Decentralized Insurance upgrade: continuous staking and unstaking
The same, but better!
After the initial successful launch of decentralized insurance contracts and pools, we would like to “turn on” more features to the decentralized protection and introduce such protection for the smart contract risk.
We are happy to launch a protection pool with continuous staking and unstaking via the secondary market.
We propose insurance liquidity mining only for stakers who put their stakes on AMM (OPIUM_LP_34b7 — USDC pair); thus, they will earn: 1) insurance premiums, 2) trading fees of the 1inch AMM, 3) $Opium governance tokens.
We are happy to launch a protection pool with continuous staking and unstaking via the secondary market.
It is a win-win situation as stakes (provided protection) will be directly liquid. You don’t need to wait until the maturity of a contract anymore to unstake your funds. Simultaneously, stakers will get more rewards from various sources, and arbitrageurs can make sure that the market defines the provided protection price.
Since there is no need to run multiple pools for the same underlying asset anymore, we will suspend 4 USDT-protection pools. We kindly ask you to unstake your funds from the aforementioned pools and move them to the new continuous pool from which users can opt in and out at any time. It also has higher rewards following users’ voting on our governance forum.
We don’t want our users to be hostages of this upgrade, so we A) propose to continue limited liquidity mining for old pools in case somebody was not able to quit on time, and B) the team has set the exit fee to zero, based on the feedback provided by the community.
How it works
By staking into the protection pool, you stake against specific risk (USDT solvency or specific smart contract risk), expecting a return from buyers of that protection. At the moment, the community decided, and the team implemented $Opium tokens mining program for staking pool participants.
We propose liquidity mining rewards for only stakers who also put their stakes into AMM; thus, they will earn 1) insurance premiums, 2) trading fees of the 1inch AMM, and 3) $Opium governance tokens!
When your stake is utilized, you protect somebody so that immediate unstaking option would destroy his/her position. At the same time, in the financial markets, it is common to liquidate a position via the secondary market. By doing so, you resell your stake on the open market and quit with the fair market price. You can still redeem your stake at Opium according to the oracle one day a month but can also resell your position 24/7 to the dedicated AMM. Good news, you will not need to do any trading; the secondary market is embedded behind the “unstake” button on opium.finance
Make sure to always check the exit price before you unstake!
How do you know that the exit price is fair?
Make sure to always check your exit price! We incentivise liquidity providers to place their stakes into the AMM (1inch pools are behind); they are in a much better position than before because they will receive additional trading fees (that are higher on 1inch than on most of AMMs) and will not run significant impermanent loss. Usually, the stake’s price should be “at par” if there is no default.
You can still unstake your position on the rebalancing day as before, but now you can also opt for exits via the secondary market any time. It is the same, but better!
Suppose that AMM price is unfair, let’s say 80% of the nominal stake. Remember, we still have one day of rebalancing at Opium, during which you can redeem the stake at the fair value, according to the oracle directly from Opium. In this case, anyone who buys the stake for 80% of its par value would be able to redeem that stake for 100% (given no default of underlying) at Opium during this rebalancing day and directly earn a significant return. Just the same way arbitrageurs are making sure that the price on Uniswap is in line with the market, they will bring the price of the protection stake to fair value.
Just the same way arbitrageurs are making sure that the price on Uniswap is in line with the market, they will bring the price of the protection stakes to fair value.
However, if there is a default event (or default expectations), your stake may be traded with a discount that reflects those expectations. That is why tradable insurance (CDS) is normally used as a market perception of risks in traditional finance. Traders and economists look at the CDS market to learn what is “priced in” by the market. Secondary market shows how market professional (such as arbitrages, market makers and hedge funds) assess the probability of default for the certain issuer. Thanks to our contracts, it is now possible for DeFi as well!
You may also be smarter than the crowd and buy undervalued stakes to redeem them at par or purchase protection if you expect default with consequent payout at the rebalancing date.
What about buying a protection?
Buying a protection still works the same way; we got excellent feedback and didn’t want to change anything there. We would love to get your feedback on the aforementioned design update. Should we keep it or go back to the the old one?
We believe that this is a better overview of available products on one page.
Liquidity mining
We suggest liquidity mining for stakers (providers of protection) is applicable only for those who put their stake at the AMM.
Again, this is a win-win situation for all those involved: stakers receive an additional return with typically zero impermanent loss and can stake/unstake at any time.
Everybody is winning: stakes receive an additional return with typically zero impermanent loss and can take/unstake any time.
The liquidity mining campaign will start at 13:00 EST / 18:00 UTC on 7 March 2021.
Stay tuned
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