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What is Tidal Finance?

What is Tidal Finance? To answer that, let’s first talk about the ecosystem. DeFi platforms have been at the forefront of the expansion of cryptocurrencies over the past summer. The DeFi space’s total value locked (TVL) has grown from a mere 500 million to 9 billion USD in less than six months! Large quantities of money are depositing into various financial protocols offering lucrative returns. Meanwhile, a growing concern for the security surrounding the protocols have never been bigger – up to millions in assets have been lost due to security breaches.

Several innovative companies have been developing protocols with the aim of protecting user’s assets. You might have heard of Nexus Mutual, an innovative insurance provider, who has gained quite a bit of fame in the past few months. However, the actual usage of the platform was unable to keep up to the explosive growth of DeFi. As of right now, there is a huge opening in the DeFi ecosystem with only 3% of the TVL secured.

Image taken from Tidal Medium Article.

To mitigate this problem, the TIDAL team has launched TIDAL, the first balancer like customizable insurance marketplace. The Balancer-like insurance market is built on Polkadot with functionalities to create custom insurance pools for one or multiple assets from multiple protocols. The platform’s design is to be an open market protocol that will maximize capital efficiency helping to attract LPs while offering competitive insurance premiums for buyers. The insurance protocol will empower users to build an insurance protocol that will best fit them!

Image taken from Tidal Whitepaper.

Diving Deeper…

As mentioned earlier, TIDAL is a decentralized discretionary mutual cover protocol that will offer the DeFi community a one of a kind of an ability to hedge against failure of any DeFi protocol or asset. TIDAL will allow mutual cover pools to be created where LPs can then stake their stable coins to provide reserve capital towards any pool they want. By doing so, they will receive the following two tokens in return:

  1. Cover tokens with notional value equivalent to staked capital
  2. TIDAL governance tokens as a mean of incentive for participation in the TIDAL ecosystem

 

Once within the ecosystem, the LPs can then select a pool with various combinations of protocols and tokens that they wish to cover and provide capital. Note that cover buyers can purchase the mutual coverage token for any specific protocol/token that is specified in any of the cover pools. 

As for the cover buyers, the key metrics which include premiums, reserve capital pool and pool insolvency risks will be available. This is to ensure the full transparency and disclosure of the pools. They’ll monitor all the parameters in perpetually to ensure high quality and safety. As for LPs, the metrics which include return on deposit capital, loss-of-principal risk and lock-up period will be given to further evaluate the various return rates and risks among various pools. 

Let's talk more about the Key Players:

So there’s a few different ways that you can participate in the Tidal ecosystem. Let’s talk a little more about the roles that you can play:

Guarantor

The Guarantors have the ability to stake in the Guarantor’s Reserves in order to guarantee a given protocol. The reserves will have a higher priority in the event of paying out a valid claim against the guaranteed protocol. There is also the possibility of receiving extra yield! The protocol teams will receive incentivize to provide Guarantor Reserves for their very own protocols!

Liquidity Provider

LPs are users that are staking the stable coins as an insurance reserve capital with an intention to generate premiums on their capital in exchange for providing coverage for a specified insured event(s), or a low rate of protocol failure.

Cover Buyer

The cover buyer are users or entities that wish to purchase TIDAL cover tokens generated by TIDAL LPs. They are equivalent to insurance policyholders, and are beneficiary of the payout policy of the cover token purchases.

Pool Creation and LP Participation:

They can create insurance pools on the platform by simply selecting one or more contracts to cover. An example of this is an insurance pool that can be a mix of different coins from different platforms (Compound DAI, Uniswap ETH, Aave YFI, Balancer ETH, etc). Pool creators can also select any asset from any platform that is currently on the market. Creators can also set up the coverage duration, leverage ratio, etc, to best suit their needs. Once they finish the initial setup, a vetting process will occur to assess the insolvency risks. Once they examine and assess the risks in the pool have, the product will be able to enter the market and LP and insurance buyers can interact.

Pool Statistics and Ranking

The’ll display pool statistics and monitor it to help LPs and buyers to select products that best fits their needs. The users can also view the pools by a ranking order with weighted averages of all the different metrics for the pools.

Controlling Algorithm

In order to avoid insolvency, TIDAL will provide pool creators with sets of guidelines to mitigate the risks in each pool. They accomplish this via several controlling algorithms they initiate at launch. A few rules they’ll implement include:

  1. The risk exposure level cannot go above a certain level, dependent on the correlation of contracts inside the pool, and the assessment of risks for the assets;
  2. They’ll flag certain coins due to their un-audited status which will limit the level of exposure from LPs capital;
  3. The duration would also have a limit of weeks instead of years, compared to traditional insurance products, due to the speed that the DeFi landscape changes.

Payout Assessment

The payout assessment is governed by the community. When a claim occurs, the assessment will be made by TIDAL token holders who stake tokens during their assessment process. The majority of votes (above 70%) will decide the result in payout. To make sure things are done accordingly, the auditors from the protocol team will also perform a final check. If they deny a result, a second round of voting will occur including all TIDAL token holders.

Let's talk about the tokens

There’s two different tokens on the TIDAL Protocol. These two tokens include the TIDAL cover token and the TIDAL governance token. Both of the TIDAL tokens will first be tradeable as ERC-20 tokens. You can swap tokens to a Polkadot equivalent standard in the future.

The Cover Token

The TIDAL cover token will entitle the owner the ability to receive a mutual coverage based payout in the case of the failure of covered protocols and assets. The tokens are a form of digital contract and proof of coverage.

The tokens have the following attributes:

Notional Value
  • The notional value of the cover provided. The amount the holder of the token will receive after triggering and resolving the mutual cover claim process.
Expiration Date
  • The final day in which protocol failure can trigger the mutual cover claim process.
Last Claim Date
  • The final day when the covered claim process can be initiated.
Last Payout Date
  • The final day in which the cover token holder can redeem the payout from an approved claim payout.

The $TIDAL Token

Having talked so much about the cover token, let’s talk a little about the $TIDAL token! The $TIDAL token will be the main currency they use to operate and govern on the TIDAL platform. The design of the token is to reward pool creators, LPs, and early insurance buyers to quickly adopt the product.

Protocol Fees

The holders of the TIDAL token are entitled to receive a portion of the fees generated on the TIDAL protocol. The majority of fees they generate on the platform will deposit into the Treasury Wallet. This will serve as an emergency backup fund in case an insurance pool runs out of reserves to pay out claims. So a certain percentage of fees will distribute to TIDAL token holders as a form of profit sharing and incentive for users to be active in the ecosystem. The percentage of fees they distribute to token holders will dynamically adjust depending on the level of current funding in TIDAL Treasury Wallet and total liability of all insurance pools. Hence, the rate of distribution to token holders may increase if the Treasury fund is under leverage or even reduce if the Treasury fund is over leverage.

TIDAL DAO

The TIDAL governance model allows all stakeholders to propose, vote, and implement changes to the protocols. This transparent and collective governance model allows everyone’s voice in the community to be heard. The long term holders of the TIDAL token will also have the ability to vote on key governance issues including: 

Voting on protocol guidelines and updates, including:

  • Risk assessment controlling algorithms
  • Assessment payout and processing methods 
  • Audition processes

Voting on premium distribution

Once a user submits a proposal, the TIDAL community can submit votes during a 7 day voting period. If they reach the minimum threshold of votes, and there are more affirmative votes than negative votes for the proposal, it will then queue into execution and implement after 14 days.

Conclusion

Insurance is a fundamental infrastructure in the traditional financial systems. With the continual growth of DeFi and the growing mass adoption of cryptocurrencies, the need for insurance will be greater than ever. As a multi-chain open market and programmable insurance platform, TIDAL empowers users with the ability to create their own insurance pools and put their assets in their own hands. Moreover, with the tremendous experience behind the TIDAL team, TIDAL is set to succeed and become the de facto standard for insurance for DeFi. 

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