Stablecoin Insurance Protocols: Hedging Against Depegging

Detailed Instructions

Users initiate the process by connecting their wallet to the insurance protocol, such as InsurAce or Nexus Mutual, and selecting a stablecoin depeg policy. They specify the coverage amount, duration (e.g., 30 days), and the stablecoin (e.g., USDC, DAI). The premium is calculated based on the risk assessment of the underlying stablecoin, which considers factors like collateralization, issuer credibility, and market volatility. For example, a 1,000 USDT policy for 30 days might cost 0.5% of the value.

• Sub-step 1: Select Coverage Parameters: Navigate to the protocol's dApp and choose 'Stablecoin Depeg' from the product list. Input the desired coverage amount (e.g., 5000 DAI) and term length.
• Sub-step 2: Review Premium Quote: The protocol's smart contract will return a dynamic premium quote. For instance, premium = coverageAmount * annualRate * (termDays / 365).
• Sub-step 3: Approve Transaction: Sign a transaction to pay the premium in the protocol's native token or stablecoin, and receive an NFT representing the insurance policy in your wallet.

Tip: Premiums are non-refundable and policies are often non-transferable. Always verify the smart contract address, such as 0x8C28Cf33d9Fd3D0293f963b1cd27e3FF422B425c for a sample protocol, before approving.

Detailed Instructions

The protocol's solvency relies on a decentralized risk pool where capital providers (also called underwriters) deposit assets, typically stablecoins like USDC or the protocol's own token, to earn yield from premiums. This creates a liquidity reserve used to pay out claims. The amount of capital required is determined by actuarial models and on-chain data oracles monitoring the stablecoin's peg. Providers stake into specific coverage buckets (e.g., a USDT depeg bucket) and their exposure is proportional to their stake.

• Sub-step 1: Deposit Capital: Navigate to the 'Provide Capital' section and approve a deposit transaction. For example, stake 10,000 USDC into the USDC depeg pool via deposit(address pool, uint amount).
• Sub-step 2: Monitor Risk Exposure: Use the protocol's dashboard to track your capital efficiency ratio and the pool's utilization rate. Avoid over-concentration in a single risk bucket.
• Sub-step 3: Earn Premium Rewards: Receive a share of the premiums paid by policyholders, distributed pro-rata based on your stake and the pool's performance.

Tip: Capital provision carries risk of loss if claims exceed the pool's reserves. Always assess the protocol's claims history and minimum capital requirement (e.g., 1M USD per pool) before staking.

Detailed Instructions

When a stablecoin's market price deviates significantly from its peg (e.g., 1 USD), a depeg trigger is activated. Protocols rely on decentralized oracle networks like Chainlink or a committee of keepers to monitor prices. The trigger condition is predefined in the smart contract, such as if (stablecoinPrice < 0.98 USD for > 24 hours). Once triggered, a claims assessment period begins, allowing for dispute resolution. The oracle reports the price deviation on-chain, making the data publicly verifiable.

• Sub-step 1: Oracle Price Feed Check: The protocol queries a specific price feed, e.g., Chainlink's USDT/USD feed at 0x3E7d1eAB13ad0104d2750B8863b489D65364e32D.
• Sub-step 2: Evaluate Deviation: The smart contract compares the oracle price to the peg threshold. Example code:

solidityCopy
if (oraclePrice < pegThreshold) {
    emit DepegTriggered(stablecoinAddress, oraclePrice);
}

• Sub-step 3: Initiate Claim: Policyholders with active coverage for the affected stablecoin can file a claim through the protocol's interface, referencing the oracle's on-chain transaction hash.

Tip: Most protocols have a grace period (e.g., 24-72 hours) after triggering to allow for price recovery or dispute. Monitor oracle health to ensure accurate reporting.

Detailed Instructions

After a claim is filed, it enters a validation phase where the protocol's claims assessors (which can be token holders, a DAO, or an automated system) verify that the depeg event meets the policy terms. For decentralized protocols like Nexus Mutual, members vote using NXM tokens to approve or reject claims. Once approved, the payout is calculated based on the coverage amount and the severity of depeg (e.g., proportional loss from $1). The funds are then transferred from the risk pool to the claimant's wallet.

• Sub-step 1: Submit Claim Proof: The policyholder provides their policy NFT ID and the oracle data transaction as proof via the claims portal.
• Sub-step 2: Assessor Review: Assessors examine the claim against the policy terms. For a DAO vote, a command like voteOnClaim(uint claimId, bool approve) is used.
• Sub-step 3: Receive Payout: If approved, the smart contract executes the payout. Example: payoutAmount = coverage * (1 - (depegPrice / 1 USD)). A 1000 USDC policy with a depeg to $0.95 yields a 50 USDC payout.

Tip: Payouts may be subject to a deductible (e.g., first 1% of loss) and can be paid in the protocol's stablecoin or a wrapped version. Always keep your policy NFT secure as it's required for claims.

Detailed Instructions

Begin by selecting a stablecoin insurance protocol like Unslashed Finance or Nexus Mutual. You must analyze the protocol's coverage parameters, including the specific stablecoins covered (e.g., USDC, DAI), the definition of a depegging event (e.g., price below $0.98 for >24 hours), and the claims process. Determine your desired coverage amount and duration.

• Sub-step 1: Research Protocol Documentation: Review the smart contract addresses and coverage terms. For example, find the main pool address 0x....
• Sub-step 2: Define Risk Exposure: Calculate the total value of your stablecoin holdings you wish to insure.
• Sub-step 3: Check Premium Rates: Query the protocol's API or smart contract to get current premium quotes for your coverage amount and duration.

Tip: Premiums are dynamic and based on risk pools; monitor them regularly as market conditions change.

Detailed Instructions

This step involves a direct on-chain transaction to buy coverage. You will need to call the protocol's coverage purchase function, providing parameters like coverage amount, duration, and the stablecoin address. Ensure you have enough of the protocol's native token (e.g., USI for Unslashed) or approved stablecoins to pay the premium.

• Sub-step 1: Approve Token Spending: First, approve the insurance contract to spend your premium payment token.

codeCopy
// Example using ethers.js for approval
await tokenContract.approve(insurancePoolAddress, premiumAmount);

• Sub-step 2: Call Purchase Function: Execute the purchase, specifying parameters like coverAmount: 100000000000000000000 (for 100 USDC, 18 decimals), coverDuration: 30 (days), and coverAsset: "0xA0b86991c6218b36c1d19D4a2e9Eb0cE3606eB48" (USDC address).
• Sub-step 3: Verify Policy NFT: Upon success, you will receive an NFT representing your policy. Store its token ID and contract address for future claims.

Tip: Always simulate the transaction using eth_call first to estimate gas and check for errors.

Detailed Instructions

Continuous monitoring is crucial. A depegging event is typically determined by a decentralized oracle (like Chainlink) reporting the stablecoin's price below a predefined threshold. You must be ready to submit a claim within the protocol's specified window after the event is confirmed.

• Sub-step 1: Set Up Price Feeds: Subscribe to price feed updates for your insured stablecoin (e.g., Chainlink's USDC/USD feed at 0x8fFfFfd4AfB6115b954Bd326cbe7B4BA576818f6 on Ethereum mainnet).
• Sub-step 2: Detect Trigger Condition: Implement logic to detect when the price falls below your policy's strike price (e.g., price < 0.98 * 10**8 for 98 cents).
• Sub-step 3: Initiate Claim: Call the submitClaim function on the protocol's claims manager contract, providing your policy NFT ID and proof of the depeg from the oracle.

Tip: Some protocols have a waiting period after the event; file your claim promptly to avoid missing the deadline.

Detailed Instructions

After filing a claim, it enters an adjudication process where protocol stakeholders may vote on its validity. If approved, the payout—often in a stable asset like DAI—is sent to your wallet. Regardless of claims, you must manage active policies.

• Sub-step 1: Track Claim Status: Poll the claims contract or listen for events to see if your claim is Accepted, Pending, or Rejected.
• Sub-step 2: Withdraw Payout: If accepted, call the withdrawPayout function with your claim ID to receive funds.
• Sub-step 3: Renew or Adjust Coverage: Before your policy expires, decide to renew. You may need to purchase a new policy, potentially adjusting the amount based on changed holdings. Use the protocol's renewPolicy function if available, or simply purchase a new one.

Tip: Consider building an automated system that lets expired policies trigger alerts or auto-renewals based on your treasury management rules.