Quick review on InsureDAO launch and beyond
Hi Insurenauts,
We have launched InsureDAO on 22nd February, and a lot of things have happened so far.
While we are all going through a rough time, I believe our future is still bright. Let me share my hope for the future by looking at what has already been achieved, what is happening now, and what we are planning for the future.
Why are we building?
You may have felt scared when you were about to deposit your funds to a new DeFi or crypto product, and may have given up the deposit. We InsureDAO is aiming to be a DeFi safety layer, which guarantees DeFi users to enjoy DeFi protocols without any fear of bugs, exploits, and other unexpected behaviors.
While I admit that insurance is not the sexiest system, and it’s complex within the DeFi ecosystem, just like within the traditional finance ecosystem, I believe insurance is one of the most important pieces of DeFi, finance.
Once InsureDAO matures and works together with other DeFi protocols, the entire ecosystem should be on the next level.
What has happened?
We have launched our protocol on Ethereum Mainnet and released the INSURE token on the 22nd of last month.
Upon our release, the global economy collapsed along with Russia’s invasion of Ukraine.
Furthermore, because of the shallow initial liquidity, the price has crashed hard and the market has been messed up. Here are what happened.
- Initial liquidity was small at the launch, leading to the situation that small sell from Degenesis created a huge price drop from $0.55 to around $0.3
- The core team did buyback and provided liquidity. Also, the Underwriting Farming and the Liquidity Mining program started
- On 24th, Selling off from mainly newly minted INSURE from underwriting made price drops. The combination of low liquidity and few INSURE utilities made it a huge drop
- Because of the price drop, huge IL, and too high APR on the Underwriting Farming pool, the amount of total liquidity couldn’t grow as we expected
- Continuous sell from the INSURE inflation, the price keeps dropping further to around $0.15
In response to these events, we have done;
- The core team paused the Underwriting Farming reward temporarily, in order to mitigate sell pressure
- The core team deposited an additional $600k of liquidity under $0.15 to prevent a significant drop by small sell
We took some time to analyze our situation and here is the summary of the current situation.
What is happening now?
- Unclear Utility of INSURE
One of the main reasons for the price drop of INSURE is that its utility was unclear.
Although INSURE can be used for Liquidity Mining and can be locked to get veINSURE, those utilities haven’t incentivized users enough to hold or buy INSURE. Therefore, users chose to sell INSURE, while few users bought INSURE without clear utility.
2. Barrier for providing liquidity
Although the Liquidity Mining can be one of the utilities of INSURE, the liquidity on Uniswap failed to become large enough as we expected.
The significant price drop at the launch and the potential impermanent loss discouraged users from depositing liquidity into Uniswap.
Moreover, users had few incentives to participate in the Liquidity Mining when they could earn much higher returns with USDC from Underwriting Farming.
In addition, many users may not be so familiar with Uniswap v3 system, and it may prevent users from participating in the liquidity mining.
As liquidity failed to grow enough, only small amount of sell caused a significant price drop followed by a series of selling transactions.
3. Too much inflation to underwriters
After the launch, Underwriting Farming APR became too high since the actual TVL of underwriting was lower than we expected, while became higher than Liquidity Mining.
In addition, high return farming with USDC didn’t create buy demands for INSURE. Instead, many decided to sell off INSURE for either taking profit or get and deposit more USDC to earn compounded returns.
In short, the current problems are combined and producing bad cycle, causing the low demand for buying INSURE and the lack of liquidity on Uniswap.
Also, InsureDAO’s core team has proposed several improvement measures.
What we will do?
I know we could have done better, there were poor market setups, and the tokenomics didn’t work as expected.
To fix these issues, we need to adjust INSURE emissions to foster the positive feedback loop on price and TVL increments, and not incentivize opportunists. We have already done our first community vote, and the following proposal has already been passed by the community.
1. INSURE Permanent Lock Farming
In order to create the new utility of INSURE, we proposed the INSURE Permanent Lock Farming pool, using a cvxCRV-like token wrapper. The details are as following:
- Once users deposit INSURE into this pool, INSURE token will be locked to INSURE lock contract forever as veINSURE.
- Users get vlINSURE in return, and they will get rewards for locking INSURE permanently.
- Voting power and boosting power of locked INSURE through this pool can be utilised on an official bribe market to be developed.
This new farming creates additional utility of INSURE.
Attractive reward for permanent lock farming incentivises users to buy more INSURE and lock them into the farming pool rather than take profit by selling off INSURE.
Furthermore, this may mitigate the INSURE sell pressure since deposited INSURE into this pool will be locked permanently.
We believe this new farming pool brings a higher locked ratio and average period that is good for InsureDAO.
2. New Liquidity Mining on Uniswap v2
In order to accumulate more liquidity of INSURE/ETH pair in Uniswap pool, we proposed to start the new Liquidity Mining with higher rewards on Uniswap v2.
We would like to choose Uniswap v2 since this enable us to include the Liquidity Mining into liquidity gauge and allocate rewards flexibly from 40% of community rewards allocation. Moreover, Uniswap v2 is simply more user friendly.
We will migrate the liquidity, deposited previously by core team on Uniswap v3, to Uniswap v2. The liquidity of about $500k of ETH and equal value of INSURE will create the buy wall as we created on Uniswap v3, and mitigate the impermanent loss.
3. Adjustment on Rewards allocation
In order to create more utility of INSURE and attract more users to provide liquidity, we proposed to adjust rewards allocation among Underwriting Farming, Liquidity Mining on Uniswap v2, and INSURE Permanent Lock Farming.
The general proposal is to lower the rewards for Underwriting Farming, raise them for Liquidity Mining, and start allocating them to the new program (INSURE Permanent Lock Farming).
As the original plan, 76,712 INSURE / day were distributed to underwriters as reward for the Underwriting Farming till it paused. We would like to propose the two potential rewards allocation for the initial set.
Reward Allocation details
Underwriting Farming: 10% (7,671.2 INSURE / day)
INSURE Permanent Lock Farming: 30% (23,013.6 INSURE / day)
Liquidity Mining: 60% (46,027.2 INSURE / day)
With 10% of rewards allocation, The APR for Underwriting Farming would be around 60% at the current TVL ($0.7M). This APR would become at least around 4% with the current INSURE price when the TVL reaches to $10M, which is still a reasonable APR for the stable farming comparing with other DeFi protocols.
INSURE Permanent Lock Farming would be able to provide 700% APR when 20% of the current total supply (1.2M INSURE) are locked, and 460% APR when 30% of the current total supply (1.8M INSURE) are locked. As the total supply of INSURE increases and more INSURE is locked, the reward becomes more modest, but it would enable users to get more than 50% APR rewards after 1 year at the 20% locking rate of total supply.
As for the Liquidity Mining, we are targeting to accumulate another one million other than liquidity provided by the core team. With 60% of rewards allocation, Liquidity Mining would be able to provide 250% with the current INSURE price when the TVL reaches to $1M. As more liquidity will be provided, price will have more solid floor.
We will try to adjust reward allocation as the above initially by voting by ourselves. However, over time, we expect more Insure user to lock their token,s and our influence on the reward allocation voting decreases. Since we have Gauge Voting system, it is the community to decide the allocation in the future.
Beyond tokenomics
The proposed improvements so far have focused on tokenomics, but essentially we need to develop new features that will allow InsureDAO’s insurance to be widely distributed and used.
InsureDAO is a DAO
Last but not least, we are a DAO. DAO is a new form of organization that allows us to coordinate, exchange ideas, and pursue a common goal.
Our governance has already begun, and anyone can participate in this process. Ideas are already being popping up like offering discounts on insurance purchases and allowing only those who have Locked to participate in Mining. We have adopted some ideas from the community like single staking and decreasing the reward to underwriters.
Also our development team is gradually becoming DAO-driven. Our codes are already open-sourced, and anyone can post a pull request. Our smart contract development was partially done by the community, and that was super-efficient. I believe DAO is the future of working.
I hope we all stand this tough time together and grow together.
About InsureDAO
InsureDAO is a decentralized insurance protocol, allowing anyone to create an insurance pool easily to “Cover every single risk in DeFi space”. InsureDAO provides an insurance builder kit and insurance market. Additionally, we offer the lending function to INSURE token stakers.
If you are interested in learning more, check out our white paper.
Also, you can join us on Twitter, Discord, or Telegram! :)
Twitter: https://twitter.com/insuredao
Discord: discord.gg/8BA5f5rurq
Telegram: https://t.me/InsureDAO
