Solace.Fi
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Solace.Fi

Solace Wallet Coverage is the Most Efficient Insurance in Crypto — Here’s Why

Before Solace Wallet Coverage, insurance options were severely limited for users. For years, users only had the choice to buy individual cover for each DeFi position they had, forcing them to choose a static limit of insurance value and amount of time the insurance lasts.

Everything changes with Solace Wallet Coverage. Get one policy for your wallet and insure your positions for over 180 DeFi protocols across Ethereum and Polygon (with plans to insure more chains). The coverage lasts as long as you want it to, and it only charges for the insurance you use. Solace Wallet Coverage a total game changer.

Competitors tried to make similar insurance products, but they couldn’t come close to the ability that Solace Wallet Coverage has.

Solace Wallet Coverage Explained — Discover how SWC dominates the competition

Wallet Cover is Cheaper than “Stacked Cover”

When push comes to shove, getting Solace Wallet Coverage will almost always be a more affordable solution than buying insurance for each protocol you have. The reason is because of Solace’s revolutionary risk assessment process, which focuses on pooling a wallet’s risk rather than stacking it.

“Stacking Coverage” means having to buy one cover product for every single DeFi position and “stacking” your insurance.

By aggregating risk loads by protocol category instead of by each protocol, Solace can diversify risk and create an average discount between 10 — 20% for an account with multiple positions. Therefore, the total premium for an account ends up being cheaper than buying cover for each position in the portfolio.

How Does Solace Do Risk Assessment?

Let’s dives into the risk assessment process and calculations taken to bundle coverage. If you want to dive into the details of the process, check out the related docs page here.

We will divide the process into two steps:

  1. Data preparation
  2. Calculating risk rate for user portfolio

When a user requests an assessment for his portfolio, Solace pulls information about their portfolio and the value of funds in each protocol. The information about the risks of each protocol is calculated in advance, and Solace is able to calculate final risk rate for the portfolio.

Data preparation:

Step 1: Collect risk related information about projects

Solace uses several sources of information to get diverse risk-related information about DeFi protocols. Specifically, we’re interested in the following attributes:

  1. TVL
  2. Live chains (e.g. Ethereum, Polygon, etc.)
  3. Number of users
  4. Transaction activity
  5. Age of protocol
  6. Audits

Each attribute has its own weight coefficient in total risk estimation. If Solace can’t find the information about a specific protocol, then it will be classified as unknown and therefore in the highest risk tier (F).

Step 2: Process data and provide a risk rank for each protocol

Solaces calculates an adjusted weight coefficient for each attribute, which helps calculate the risk ranks. This table is updated continuously based on new risk manager reports.

Step 3: Calculate the Inter-Category and Category Internal Correlation Tables

Solace uses statistical approaches to take into account possible explicit and implicit risk connections of different DeFi categories and protocols. In order to do so, we need to introduce two new entities to our explanation:

  1. Inter-Category Correlation Table (ICCT)
  2. Category Internal Correlation Table (CICT)

Inter-Category Correlation Table

Each DeFi categories has its own peculiarities in logic, implementation, tools and mechanics. So theoretically, different vectors of attack will be used by hackers to hack protocols of different categories. However, there are a lot of commonalities between different projects, even if they are from different categories.

Moreover, DeFi projects of different categories might be interacting with each other in a different ways, and hacking one project can have a big influence on other projects.

Let’s consider an example of how to create an ICCT:

  1. Lending-Lending = 1, (a maximum of correlation with itself = 1)
  2. Lending-AMM = 0.1 (low impact)
  3. Lending-DEX = 0.2 (moderate impact)
  4. Lending-Derivatives = 0.3 (high impact)
ICCT example using four of the seven categories

Category Internal Correlation Table

The Category Internal Correlation NxN Table has the quite same meaning but within the same category. Values in cells can answer the question: “What is the probability that hacking product A could have a negative impact on the security of product B?”

CICT example for Maker, Compound, Aave, and Cream

As you can see from the table example, all cells, except the diagonals, are populated with 10% (0.1). This means that there is no obvious strong correlation between the risks of a different protocol. But how did we calculate all these values?

In this example, we make an assumption that lending protocols have low inter-connectivity of risks between each other, so we populated the table with 0.1 in those relationships. It’s an assumption and coefficient for each pair theoretically should be calculated by the Rating Engine.

Calculating risk rate for user portfolio

Once data preparation is complete and the ICCT and CICT are calculated, we move to calculating the risk rate for the entire portfolio.

Step 1: Getting portfolio information via Zapper API

At this step, Solace requests the following information:

  1. Which DeFi protocols does the user have funds in?
  2. How many assets does the user have in each protocol?

Step 2: Calculate risk and price rates for the portfolio

Solace pulls the risk rate for each protocol (from the Data Preparation step) and weighs it with assets amount in each protocol.

Step 3: Recalculate risk rate considering diversification

Thanks to risk aggregation by category and not individual protocol, Solace can sell more insurance for less to every user that buys Solace Wallet Coverage.

If you want to dive into the details about Solace’s Risk Assessment, check out the Protocol Design documentation here.

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0xnimz

0xnimz

Head of Growth @ Solace | USC Grad Student | writing ✍️ | musician 🎸