TIDAL is a decentralized discretionary mutual cover protocol that offers the DeFi community the ability to hedge against the failure of any DeFi protocol or asset. By directly leveraging up the reserve to cover multiple protocols at the same time, the enhanced capital efficiency attracts liquidity providers (LPs) while a competitive insurance premium attracts buyers.
Tidal primarily consists of insurance purchasers and sellers. Since pure peer-to-peer matching platforms on an individual bases have failed to gain traction in areas related to both lending and insurance, Tidal pools capital from sellers to offer covers to purchasers. This allows for higher capital efficiency as the same reserve backs more covers than can be individually paid out and also eliminates a peer matching process resulting from double coincidence of wants.
Capital pooling is known to be very efficient as well as effective as the probability of every protocol that an insurance provider covers is very low. However, this also requires proper risk management to reduce the chances of bankruptcy and consequent default on the insurer's front while also charging insurance purchasers an appropriate premium to account for the risk they transfer to the insurer.
Tidal achieves this balance by maintaining several Insurance Pools where each pool is a collection of protocols that its reserves back. When an insurance seller (also called a liquidity provider or LP) adds capital to an Insurance Pool, he chooses one or more protocols his capital should cover. The more protocols he chooses to cover, the higher is his income as he receives premiums from each of them. Similarly, his risk increases proportionately as an incident with any of the protocol covered leads to the LP losing his share in the reserve to a payout (following a successful claims process). An insurance purchaser can rest assured that the capital backing his cover is only over-leveraged to the extent of the protocols in the same Insurance Pool.
All Insurance Pools are initially designed by the development team. However, as the protocol matures we expect the DAO to be able to make such decisions.
Interactions with smart contracts carry several risks and this risk is unlikely to ever be completely eliminated. After all, in over three decades of the web's existence, we still haven't gotten risks of viruses, malwares and other cyber security risks. However, unlikely the web, smart contracts natively store millions and collectively billions in value. Due to human error or zero-day vulnerabilities, we expect users of decentralized apps to always be at a risk of losing their assets stored in such platforms leaving them in a state of constant fear and reducing adoption at large.
Our vision is to cover every Web 3 user against the risk of any intentional or inadvertent smart contract attack or bug. We aim to do so by efficiently allocation capital and managing risks such that insurance purchasers need to pay as low a premium as possible while insurance sellers gain competitive interest rates for the risks they undertake.
Ultimately, while we think Web 3 in itself has a large market size which will only grow with time, it is also belief that the transparency and equal opportunity offered by blockchains and open-source composable protocols such as Tidal are well placed to outcompete traditional monolithic institutions. Insurance companies are fraught with tedious claims processes and issues related to mismanagement of capital. Tidal, in the long term, will not only cover smart contract related incidents but will also seek to disintermediate the trillion-dollar traditional insurance business with it s crowd-sourced risk management models and capital pool.
Tidal offers a number of innovative and unique features:
Over-leveraged insurance pools A set of protocols all backed by a common over-leveraged reserve to increase capital efficiency.
Guarantor Fund Funds allocated by core teams of protocols backed by Tidal to insure their users solely utilized for payouts related to their own protocol.
Non-native token Staking Pool Holders of protocol tokens insured by Tidal can contribute to the Guarantor Fund to receive both premiums against insurances sold against that protocol and also Tidal Insurance Mining rewards.
Tidal Staking Pool Tidal tokens can be staked in a pool to act as an insurer of last resort for Tidal staking rewards.
Auto renewals Insurance purchasers can pre-fund their wallets and have their cover be auto-renewed on a periodic basis.
Investment of reserves Capital efficiency is further enhanced by investing the funds present in reserves in a set of whitelisted protocols like Compound and funds like Metacartel, the LAO etc similar to traditional insurance businesses.