stuck forever without an exit plan.

Neptune Mutual's Solution

Our protocol has a maximum coverage period of three months, which means that you're not locked in indefinitely. Also, the POD (Proof of Deposit) you receive acts as a stablecoin deposit certificate, which you can sell or redeem to exit the contract whenever you wish. It's as simple as that!

Roadblock 2: Lack of Choice in Risk Underwriting#

Being a liquidity provider often means being exposed to all risks, with no choice in the matter. Sounds unfair, doesn't it?

Neptune Mutual's Solution

With us, you get to choose the cover pool you want to join. This gives you control over the liquidity underwriting risks you're exposed to, ensuring that incidents in other pools don't affect your liquidity. We are also selective about the products we add to our platform, focusing on security and risk minimization rather than just quantity.

Roadblock 3: The Dilemma of Loyal Tokenholders#

A prevalent issue in DeFi protocols is the steep loss endured by loyal tokenholders when the project tokens are used for payouts. To recuperate from losses and mitigate risks, claimants often sell their payouts. This action initiates a negative feedback loop for the project tokens. Consequently, if you've participated in any of the insurance staking pools, the value of your tokens might be negatively impacted.

Neptune Mutual's Solution

We've got you covered here. At Neptune Mutual, we don’t use NPM tokens for risk underwriting. So, when a payout occurs, stablecoin from the cover pool is provided. In other words, it doesn't lead to the slashing of the NPM tokens. In fact, the demand for NPM tokens rises in the case of an incident because they're used for incident resolution.

Roadblock 4: Complicated Exit Process#

In many DeFi insurance protocols, exiting a DeFi insurance pool is like finding your way out of a maze. Not with Neptune Mutual!

Neptune Mutual's Solution

Liquidity providers in the Neptune Mutual marketplace have a 7-day window every 180 days when they can withdraw excess liquidity from the cover pool. The maximum duration of cover policies is 3 months, which is significantly shorter than the duration of the LP lockup period, providing the flexibility for LPs to withdraw excess capital from the pool.

Roadblock 5: Limited Capital Efficiency#

With indefinite lock-ins and the inability to have your selection in the underwriting pools, capital efficiency can often take a hit in DeFi insurance.

Neptune Mutual's Solution

We enhance capital efficiency by offering LPs the choice of either unleveraged dedicated cover pools or leveraged diversified pools. The option to choose which cover pool you want to join ensures that your capital is not used to cover risks that you don’t want to underwrite. The stablecoin returns provide a metric that is independent of crypto volatility upon which to make an informed risk/return decision.

Final Thoughts#

As a careful liquidity provider, you deserve transparency, flexibility, and security, and that's what Neptune Mutual aims to provide. With innovative solutions that address some of the key challenges in the DeFi insurance industry, we ensure that your journey with us is seamless and rewarding.

The Future of DeFi Insurance with Neptune Mutual#

We're constantly evolving to better serve your needs. Our commitment to you doesn't end with merely providing insurance coverage. We aim to make DeFi insurance simpler, more user-friendly, and accessible to everyone.

Enhanced Transparency

Our platform provides complete transparency through an open-source approach. From the risk factors, terms of use to the contracts themselves, everything is visible to the public eye, empowering you to make informed decisions.

True Decentralization

At Neptune Mutual, we embrace the essence of decentralization. We prioritize the protection of your privacy by eliminating the need to disclose personally identifiable information (PII). This approach empowers you to retain complete control over your identity. In alignment with the core principles of DeFi, our goal is to foster an inclusive financial ecosystem.

Innovative Risk Management

We're redefining risk management with our selective risk underwriting. As a liquidity provider, you can select the cover pool you wish to join, giving you greater control over your investments.

Token Value Protection

Your value matters to us. Neptune Mutual doesn't use NPM tokens for payouts, meaning a claim incident won't affect your token's value. We ensure the protection of your investment while providing you with growth opportunities.

Bottom Line#

We at Neptune Mutual believe in a DeFi insurance world that's flexible, transparent, and secure. By addressing the current roadblocks, we're working towards enhancing your experience as a liquidity provider. But we understand that insurance is a commitment, and we want you to make an informed decision. So we encourage you to explore our platform, understand our mechanisms, and feel free to ask questions.

Remember, in the DeFi world, knowledge is your best insurance. Secure your DeFi journey with Neptune Mutual, and let's explore the exciting world of decentralized finance together!