A Bucket? The Spartan Bucket!
What is a Bucket?
Unslashed Finance offers its users a way to gain coverage and protection for a wide range of products, markets, and protocols. This coverage and protection is purchased by the user, and is insured through other market participants that supply capital to the platform. These capital suppliers are able to participate by contributing Ether (ETH) to various Buckets or through specific, individual pools found on the unslashed.finance app.
Buckets allow capital suppliers to provide insurance coverage for a number of pools/policies as opposed to providing coverage to one specific pool/policy (found in the capital pools page).
Pictured above, is “The Spartan Bucket”. This Bucket consists of several specific coverage pools, allowing the user to provide coverage for a handful of products/risks with a weighted balance.
Based on the depositor’s risk appetite, they can choose different Buckets with different risk profiles.
Structure and ideas behind the Spartan Bucket:
The Spartan Bucket is the first structured insurance product listed on Unslashed. It allows entrants both low-risk and diversification for their deposits. The Spartan Bucket contains the following:
- 6 Centralised Exchange (Loss of funds policy): Coinbase, Binance, Kraken, Bitfinex, Bitmex and Deribit
- 2 Wallets: Ledger Hardware and Gnosis SAFE
- 8 DAPPs (Smart Contract protection policy): Uniswap, Compound, Melonport, Kyber, Deversifi, dYdX, MakerDAO and Paraswap
- 1 Oracle (oracle failure policy): Chainlink
- 1 Validator on ETH 2.0 (slashing protection policy): Lido Finance
- 3 Custodians: Ledger Vault, Coinbase Custody and Bitgo
- 4 Peg loss-related protections: wBTC, USDT, DAI and USDC
This diversification over different insurance policies allows the user to have limited exposure to one single risk. The maximum exposure to a single policy is decided and voted on by the Unslashed DAO and can be updated individually for each policy and each Bucket. The Spartan Bucket has a default maximum exposure of 5% per policy, which can be adjusted by the DAO through majority vote for each individual policy and is subject to change over the lifetime of the Bucket.
New policies could be added to an existing Bucket and existing policies could be removed from said Bucket. This would be subject to a governance vote by the Unslashed DAO.
How they work:
These Buckets allow the user to deposit ETH in order to provide coverage for a range of risks/protections. The different categories range from Custodian, Wallet, Exchange, DAPP, Validator, and Oracle.
Custodian: A custodian is an entity that safeguards or holds a user’s funds. This type of coverage protects against a direct hack/draining of the funds held by the custodian. These custodians generally have high levels of security, so the risk is lower.
When the custodian is already insured (which is the case for Coinbase Custody, BitGo and Ledger Vault), the policy listed on Unslashed would specify that it will only compensate the losses in excess of the Custodian’s insurance policy. Meaning the Custodian’s insurance is the first to take the loss then the Bucket might pay for what remains. This limits considerably the Spartan Bucket’s risk exposure.
Wallet: A wallet is anything that stores a user’s funds without the use of a custodian. It can be a hardware wallet or a software wallet. Unslashed policies in this category would cover large scale exploits in the product’s firmware or software.
Phishing attacks (similar to what is happening with the Ledger database leak) or individual hacks (similar to what happened to Nexus Mutual’s CEO) are not part of the scope of this policy.
Exchange: An exchange is an entity that provides custodial services, but also provides a marketplace for trading to take place. Users’ funds are generally accessible in “hot wallets” while the exchange often stores funds in cold wallets. Exchange hacks happen, and often result in loss of user funds unless reimbursed by the exchange itself.
Our policies regarding exchanges would cover hacks and political events (governments seizing funds for example). The policy listed on Unslashed will specify it would only compensate the losses that might have not been compensated by the Exchange’s insurance or SAFU Fund. Bitmex, Deribit and Binance have insurance funds/SAFU funds. Coinbase, Kraken and Bitfinex have their own insurances.
DAPP: DAPPs, or decentralized applications, are products that are built on various blockchains that allow the user to perform operations on-chain. They are based on smart contracts that can have vulnerabilities which often result in the loss of user funds.
In the Spartan Bucket, the covered smart contracts have a history of being battle-tested over long periods of time, which allow us to consider them for our low-risk Bucket.
Validator: Validators exist to verify incoming on-chain transactions and secure PoS (proof of stake) blockchains. On PoS blockchains, the assets staked can be slashed if the validator misbehaves. The slashed percentage varies from one network to another and from one type of misbehaviour to another. On Cosmos Hub, for example it is around 5% while on ETH 2.0, it is 10%.
Oracle: Oracles are essential to many DeFi platforms. They provide a price point in which many contracts call upon to retrieve price data in real time. A malfunction in a price oracle would be an example of a covered event. Any losses incurred by the users in such an event would be covered.
Supplying capital to a Bucket:
There are benefits to supplying capital to a Bucket rather than choosing a specific, single pool. By supplying capital to a Bucket, capital suppliers are able gain exposure to a handful of different pools and enjoy an optimized APR.
The Bucket has a premium APR percentage based on the protections offered, amount of capital provided, and premiums paid by the cover buyers.
In order to access these Buckets, the user will need to take the following steps:
1. Access the “supply capital” tab on the application’s interface
2. Click the “view details” tab under the specific Bucket the user wants to provide liquidity to.
3. Choose “supply capital”
4. Finally, the user will choose how much Ethereum (ETH) they want to deposit and choose “supply capital”
Once capital has been supplied, the user will now be actively providing protection for all of the policies contained in the Bucket.
Capital suppliers will earn ETH from premiums paid by those wishing to acquire protection/coverage for specific risks, along with governance token rewards from capital (liquidity) mining.
Buckets vs. Specific Pools:
As stated previously, Buckets offer capital suppliers a way to gain exposure to a handful of risk coverages without having to enter each individual pool; reducing gas costs, tx fees, etc., allowing users to monitor their coverages in one convenient location while maximizing their potential yield. They also offer users a more efficient use of the capital they provide by taking into account the correlations between the different policies. In the near future, the supplied capital will be utilized to generate additional yield..
Specific pools allow capital suppliers to provide coverage for one specific policy. This allows users to manage their risk with a narrower scope and either maximize or minimize earnings, based on that risk profile.
There are advantages and disadvantages to both approaches. Unslashed Finance offers its capital suppliers the flexibility to choose exactly which products they wish to insure whether it be through a Bucket or individual pool; a flexibility that has until now, been desired by many, but offered by none.
In summary:
As the decentralisation of finance continues to grow, so will the risks, attacks, and potential loss of users’ funds. The need for fully comprehensive insurance against these risks will grow as well. Unslashed Finance meets this need, without exposing its suppliers of capital to impermanent loss, inefficient staking, long lock-up periods, lack of liquidity, etc. Not only is this need met, but it is simplified through the introduction and implementation of the Capital Buckets. Through these Buckets, Unslashed Finance is able to offer an insurance product that is structured to provide exposure to multiple policies based on a risk profile and at the same time optimise the resulting yield.
Read our Manifesto and understand the spirit and principles behind what we are doing:
LEARN MORE ABOUT UNSLASHED FINANCE
Website: https://unslashed.finance
Team: https://unslashed.finance
Capital Mining: https://link.medium.com/buZvUyy9Vcb
Twitter : @UNSLASHEDF
Telegram: @UnslashedFinance
Discord: https://discord.gg/jQFxqTpbYC
Contact : @marouaneh
