Mattereum & UNION: Risk Protection for the Digital-Physical Economy

Securing high-value physical asset NFTs requires the dynamic and scalable approach to distributed risk protection that UNION provides

The DeFi (decentralized finance) space has seen explosive growth over the past couple years as numerous protocols have emerged to power an open financial infrastructure for borrowing, lending, liquidity provision, stablecoin issuance, and other services in this uniquely composable network. At the time of writing, the current total value locked (TVL) in DeFi protocols has exceeded $55 billion in digitally-native crypto assets. Yet throughout this stratospheric growth in DeFi, several high-profile protocols have been hacked or exploited, compromising tens of millions in crypto-assets and causing cascading effects throughout these interdependent protocols.

Mattereum’s core mission is to build the legal and technical systems that can bring the trillions of dollars in underutilized and illiquid physical assets into the crypto economy, which begs the question: how do we safeguard against systemic failures throughout all parts of the protocol stack?

Our recently announced partnership with UNION will provide the dynamic and scalable approach to providing risk protection which will integrate seamlessly with Mattereum Asset Passports and associated Real-World Asset NFTs (rwaNFTs).

Here’s a brief overview of the DeFi insurance landscape, UNION’s unique approach to risk protection, and how the UNION and Mattereum integration will work in practice.

The Current State of DeFi Insurance

Insurance is a vast and complicated topic, and this is certainly true in the context of blockchain and cryptocurrencies. Ultimately, insurance is about mitigating and protecting against possible risks which can befall an individual, group, institution, or system. Risk protection is packaged and purchased in various forms in the marketplace and is activated when someone makes a claim to offset or cover costs stemming from the particular event in question (accident, medical care, etc.). Managing risk in commerce and life is, shall we say, a messy business.

However, crypto, being a global financial network powered by decentralised, interdependent protocols and a largely pseudonymous and in some cases anonymous user base, complicates the notion even further. How do we protect assets in this Rube Goldberg financial infrastructure in which we often don’t know the other players?

Risk protection and insurance-like platforms in the blockchain world have covered mainly two areas: smart contract cover and transaction risk.

• Smart Contract Cover: Individuals purchase cover in relation to a particular smart contract underpinning a DeFi protocol. If the smart contract was exploited and funds were lost, the individual could then make a claim once said hack has been verified by an oracle. This sort of cover is notably provided by Nexus Mutual (NXM). Yearn Finance creator Andre Cronje later created a workaround of NXM’s KYC requirements and built yInsure, a means of buying smart contract cover underwritten by NXM and packaged as NFTs.
• Transaction risk: As the term denotes, this form of risk protection is focused on singular transactions rather than ongoing operations in DeFi protocols (e.g. liquidity provision, staking, etc.). An example of one approach to risk protection at this scale can be found in VouchForMe, a peer-to-peer insurance protocol that leverages a “social proof” system for individuals to establish their trustworthiness with one another. Alice puts her reputation and some financial stake on the line by lending credibility to Bob, vice versa, and across a network of peers, establishing a bottom-up trust framework to secure confidence in commercial transactions.

Currently, the available platforms lack the magnitude or dynamism that can provide a more layered risk protection at all levels of the protocol stack, from the base-layer blockchain to smart contracts moving billions in value every day.

So if the current systems are inadequate for the scale of DeFi, how does UNION’s design provide the necessary guard rails for safely bridging DeFi to the physical world through the Mattereum Protocol?

UNION: Decentralized, Full-Stack Risk Protection for DeFi

UNION is a platform which provides bundled risk protection, decentralized governance and inclusion, a liquid secondary marketplace for sharing risk, and a multi-token model that is altogether capable of covering the myriad risks in this uniquely open, interconnected, and global financial system. Let’s unpack this statement:

• Bundled risk protection: UNION can provide risk protection to various activities and operations within the crypto economy throughout the entire protocol stack, including possible systemic fallouts from base-layer exploits, smart contracts, and applications. Most blockchain insurance projects focus mostly on smart contract cover.
• Day-one decentralized governance: The platform will be powered by a combination of the community of stakeholders and the UNN DAO. The former are UNN holders who can participate in governance (direct or delegated). The latter is a virtual organization composed of larger UNN stakeholders, the UNION Foundation, and industry experts voted into the DAO which altogether work toward ensuring that UNION remains secure, fair, and transparent. All without KYC requirements.
• Liquid marketplace for risk-sharing: UNION has adapted battle-tested pricing models in the traditional financial and insurance industries to the DeFi markets, allowing the unique composition of stakeholders in the blockchain industry to better distribute risk and create a safer environment for digital commerce and finance.
• Multi-token model: UNION uses a three-token model. UNN is used by community stakeholders for strictly governance processes (voting, conflict resolution, protocol adjustments). uUNN tokens give protection buyers rights to a particular policy. pUNN are issued to writers of protection policies, representing a percentage share of the protection pool. This three-tiered structure specifically separates governance tokens from protection tokens to prevent conflicts of interest or clashing market dynamics. Bundling multiple utilities within one token can create critical problems down the line, such as when Nexus Mutual (NXM) ran out of DeFi coverage in September 2020 from a third party’s botched liquidity mining scheme.

UNION’s composable and adaptable design is quite suited for integration with the Mattereum Protocol. Here’s how it will work:

Mattereum & UNION: Risk Protection for the Digital-Physical Economy

The Mattereum Protocol leverages an integrated legal and software system consisting of three main components: Mattereum Asset Passports, Real-World Asset NFTs, and Trust Communities. Here’s how the protocol works, in brief:

(For a more detailed guide of the protocol, we highly recommend referring to the Mattereum Product Walkthrough.)

• Asset Passports are a bundle of legal warranties tied to a particular object. Essential warranties include identification (data points provided by the owner and subject experts which describe and authenticate the asset), confirmation of the presence and capabilities of verification technologies such as NFC tags, and establishing the pairing of an asset with a particular Real-World Asset NFT (along with the terms of purchase and ownership of the same.)
• Real-World Asset NFTs (rwaNFTs) are unique digital tokens that denote the right to take physical custody of a particular object. While sharing features with the NFTs now gaining popularity in the cultural mainstream in the creative industries, these tokens are different in that they are backed by an underlying physical asset, complete with warranties, insurance, and legal enforceability to create trust in trade.
• Trust Communities are the network of expert certifiers that will accrue around an object (artwork, memorabilia, precious metals) throughout its lifetime. All expert certification of an object is backed by a legal warranty as well as financial stake, adding weight to an expert’s assessment.

In practice, the Mattereum Asset Passport will integrate with UNION as a warranty with a plain-English prose agreement that features a pointer to the specific UNION risk protection pool and vice versa, dually-integrating the two systems. This is how we bring insurance into the Mattereum Protocol.

The UNION protection pools can also facilitate the indemnified certification process that form an object’s Trust Community, providing tiered coverage for appraisers with liquidity sourced from UNION protection pools.

From zero history to storied value

With blockchain-enabled authentication and tokenization of physical assets with built-in legal guarantees, Mattereum removes the fear, uncertainty, and doubt that has plagued digital commerce for decades. Our partnership with UNION provides a key piece of the puzzle: a decentralized yet robust platform for full-stack risk protection that can provide some peace of mind for participants within the Mattereum Protocol and beyond.

Follow us as we bring the Mattereum Protocol to an expanding variety of markets ranging from memorabilia, gold, wine, to prized classical instruments, and more.

More at: http://www.mattereum.com

Twitter: https://twitter.com/mattereum

Telegram: https://t.me/mattereum