Buckets are a key feature and strong innovation from Unslashed Finance.
This package of different policies offer many advantages for Capital Suppliers.
- The Bucket allows users to supply capital while maintaining relatively comfortable risk diversification.
If there’s an event resulting in a claim on one of the policies within the bucket, the user is only impacted on that specific policy, and not on the entirety of the capital supplied to the bucket.
- The bucket also enables capital efficiency.
It allows users to cover more ETH within the bucket than within a specific pool with the same capital, allowing them to earn more premiums.
The only drawback?
You can’t choose which specific policies you can and cannot provide coverage for.
Luckily, Unslashed Finance offers users the ability to customise risk exposure.
If you’re concerned about specific risk exposure and want to look for ways to mitigate the risk of some of the policies you are providing coverage for, Unslashed Finance has a solution.
Hedging and The Spartan Bucket
The Spartan Bucket contains 24 (with more to be added in the future) different policies.
Although most of the policies in this bucket are deemed low-risk, different Capital Suppliers might have different risk perceptions. So should a user have the desire to avoid risk on a specific policy found within the bucket, Unslashed Finance allows them to hedge against that individual policy’s risk.
When users purchase coverage for a policy found within the Spartan Bucket, capital suppliers are exposed to the risk of that policy. In other words, capital suppliers are long the Spartan Bucket.
So, how can this risk be managed?
Users can buy insurance on either one or multiple policies (in case they have concerns about a policy or several policies found within the bucket).
In other words, they can stay long the Spartan Bucket and short some specific policies.
They will continue earning the premiums from the Spartan Bucket and at the same time, pay a smaller amount of premiums to be short some policies they don’t want to have exposure to.
So, what does managing risk exposure look like?
When users supply capital to The Spartan Bucket, they inherit risk associated with the 24 policies found within the bucket.
For example, if you deposited 1 ETH into The Spartan Bucket, you would now have 1 ETH exposure distributed between the 24 different policies.
A way to hedge against this, is to focus either on one specific policy, or a number of policies that you feel might be too risky, by purchasing coverage.
By doing this, you are now not only long on the risks found inside The Spartan Bucket, but also short on those specific policies.
In the event of a claim, where you would normally see your ETH used to pay out on the claim (if you didn’t purchase coverage for it), you are instead now hedged and will receive payouts on that claim, offsetting any losses.
Customisation and risk exposure: Why it’s so important to us
At the end of the day, we acknowledge that risk perception is different and that Capital Suppliers need to have the choice and pick their own risk exposure. As expressed in our Manifesto, one of our core values is freedom and it is of utmost importance to give users a choice. If there’s a policy in The Spartan Bucket that they don’t feel comfortable providing coverage for as a Capital Supplier, then they shouldn’t have to worry about being exposed to it.
We recognise this, and allow users to purchase specific, individual coverage in such situations so that they can rest easy knowing that they are covered on both sides of the fence.
Enjoyed this piece? You might also want to read about our cover mining program, click on the link below!
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