One of the main problems that TIDAL Protocol is trying to solve is the lack of accessible insurance products in the rapidly evolving DeFi market.
Due to the nature of DeFi, newly created platforms, protocols and assets can be self-published at lightning speed, around the clock. It’s very difficult for a centralized auditing authority to keep up with the speed, and breadth of the DeFi market.
Thus, in order to provide insurance coverage to DeFi products, TIDAL must provide the proper incentives for bootstrapping reserve capital in any liquidity pool in a decentralized fashion. Liquidity mining will be adopted as the capital bootstrapping incentive program.
One of the major TIDAL innovations is introducing the Guarantor’s concept and creating multiple levels of capital reserve: Guarantor’s Reserve, LP Reserve and Tidal Treasury Reserve.
Every protocol covered by TIDAL will be encouraged to seek Guarantors to stake Guarantor’s Reserves. In case of any payout Guarantor’s Reserves will be used first before any capital provided by LPs are utilized. Guarantor’s will be compensated for the risk they are taking by collecting a percentage of all premiums paid for specified coverage. TIDAL Protocol will incentivize the teams behind protocols to provide Guarantor Reserve, creating a positive synergy for other LPs to feel more confident in providing additional liquidity.