Read on Twitter
A superthread on @CoverProtocol and its unique position in Insurance-related crypto.
Spanning $COVER and $xCOVER, as well as their functional $CLAIM and $NOCLAIM tokens
It's dangerous to go alone! Take this
and join me on this long-thread adventure: 
Spanning $COVER and $xCOVER, as well as their functional $CLAIM and $NOCLAIM tokens
It's dangerous to go alone! Take this
and join me on this long-thread adventure:
Ugly Disclaimers: This thread is not to be construed as financial advice. The info found in this thread is not guaranteed to be accurate. Please DYOR before making any decisions. I have $COVER, use Cover Protocol, & have had some conversations with the devs on the Discord server.
Reskinned Betting Market?
Cover's system is most similar to a betting market, where people can bet whether or not a successful claim will happen for a set event within a set period of time. This is fundamentally different than a lot of the other insurance protocols.
Cover's system is most similar to a betting market, where people can bet whether or not a successful claim will happen for a set event within a set period of time. This is fundamentally different than a lot of the other insurance protocols.
No Personal Proof of Loss
Why is it different? Because coverage holders do not need to prove that they themselves experienced direct loss from the exploit. They’re simply betting that there will be *some* valid exploit. This opens the doors for easier hedging in certain cases.
Why is it different? Because coverage holders do not need to prove that they themselves experienced direct loss from the exploit. They’re simply betting that there will be *some* valid exploit. This opens the doors for easier hedging in certain cases.
Quick Sidenote
There are a few key system differences between a betting market and Cover Protocol. I encourage you to read the protocol docs to fully comprehend the system's mechanics. For one, governance may decide to only pay out a claim up to the maximum exploit losses.
There are a few key system differences between a betting market and Cover Protocol. I encourage you to read the protocol docs to fully comprehend the system's mechanics. For one, governance may decide to only pay out a claim up to the maximum exploit losses.
Primary Losses
Yes, you can expect Cover Protocol to cover normal experienced losses from hacks, rugpulls, minting exploits, economic hacking exploits, locked funds, etc. This is what every insurance protocol should cover at a minimum (if offering only a single coverage package)
Yes, you can expect Cover Protocol to cover normal experienced losses from hacks, rugpulls, minting exploits, economic hacking exploits, locked funds, etc. This is what every insurance protocol should cover at a minimum (if offering only a single coverage package)
Secondary Losses
On top of that, you could also hedge as well. Imagine holding a gov token $APE that’s a part of Gorilla Protocol. Gorilla Protocol has 2 farms: one for $APE, & one for $ETH. You own & farm with $APE, & also buy coverage on Gorilla Protocol using Cover Protocol.
On top of that, you could also hedge as well. Imagine holding a gov token $APE that’s a part of Gorilla Protocol. Gorilla Protocol has 2 farms: one for $APE, & one for $ETH. You own & farm with $APE, & also buy coverage on Gorilla Protocol using Cover Protocol.
Secondary Losses
One day, Gorilla Protocol’s $ETH farm has a massive exploit, but the $APE farm/funds are safe. Everyone panic dumps $APE due to lost confidence. You didn’t experience primary losses, but secondary losses from the dump.
One day, Gorilla Protocol’s $ETH farm has a massive exploit, but the $APE farm/funds are safe. Everyone panic dumps $APE due to lost confidence. You didn’t experience primary losses, but secondary losses from the dump.
Secondary Losses
Most typical crypto insurance platforms will only cover those who experienced primary losses. Because Cover Protocol requires no proof of loss, once the claim is accepted all $CLAIM coverage holders will be compensated the same way!
Most typical crypto insurance platforms will only cover those who experienced primary losses. Because Cover Protocol requires no proof of loss, once the claim is accepted all $CLAIM coverage holders will be compensated the same way!
Wider Coverage
Effectively, Cover Protocol allows for wider coverage than its competitors. When you stake/farm tokens native to the same protocol the staking/farming is in, Cover protects in more ways than most competitors will.
Effectively, Cover Protocol allows for wider coverage than its competitors. When you stake/farm tokens native to the same protocol the staking/farming is in, Cover protects in more ways than most competitors will.
Degen Coverage
Those native token farms typically are the highest yield within that protocol as well, making Cover suitable for degens who are risking a lot for more yield. However, the wider coverage often comes with a higher price.
Those native token farms typically are the highest yield within that protocol as well, making Cover suitable for degens who are risking a lot for more yield. However, the wider coverage often comes with a higher price.
Degen Coverage
Cover Protocol’s structure also makes it much quicker/easier to set up insurance for new, pop-up protocols that are really risky. This gives Cover an early edge over its competitors. https://twitter.com/spadaboom1/status/1357386882175361027
Cover Protocol’s structure also makes it much quicker/easier to set up insurance for new, pop-up protocols that are really risky. This gives Cover an early edge over its competitors. https://twitter.com/spadaboom1/status/1357386882175361027
Degen Coverage
This coverage also enables degens to bet more on a promising protocol since they eliminated exploit & rug risks from the equation. When the downside risks are mostly natural price action and/or FUD, high conviction players will buy more.
This coverage also enables degens to bet more on a promising protocol since they eliminated exploit & rug risks from the equation. When the downside risks are mostly natural price action and/or FUD, high conviction players will buy more.
System & Market Inefficiencies
In its current v1 stage, Cover has a lot of pricing inefficiencies due to its systemic structure. To remain efficient, 1 $COLLATERAL must always = (1 $CLAIM + 1 $NOCLAIM). If you go to their protocol now, you’ll see this isn’t happening often.
In its current v1 stage, Cover has a lot of pricing inefficiencies due to its systemic structure. To remain efficient, 1 $COLLATERAL must always = (1 $CLAIM + 1 $NOCLAIM). If you go to their protocol now, you’ll see this isn’t happening often.
System & Market Inefficiencies
This is due to the protocol not directly tying the value of CLAIM & NOCLAIM together and having multiple sources to acquire them. You can use the CLAIM/DAI pool, NOCLAIM/DAI pool, or mint 1 CLAIM & 1 NOCLAIM for every 1 COLLATERAL.
This is due to the protocol not directly tying the value of CLAIM & NOCLAIM together and having multiple sources to acquire them. You can use the CLAIM/DAI pool, NOCLAIM/DAI pool, or mint 1 CLAIM & 1 NOCLAIM for every 1 COLLATERAL.
Quick Coverage
The quickest, most gas-efficient method is to just buy tokens through the pools, but this doesn’t add liquidity directly and can cause CLAIM + NOCLAIM > COLLATERAL. Therefore you’re buying at a premium.
The quickest, most gas-efficient method is to just buy tokens through the pools, but this doesn’t add liquidity directly and can cause CLAIM + NOCLAIM > COLLATERAL. Therefore you’re buying at a premium.
Minting Coverage
Adding liquidity by minting dilutes the value of coverage tokens so that CLAIM + NOCLAIM < COLLATERAL, as the one minting usually sells either CLAIM or NOCLAIM in order to actually have exposure/coverage. Still overpaying for coverage by selling at a discount.
Adding liquidity by minting dilutes the value of coverage tokens so that CLAIM + NOCLAIM < COLLATERAL, as the one minting usually sells either CLAIM or NOCLAIM in order to actually have exposure/coverage. Still overpaying for coverage by selling at a discount.
Complex Efficient Coverage
Because of these conflicting effects, the current best strategy is a split of the two. Price efficient, but highly gas/txn inefficient. Seems like there’s no real ideal way for big players to buy with volume.
Because of these conflicting effects, the current best strategy is a split of the two. Price efficient, but highly gas/txn inefficient. Seems like there’s no real ideal way for big players to buy with volume.
Liquidity & Efficiency
Because of these efficiencies, it’s hard for the protocol to load up on liquidity to allow bigger players with more volume to buy coverage. Liquidity growth is slower due to the friction of price inefficiency, but still is growing.
Because of these efficiencies, it’s hard for the protocol to load up on liquidity to allow bigger players with more volume to buy coverage. Liquidity growth is slower due to the friction of price inefficiency, but still is growing.
Flash Minting
Here’s where this all gets fixed: Flash Minting. See @chefcoverage’s tweet here for a better description, but basically this new, future revision will cut out the CLAIM pool and makes single txns for easy minting/buying/selling. https://twitter.com/chefcoverage/status/1357041915141763073
Here’s where this all gets fixed: Flash Minting. See @chefcoverage’s tweet here for a better description, but basically this new, future revision will cut out the CLAIM pool and makes single txns for easy minting/buying/selling. https://twitter.com/chefcoverage/status/1357041915141763073
Coupling Price Together
This flash minting recouples the prices of CLAIM & NOCLAIM so they always = underlying collateral. Finally easy, price-efficient purchases! This will help grow liquidity much much faster and flywheel with bigger fish.
This flash minting recouples the prices of CLAIM & NOCLAIM so they always = underlying collateral. Finally easy, price-efficient purchases! This will help grow liquidity much much faster and flywheel with bigger fish.
Realigning Incentives
Not having a CLAIM pool also means no more need to incentivize CLAIM pool liquidity! Beforehand, some were buying and inflating the price of CLAIM by simply wanting to earn the shield/rewards mining - instead of actually just buying for the coverage.
Not having a CLAIM pool also means no more need to incentivize CLAIM pool liquidity! Beforehand, some were buying and inflating the price of CLAIM by simply wanting to earn the shield/rewards mining - instead of actually just buying for the coverage.
Cheaper Coverage
This will likely bring CLAIM coverage back to a more reasonable level, further adding the ability for Cover to gain liquidity!
This will likely bring CLAIM coverage back to a more reasonable level, further adding the ability for Cover to gain liquidity!
$xCOVER
Pretty short and sweet, but soon $xCOVER will be available & similar to $xSUSHI. Stake $COVER and earn a % of protocol fees. This is the first step in making COVER more than just a gov token & increase value with usage. https://twitter.com/chefcoverage/status/1352686218950172675
Pretty short and sweet, but soon $xCOVER will be available & similar to $xSUSHI. Stake $COVER and earn a % of protocol fees. This is the first step in making COVER more than just a gov token & increase value with usage. https://twitter.com/chefcoverage/status/1352686218950172675
V2 on the Horizon
Cover V2 is on the horizon and is actively being audited atm. Not all details are certain or public yet, but it sounds like V2 may include order book style possibilities, then the stuff listed here from Alan: https://twitter.com/chefcoverage/status/1348379842492952591
Cover V2 is on the horizon and is actively being audited atm. Not all details are certain or public yet, but it sounds like V2 may include order book style possibilities, then the stuff listed here from Alan: https://twitter.com/chefcoverage/status/1348379842492952591
NOCLAIM Spread Pool
I wouldn’t be surprised if we soon see a pool that aggregates all NOCLAIM for easy purchasability to average out the short-term risks of buying, instead of manually buying a single/group of protocol’s NOCLAIM.
I wouldn’t be surprised if we soon see a pool that aggregates all NOCLAIM for easy purchasability to average out the short-term risks of buying, instead of manually buying a single/group of protocol’s NOCLAIM.
NOCLAIM Spread Pool
Because such a pool would average out risk and dampen loss of any singular successful claiming event, more market buyers of this NOCLAIM spread pool may appear and further lower CLAIM premiums + drive liquidity.
Because such a pool would average out risk and dampen loss of any singular successful claiming event, more market buyers of this NOCLAIM spread pool may appear and further lower CLAIM premiums + drive liquidity.
Natural Disaster Coverage?
Yes, Cover seems to be on its way to building coverage support for physical world events, such as earthquakes and hurricanes. This is a longer-term play, but all crypto insurance platforms seem to have this as a goal. https://twitter.com/crypto_pumpkin/status/1356861565417394176
Yes, Cover seems to be on its way to building coverage support for physical world events, such as earthquakes and hurricanes. This is a longer-term play, but all crypto insurance platforms seem to have this as a goal. https://twitter.com/crypto_pumpkin/status/1356861565417394176
Natural Disaster Coverage?
I’m sure there will be plenty of kinks to be worked out such as the market finding affordable pricing and depth, addressing speculators driving prices up, and finding reliable on-chain oracles to accurately represent physical world events.
I’m sure there will be plenty of kinks to be worked out such as the market finding affordable pricing and depth, addressing speculators driving prices up, and finding reliable on-chain oracles to accurately represent physical world events.
Non-Crypto Coverage
I could go on for a while about the expansion into natural disasters & coverage outside of crypto & smart contracts, so I think I’ll save it for another thread when more development progress is displayed.
I could go on for a while about the expansion into natural disasters & coverage outside of crypto & smart contracts, so I think I’ll save it for another thread when more development progress is displayed.
Liquidity Is 
There’s a ton of whale/big fish demand for the wide coverage that Cover offers, but they’ve been heavily sidelined for earlier mentioned reasons.
There’s a ton of whale/big fish demand for the wide coverage that Cover offers, but they’ve been heavily sidelined for earlier mentioned reasons.
Liquidity Is
Current Problem -> Coming Solution
High coverage premium -> Rewards mining ending soon, NOCLAIM spread pool?
Slippage from low liquidity -> Flash minting coming soon, liquidity growth from less friction
Current Problem -> Coming Solution
High coverage premium -> Rewards mining ending soon, NOCLAIM spread pool?
Slippage from low liquidity -> Flash minting coming soon, liquidity growth from less friction
Flywheels, Flywheels Everywhere
You’ll notice a pattern on my favorite projects: the flywheel effect. It’s hard to start, but becomes a positive feedback loop that keeps accelerating growth and increasing momentum. @coverprotocol’s liquidity & TVL is no exception.
You’ll notice a pattern on my favorite projects: the flywheel effect. It’s hard to start, but becomes a positive feedback loop that keeps accelerating growth and increasing momentum. @coverprotocol’s liquidity & TVL is no exception.
Survivability & PMF
Cover Protocol could have easily ended upon the recent minting exploit, plus the current market inefficiencies. But its displaying true product-market fit, because despite these challenges it still has people using its product & regrowing.
Cover Protocol could have easily ended upon the recent minting exploit, plus the current market inefficiencies. But its displaying true product-market fit, because despite these challenges it still has people using its product & regrowing.
Value Capture
Capturing value from the growing liquidity and TVL is as simple as taking small, reasonable fees for the service. As mentioned before, $xCOVER does exactly this and is what justifies the value of $COVER to grow with increasing TVL.
Capturing value from the growing liquidity and TVL is as simple as taking small, reasonable fees for the service. As mentioned before, $xCOVER does exactly this and is what justifies the value of $COVER to grow with increasing TVL.
h/t @coverprotocol, @chefcoverage, @crypto_pumpkin, @0xKiwi_, @kryptocucumber, @Teddy9423, @DeFi_Ted, et al.
