Builder bounty - LP tokens as Insurance

Build on Opium | Research and Development
#1

Summary

Allow the ability to accept LP tokens as a means for insurance providing.
LP tokens are mathematical proof that you provided assets to a pool — and holding LP tokens hold the claim to getting those assets back.
LP tokens = guarantee to asset.

Insurance coverage scenario

image
image1544×229 27.3 KB

Let’s assume this pool accepts LP tokens.
And Lets assume this pool also has to use the value staked to cover the buyers insurance fulfilment.
The LP tokens would have to be traded back to their value pairs and then traded to USDT(Or whatever the insurance is covering) to be able to fulfil any insurance requirements from the buyer.
Thus incurring a larger loss due to gas fees of more transactions.

2 outcomes of providing LP tokens as insurance

  1. the loss of some LP tokens and the gas fees incurred from having to possibly transfer some to USDT (or whatever currency is required) to cover the loss of value from the buyer

  2. the exposure of holding an LP token and possibly benefiting from insurance yield?

There may be a very good reason as to why this can’t work, I just have yet to come across this specific type of query. Please let me know down below! I wonder if the trading aspect of the insurance schema will mess with this idea

To me I’d prefer the option of using LP tokens as protection rather than just USDC; so I can be exposed to price fluctuations by the underlying assets and fees generated by the LP token pool.

Even if you didn’t, I still think allowing the option will attract users to the platform. And that’s the goal isn’t it?

Rationale of why and how this initiative will benefit the Opium Ecosystem

A new audience will be gained for Opium Insurance . Specifically liquidity providers who can now use their LP tokens to stake, thus providing insurance coverage to whichever program is in question.

Success metrics

LP tokens are being staked in Opium Insurance Protection

Poll

Integrate the ability to provide LP tokens as insurance protection for Opium Insurance programs
  • For
  • Against

0 voters

3 Likes
#2

One of the best ideas, on my opinion! Those LP tokens are not capital efficient and it can be easily fixed.
The only question we would need to decide is how to manage their value:
a) if we highly over-collaterise our short position than capital efficiency is also not good and margin call is still possible
b) we may use pool of AAVE of fork to provide those assets there, users will manage their own collateral and insurance will get stable margin
c)?

What do you think?

#3

Hey Andrey!
Thanks for they reply.
to respond to your statements,

a) if we highly over-collaterise our short position than capital efficiency is also not good and margin call is still possible

By this do you mean; if too many people provide LP tokens and if not enough people are buying insurance, then capital efficiency is not good? In that case, we would then need to steer the discussion towards, how do we attract more users to buy insurance?

Margin call will be possible in any insurance providing contract. No?

b) we may use pool of AAVE of fork to provide those assets there, users will manage their own collateral and insurance will get stable margin

Perhaps run another liquidity mining program as the one on 1inch.exchange is about to end. (I am not too sure what is in the works at the moment) The new program could also incorporate this concept into the rewards portion. Example:

1inch rewards pool extends for another month. with the addition of the 1INCH-OPIUM LP tokens to be used for insurance on some Opium protocol, thus benefiting from the exposure of insurance providing.

I feel something like this needs to happen for insurance providing to become more adopted.
I also think this would be one of the first liquidity pools to provide such a service?
Which would also be a sweet thing to achieve for Opium!

c)?
C you ask?
I was imagining joining with Yearn and attaching an insurance providing mechanic to one of their vaults? thoughts?

1 Like
#4

I noticed you have implemented a functionality I have suggested! Very nice! I just wanted to clarify how the bounty builder program works.

Do I get compensated for my idea on this matter?

I see in the recent medium article this was implemented without any notice of it being proposed by a community member? Any reason for this?

https://medium.com/opium-network/decentralized-insurance-upgrade-continuous-staking-and-unstaking-c329ce27ad4b

image
image724×486 41.6 KB

Opium - no compensation for proposal?
#5

We should just write formulas and assume we use LP-tokens of Uniswap as least collateral efficient

Another idea is to create a clean pool of, lets say, USDC and provide several protections (write insurance) on this capital