Economic Security Model
Last updated
Last updated
Insurance Pool Funding: The insurance pool, designed to cover potential losses, is initially funded with 7% of the total DXTR token supply. Additional resources come from revenue generated by the Decentralized Autonomous Organization (DAO) associated with Dextr and from penalties imposed on entities engaged in fraudulent activities or making invalid claims.
Underwriter Pool: This pool is financed by underwriters who contribute capital in exchange for a share of the protocol’s revenue. Underwriters absorb risks by providing coverage for various potential losses within the system, with their risk exposure capped at 5-10%. This cap allows underwriters to effectively manage their risks while still benefiting from the profit potential of the protocol’s activities. This arrangement enables the protocol to offer insurance and similar risk mitigation services without assuming all potential liabilities, creating a sustainable risk distribution model.
Compensation Eligibility: For trades involving non-DXTR pairs, only users who have staked DXTR tokens prior to the transaction are eligible for compensation from the insurance pool in the event of losses due to MEV. This staking requirement incentivizes the holding and use of DXTR tokens while managing the risk and sustainability of the insurance pool.
Solvency and Token Demand: This system design not only aims to protect users from MEV risks but also ensures the insurance pool’s solvency through penalties. Furthermore, this mechanism enhances the utility and demand for DXTR tokens, as holding and staking these tokens directly correlate with access to insurance benefits.
Here's how Insurance Claims process works:
