Humanity enters a new era! A myriad of world-changing concepts that were simply too idealistic to practically manifest before are now made possible by the blockchain. The main focus of all innovations is decentralization – from internet access all the way to social governance and finance.
Inventions and discoveries in the blockchain field are racing to find ever new frontiers for the development of vibrant utility ecosystems. In contrast to crypto’s inspired mission, however, there’s a cheerless and derelict corner of DeFi everyone loves to ignore until it’s all too late.
With everything that’s going on both in crypto and the world at large, just like a rotten aching tooth, the buildup of ignorance and negligence in this specific sector will undoubtedly change everybody’s plans for the worse…
Coverage and insurance
It’s been a fundamental part of finance for thousands of years. This dinosaur doomed to extinction together with the fiat financial system hasn’t seen much evolution since the Babylonian king Hammurabi’s Code. And it isn’t because the concept is perfect, it’s actually full of flaws. But since it was a smaller mechanism integrated into the emasculate and inept system of fiat finance, it performed well in relation to the low standards of the old world.
Thanks to the invention of DeFi all this can now change and we are free to disregard the TradFi model in insurance, correct? Well… that’s not how it’s been happening thus far. In the heart of risk one ultimately finds the unknown, and human nature reacts to the unknown with fear.
One can argue that fear is the antipode to everything that is human, or that it’s part of being human. Either way, fear connects risk to the very depths of our beings, so much so that we tend to gladly trade freedom for security.
Is it strange then that risk coverage is one of the last sectors to see any innovation or improvement using DeFi? And is it so strange that risk and coverage in crypto are so widely misunderstood and neglected, akin to our sacred fears?
It’s no coincidence at all that if DeFi hopes to live up to its calling, it has to embrace its emergent risks.
That is why it’s paramount to step away from the crypto replica of TradFi insurance and have a DeFi native coverage model, naturally able to cover every single dollar in the sector. To call Ease simply innovation is an understatement – it recognizes emerging risks as inherent to crypto. For Ease to incorporate emergent risks, instead of alienating them from DeFi coverage, Ease reinvents the risk protection concept itself, made possible by the blockchain!
To DeFi with Ease
Ease introduces DeFi-native natural risk distribution with the innovation of Reciprocally Covered Assets technology. The product is called Uninsurance to highlight how markedly different it is from the TradFi model other protocols in the space are still based on.
In this DeFi-native model, the covered and collateralized assets are one and the same. This evolution completely removes the need for underwriters! Consequently, it does away with the traditional misapprehension of paying monthly premiums for an incident that may never happen. Using the power of the blockchain, Uninsurance makes it possible to have the lowest cost coverage. The user only pays in the case an adverse event really manifests.
The most important consequence of this new approach is that it eliminates the root of corruption.
Shadow of TradFi corruption
Traditional coverage models, whether in fiat or crypto, create incentives to only take the premiums users pay each month. With no incentives to pay out their claims in case of an event.
Usually, every company and protocol uses a thick compendium of conditions and fine-prints to use as a tool to arbitrarily execute payouts.
Every such body seems upright in the beginning. But inevitably they succumb to the mounting pressure of shareholders combined with the risk of liquidation if a payout is simply too big (and the premiums were too juicy to turn down).
When you DeFi with Ease, all of that is a thing of the past. Most other coverage protocols, however, struggle not only with the problems they inherit from the past but also with what the future has to offer. Ease, on the other hand, welcomes the future with open arms!
Crypto’s emergent risks
Risk assessment is next to impossible in the field of unpredictably high potential the blockchain represents. While innovations, layers and protocols emerge from the constructive chaos. As do an unknown number of new dangers, new exploits and new and unexpected vectors for attacks.
This is a nightmarish setting for every protocol leveraged on the old TradFi coverage model to function in, but already established authorities in DeFi correctly view risk as “an essential evil in the space as it leads to development” (to quote Dan Thompson).
Thus, current coverage protocols cannot adequately assess risks. They are forced to follow in the wake of their manifested events.
By leveraging the power of the blockchain to its fullest extent, Ease bypasses the need to price emergent risks. It does so by subjecting this dynamic to a peer 2 peer approach. Thus effectively utilising it in the name of increasing security and resilience! Here’s how:
In Uninsurance every DeFi yield-bearing token has a dedicated vault. The method of Reciprocal Coverage means all existing vaults in the ecosystem contribute to covering the losses that a single vault could have in case of a hack. This makes the reaction to events sympathetic and solidary across the entire system.
There is a mechanism for discrimination, however. By staking the $gvEASE token users, investors and even protocols themselves can determine which vaults take on more risk than others.
Concentrating more of the crypto community’s investments makes certain protocols more important for the broader DeFi ecosystem. Naturally, their vaults would have the most $gvEASE staked. This will make them chip in for others less when another vault becomes the target of an exploit. This preserves the balance of the broader DeFi ecosystem.
Those vaults to which the broad community stakes the least amount of $gvEASE are therefore deemed to have fewer ramifications for the ecosystem if they are compromised. Since they will chip in for others the most when someone in the space is hacked, they are incentivised to grow and innovate even further in order to attract more interest.
This essentially empowers crypto natives to give more or less importance to different protocols. Thus the more investment of community interest, the more covered a protocol is. This completely eliminates the obstacle of capacity currently present in DeFi insurance.
Ease naturally ennobles the whole of DeFi, by subjecting emergent risk to a peer 2 peer (P2P) approach. Thus making it dynamic, actually rewarding and creating a whole new niche for innovative business models.
But Ease wouldn’t be a truly DeFi-tailored protocol if it didn’t make all this seamless!
Yield-bearing tokens deposited in Uninsurance continue to accrue their interest on an auto-compounding basis – we call this “Set-and-forget”.
- Coverage is free if life is good, but users also save nasty gas fees. The underlying DeFi yields auto-compound!
- We researched previous hacks. If an actual event occurs, the Ease user pays significantly less than the average amount of premiums paid in TradFi models.
The future of DeFi coverage
To state the obvious: the underwriter-centric TradFi model is old and limited. They cannot safely handle the vast nature of crypto and its unbridled innovations.
An outdated and costly model, it’s inflexible, incentivizes corruption, and is not able to realistically assess risk. On the contrary – most such coverage protocols risk liquidation themselves, because of their stakers’ leverage.
Even if one ignores the above, current DeFi protocols don’t have the capacity to cover the booming market.
Ease is here to bring the blockchain to risk protection. It reinvents coverage in a DeFi native and seamless fashion, evolving beyond pricing risk and even capacity. To transform the biggest hindrance in DeFi and crypto as a whole into a new opportunity for increasing security. It is allowing one to ultimately DeFi with ease!
Thoughts at Ease
This is a new addition to our ongoing series of thought pieces about DeFi coverage. They are penned by the team and our community.
The previous pieces in this series are: