Index Pool

InsureDAO introduces the concept of individual index insurance pool for underwriters.

An index cover pool consists of multiple single cover pools. Liquidity providers can diversify their funds to different single pools and provide leveraged cover capacity (credit) to get leveraged premiums through any index pool.

One of the unique features of InsureDAO is its ability to create any custom risk indexes of any choice of individual pools. An index pool provides an opportunity for efficient liquidity provision and helps to earn high APYs: the presence of an Index increases liquidity, allowing the system as a whole to provide insurance cheaply.

Leverage

Once liquidity is provided to an index pool, the index pool allocates liquidity to each underlying single pool. Moreover, an index pool leverages and allocates additional cover capacity in its underlying pools when the cover capacity, using the principal, of any of the underlying pools is sold out.

In order to diversify liquidity among underlying pools, the max allocation for each underlying pool is up to the half amount of the principal provided to the index pool. By doing so, the max payout amount would be within the principal unless incidents occur on more than 3 or more protocols covered by the index at the same time.

The max leverage rate will be adjusted according to the number of underlying pools in each index pool and the liquidity amount in the Reserve pool.

The diagram below shows how an index works.

One important thing to note is that a single pool accepting credit from indexes is still accepting liquidity directly deposited from individuals at the same time: Provided credit in a pool is treated just like real liquidity provided by individuals and the premium earned will be divided equally between each provided liquidity value. For example, if an index earned $1000 premium and there was the liquidity from individuals: $500 and the leveraged credit from an index: $500 (the underlying value might be lower than that value), it means each $1 of liquidity and credit earned $1.

In return for receiving risk premiums, as well as single pools, liquidity providers need to pay out when compensation is decided for any of underlying pools in the index pool.

Indices at the first launch can be seen below.

pageFirst Batch Indices