Tidal Finance, an insurance offering aimed at the growing decentralized finance (DeFi) space, announced Tuesday the launch of its mainnet and token reward system for users providing capital to its reserve pools. The platform goes live on Ethereum layer 2 network Polygon, with a subscription-based insurance model, including StaFi, Marlin, EasyFi, Xend Finance, and bZx.
Facing a lack of insurance options, DeFi cryptocurrency companies usually find alternative solutions, often engaging reserve pools to cover losses with the incentive that individual investors bolstering those reserves will earn a reward on that investment, similar to Lloyd’s of London business model.
Tidal Finance CEO, Chad Liu, sees the goal as to bootstrap $10 million into the reserve pool by the end of 2021.
“At launch, Tidal ourselves are going to seed $200,000 in the reserve pool. We are pretty confident, judging from our competitors that we will easily bootstrap like $5 million up to even $10 million,” he said in an interview with Coindesk.
That is how the DeFi insurance model works: Tidal distributes its native token to participants who deposited USDC in the pool to back one or more of the cover protocols, describing it by the term “mining.”
“As an estimate, if they back up one protocol, they can get around 15% APR,” Liu stated. “If they back up, say, seven protocols in the initial launch pool, that would go up to about 100% APR.”
DeFi boom with platforms such as Nexus Mutual caused the decentralized insurance options growth, reaching a capital pool of above $380 million (at today’s prices). Inside this model, token holders are taking part in a fully decentralized governance system, voting to decide which claims should be paid.
By Liu’s words, Tidal takes a more direct approach to claims handling, relying on both in-house security experts and partnership with Halborn, a security and auditing firm specializing in blockchains and smart contracts.
“The final call on claims is down to a risk assessment committee,” Tidal Finance CEO said. “In my opinion, it’s better to have a separate party’s assessment that doesn’t involve an entangled interest with losing capital when a claim happens.”
As reported before, decentralized derivatives exchange SynFutures launched the DeFi futures, letting miners hedging against Bitcoin risks, such as the volatility of mining difficulty and all the factors affecting mining returns.