Wiki: 3F Mutual
The insurance that protects your crypto assets against DeFi systemic risk.
TLDR:
3F Mutual is an insurance compensating active users with a decentralized pool of capital in the case the MakerDAO Emergency Shutdown occurs on-chain.
Find other sections of the Wiki at the end of the article 👇
Features are summarized below:
- 3F Mutual is a rainy day fund underwriting insurance with capital collected from sunny days.
- The more days are covered in a single insurance purchase, the more discounted insurance fees will be.
- If MakerDAO shutdowns during the time covered by insurance units, insurance buyers can automatically claim compensation with their insurance units in proportion to the total number of active insurance units from other users.
- Once they buy insurance units, users receive the same amount of insurance units and insurance shares; units expire, but shares do NOT expire. Shares allow users to receive dividends from subsequent users buying units, and their shares are diluted contingently.
- Anyone can become an insurance agent of 3F Mutual to earn bonuses through the referral system, by sharing a URL with their friends and acquaintances.
What is 3F Mutual?
3F Mutual employs a rainy-day fund-like mechanism helping you to be compensated against MakerDAO collapse risk. It is neither an option nor a short position of ETH/DAI/MKR.
The rainy day fund-like design means it should rather be considered as collective insurance.
Why the need for insurance?
The 3F Mutual’s insurance subject is MakerDAO’s stablecoin system. The holders of the MKR token, the DAO governance token of the Maker Protocol, could initiate an Emergency Shutdown when the market is subject to severe market fluctuations, program vulnerabilities, and system failures.
This scenario is equivalent to declaring DAI bankruptcy, directly clearing the remaining value in the system, and returning it to DAI holders in proportion.
The 3F Mutual uses Emergency Shutdown as an on-chain indicator. If it happens, active insurance unit owners will be compensated.
It’s that simple.
There are 2 ways to participate in 3F Mutual
1. Buy insurance and become an underwriter
The most obvious way to be involved in 3F Mutual is to buy insurance units directly.
You may purchase an insurance unit, which can be valid for 1 to 100 days depending on your choice (the longer the period, the cheaper the insurance unit/day). By purchasing a unit, you will also be receiving insurance shares, and these shares do not expire. The shareholders are entitled to 15% of the insurance premium of all future insurance buyers.
The premium is determined based on
X: the number of units purchased × Y: the number of insurance days.
If the DAI closes unexpectedly Y days after buying insurance, you will be able to claim.
The amount of claims depends on the total amount in the fund pool and the number of insurance units that are currently active (not expired).
2. Become an insurance agent
To become an insurance agent means you have to refer people to purchase insurance using your customized referral link.
There are three forms of referral links: registered name, ETH address, and serial number, which share the same effectiveness for agents to promote on different occasions.
Please note that recommended people are not linked to an agent before purchase, but temporarily kept in the browser’s local storage, which can be overwritten if visiting with the other referral link. So make sure your friends purchase insurance units as soon as they click on your link!
Insurance agents are also allowed to purchase insurance with their referral links and get bonuses from each of their purchases. Insurance agents of 3F Mutual are capable of building personal avatars: profile pictures and opening remarks by connecting to 3BOX distributed database protocol built with IPFS technology.
The FOMO Mechanism
The 3F Mutual was designed with the purpose that the early player will deposit money in exchange for long-term passive income; the late player expects relatively solid insurance coverage with a lower premium.
Expectations for excess returns will drive 3F Mutual’s initial buying momentum until the rate of expansion slows. The insurance unit in 3F Mutual will expire in the long run. This means that if no one buys a new insurance unit, the insurance claim rate will skyrocket, with, in the worst case, one single user being able to claim the whole insurance pool if MakerDAO Emergency Shutdown happens.
As a result, new buyers will be attracted by the opportunity. If the market expects a MakerDAO Emergency Shutdown probability of 0.5% per day, 3F Mutual’s daily income will be approximately 0.5% of the pool amount, which increases exponentially.
Those who understand the rules of the game may notice that 3F Mutual’s best strategy is: 1. Purchase a large amount of short-term insurance early on, and stockpile your shares to profit; 2. Purchase insurance at the very end, when MakerDAO is about to go into emergency mode.
Despite the fact that no one knows when an Emergency Shutdown will occur, isn’t this what insurance is all about? Putting money aside for the event of an accident.
