Main components of Nsure’s “DeFi insurance” are 1) capital pool and surplus pool - based on Capital Model; 2) purchase insurance and underwriting - based on Dynamic Pricing Model; 3) claims - based on Claim Process.
These components interact with each other as below.
Here’s an overview of the economic model from a product-centric perspective:
Capital pool consists of multiple accepted assets, and must be greater than MCR
The Capital Pool plays a central role within the platform to support its core economic activity. NSURE tokens will be issued as incentive for capital providers participating in the pool. For each Ethereum block produced, a certain amount of NSURE tokens will be distributed to all users who are providing capital, in proportion to their share in the capital pool.
The tokens rewarded may be used to 1) stake on the insurance contracts, acting as underwriter within the platform, to provide further capital and share part of the premiums collected; 2) utilize and access various functions within the ecosystem; 3) sell to other users in the secondary market.
The surplus pool will accrue capital each time an insurance premium is paid. 40% of every premium paid will be injected into the surplus pool. 10% of the premiums will be reserved till the expiration of the contract for incentivizing users taking part in the claim process. In the event of having no claim being submitted for a purchased policy, the reserved funds will be relocated back into the surplus pool. The nature of the surplus pool is to grow in size over time, and is intended to be the main source to cover insurance claims. In the event of the surplus pool not being able to fully cover claim payouts at any point in time, the capital pool will act as reserve to cover any outstanding payouts. When the surplus pool grows large enough, the rate of mining rewards will slow down.
As the capital pool, surplus pool, and the number of supported contracts grow, the core use-case of the protocol is designed to increase in both, efficiency as well as capacity for the insurance products at disposal. 40% of all premiums are to be distributed to reward participants in the underwriting pools. This mechanism is expected to act as a natural balance, thus further attracting new participants in order to match the demand, providing the needed capital & capacity to attract even more users.
In the event of having the surplus pool being unable to cover Minimum Capital Requirement (MCR) conditions, participants within the capital pool may encounter partially being unable to withdraw assets from the pool until adequate MCR conditions are restored. This may occur either as the result from policy expirations and/or from the inflow of new funds into the capital pool.
The Capital Model also is used to monitor the systematic risk, and algorithmically mitigate the risk profile for capital pool participants. If capital providers wish to exit capital pool, a 14-day lockup will be activated in order to prevent speculation or any kind of system-abuse attempts. Any capital deduction that may occur during the unlocking period, will be subtracted from the participants, while mining remains on-going until the lockup time is over.
An insurance agreement is generated every time a user purchases an insurance product from the marketplace. The insurance agreement stipulates the insurance risk, the insurance amount, the date of insurance and the corresponding premiums. Users may purchase such products via ETH, “Stable Coins” like USDT, DAI, USDC as well as BTC in chain-compatible format (e.g. WBTC, RenBTC, etc.) . The insurance agreement will become effective after payment automatically.
The policyholders (insured users) will also share a fraction of the capital mining incentives (distributed in NSURE tokens) as a reward for utilizing the platform. We believe this mechanism will support the early days of the platform in attracting increased demand as well as capital funds in order speed up on building the needed backbone-liquidity. In addition, by distributing NSURE tokens to platform users based on utilization rates, it is intended to imply a fair distribution to platform participants.
When insurance claim conditions are met during the insurance term, the platform will automatically initiate a compensation request in order to execute a payout, and one or more voting decisions will be initiated to decide on the grant compensation by NsureDAO members.
Insurance purchase results in an increase in MCR
Nsure tokens may be staked by holders to represent their underwriting decision for products of their choice, receiving 50% of the insurance premiums paid in exchange, which are to be released linearly. The overall staking requirements and rewards are influenced by the Capital Model used as backbone in the platform model, which takes into account the correlation between different insurance products. NSURE holders may choose to stake on as many as interested, and so contributing to the available capital pool, thereby the greater risk taken may potentially result in earning higher returns sourced from premiums.
In the event of a successful claim, NSURE tokens staked on the affected protocol will be burnt to the proportion of the claim payout to total policy limit, as means to share losses resulted at platform level. Below example shows the way it works.
Staked tokens are limited from withdrawal and transfer functions, and tokens are to be released from lockup under request. The terms set for request are based on a 14-day buffer time to unstake/un-lock. During the buffer period, the stake to be unlocked will not be subject to any premium rewards. However, in the event of a successful claim the pending tokens are still subject to underwriting liabilities (e.g. burnt proportionally). This mechanism is intended to avoid any attempts of abuse and or front-running of the model in case of any event based occurrence that may influence participants.
The native digital cryptographically-secured utility token of NSure.Network (NSURE token) is a transferable representation of attributed functions specified in the protocol/code of Nsure.Network, which is designed to play a major role in the functioning of the ecosystem on Nsure.Network and intended to be used solely as the primary utility token on the platform.
NSURE token is a non-refundable functional utility token, which will be used as medium of exchange between participants on Nsure.Network. The goal of introducing NSURE token is to provide a convenient and secure mode of payment and settlement between participants who interact within the ecosystem on Nsure.Network, and it is not, and not intended to be, a medium of exchange accepted by the public (or a section of the public) as payment for goods or services or for the discharge of a debt; nor is it designed or intended to be used by any person as payment for any goods or services whatsoever that are not exclusively provided by the issuer. NSURE token does not in any way represent any shareholding, participation, right, title, or interest in the Company, the Distributor, their respective affiliates, or any other company, enterprise or undertaking, nor will NSURE token entitle token holders to any promise of fees, dividends, revenue, profits or investment returns, and are not intended to constitute securities in Singapore or any relevant jurisdiction. NSURE token may only be utilised on Nsure.Network, and ownership of NSURE token carries no rights, express or implied, other than the right to use NSURE token as a means to enable usage of and interaction within Nsure.Network.
NSURE token would provide the economic incentives, which will be consumed to encourage users to contribute and maintain the ecosystem on Nsure.Network, thereby creating a win-win system where every participant is fairly compensated for its efforts, in particular under the "Capital Mining" mechanism. NSURE token is an integral and indispensable part of Nsure.Network, as without such layer, a mismatch in incentives would occur, e.g. for users to expend resources to participate in certain activities, or provide services for the benefit of the entire ecosystem. Users of Nsure.Network and/or holders of NSURE token, which do not actively participate, will not be eligible to participate in any incentive system rewarding NSURE tokens.