Insurance Pool

The Insurance Pool insures the protocol, and thus all Synth users, against Black Swan events and protocol exploits.

Overview

The Insurance Pool is an UMJA-funded insurance reserve to protect users from protocol under-capitalization due to a black swan event, smart contract exploit or otherwise. Despite fears of leveraging a volatile asset for the protocol’s insurance reserve, amassing enough of it from both the protocol’s initial token distribution as well as via stakers from a multitude of incentive mechanisms should be satisfactory.

In addition to serving as capital of last resort to protect end-users, the Insurance Pool functions as the following:

  1. Biflationary Control: The Insurance Pool may be economically designed to control the UMJA token’s inflation and deflation. For example,

    1. to incentivize staking, the Insurance Pool’s APY can rise and fall with the total amount staked, encouraging coordinated public staking to maximize the pool’s APY;

    2. minimal staking terms can be enforced to better distribute market inflation, and;

    3. stakers may be penalized for early withdrawals by having 10% of their stake burned, further reducing the UMJA token’s supply.

  2. Yield Bonus Mechanism for Smartcoins: Staking the Insurance Pool builds protocol TVL and keeps protocol users more financially secure. Thus, incentivizing smartcoin minters to hold on to the token and earn more yield creates natural demand for the token.

  3. Working Lottery Eligibility Requirement: Staking the Insurance Pool as a working lottery eligibility requirement ensures the lock-up of capital between the Insurance Pool and the Governance Pool, further reducing inflation.

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