Protection on USDT solvency
The trading phase has been started, you can hedge your USDT exposure now
Key points
- You can get insurance on the price of USDT
- Insurance will be paid by the smart contract if the USDT price is less than $0.95 at the end of the contract
- Duration of Insurance: monthly contracts, the first contract matures on the 11th of February 2020
- Price of the Insurance: starting at 3% gradually increases together with the utilization of the insurance pool
Introduction
In the previous article, we have introduced tokenized and an extremely flexible decentralised analog of insurance. Here is a detailed explanation of how to use it.
Opium soft-launched its first limited insurance pool for USDT solvency last week, the sell-protection side of the pool was filled within a matter of minutes and now it is possible to take a buy-side position (buy protection) to hedge your USDT risk.
How it works
Users may choose the amount they want to cover with the protection and they will get a price quote. The price will gradually increase from 3% APY together with the insurance pool utilization, so the first buyers get a nice quote. The fewer funds are available in the pool for the protection the more expensive it will be to hedge. However, 15% APY is the most expensive protection of this pool and it is still very competitive with the current market of DeFi.
The interface is straight forward. While the sellers have already received tokenized positions of the protection pool, every buyer of the protection will receive a long position that can be traded on the secondary market (ERC20 DEXes such as Uniswap or 1Inch). You can see your positions directly in the interface:
If there is an insurance event (in this case, USDT will be traded below 95% of USDC) you could claim your coverage with the same interface.
More about terms and epochs
For this specific contract, maturity is one month. We call it epoch and align with liquidity pre-mining campaign.
For a few days at the beginning of each epoch users can stake their funds into the pool that is selling protection, it called the staking phase. Then for the next two weeks, hedgers can buy protection for any amount they want to be covered. This phase of the epoch is called the “trading phase”.
Any time of the epoch both types of users can trade their tokenised sell/buy protection positions on the secondary market at the market price (e.g. Uniswap).
At the end of the epoch, there is the maturity of the contract, and payouts are done automatically, if there is no insurance event sellers may withdraw their share of funds plus collected premiums. They may also decide to keep their share for the next epoch and do nothing. In the case of the insurance event still has a place at maturity sellers' funds will decrease by the coverage that is directly paid to buyers.
The high-level overview of how the insurance works, you can read in our earlier article.
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