Protocol Economics
Chairisk Protocol ensures " The cost of corruption > Profits "
Last updated
Chairisk Protocol ensures " The cost of corruption > Profits "
Last updated
The philosophy behind designing the Chainrisk Protocol is to facilitate rational and honest behaviour among actors while driving value for the fiduciaries and thereby providing maximum insurance coverage and yield for users, LPs, protocols and ecosystems.
Chainrisk's economic score engine, which is vertically integrated to Chainrisk's flagship Insurance AVS provides a fair and near real time economic scoring mechanism for Defi Protocols on their VAR (Values at Risk) - this enables users / LPs to provide capital to 2 types of security pools based on their risk tolerance. a.)Defi protocols can setup their pools (2.2) simply by passing through a governance voting and snapshot event post chainrisk parameters disclosure for the VAR & TVL under applied coverage - per asset, per market (ecosystem). Users deposit LSTs which are locked and minted against the Chainrisk L3 Liquidity hub's bridge contracts on any preferred network for the corresponding protocol b.)An ecosystem pool is an isolated yield accruing insurance pool which provides coverage to all underlying protocols. This is a pool where in L2s/ alt L1s such as - Arbitrum , Dojima, Manta can deposit their native to cover part of the risk underwriting of all the protocols belonging to their respective ecosystem while with expanding the utility of their native currency.
The following steps are an explanation on the above mentioned diagram highlighting the Protocol's Economic Modelling with respect to the Security Pools, AVS & yield strategy (1.a - 21.b are for the ecosystem's pool only)
1.a> Users or Liquidity providers opens the Chainrisk dapp and selects respective network to access the ecosystem's isolated pool ( More info on next section )
2.1> Users/LPs deposit the ecosystem's native tokens to the isolated pools, by doing so they not only expand the pool's strength to provide underwriting to their protocols but also accrue an yield on their deposit.
2.1.a> A part of the Isolated pool's deposits (upto 50 % ensuring the stability of the pool in times of a claim) , are used to run defi strategies across the ecosystem's safest protocols in their native token , the yield accrued is directly exposed to the depositors. This also expands the utility of the native token of any ecosystem.
2.1.b> The remaining 50% of the isolated pool is delegated to underwrite risk per protocol - per asset in that ecosystem wherein, Chainrisk's Risk engine ensures that protocol is always updated with their Value at Risk - Breach likelihood and ensure a smooth claims process.
Please note - the ratio at which the yield strategies vs coverage provisioning is determined is by ensuring that at anytime - all claims are settled while protocol + ecosystem pools remaining solvent within the Chainrisk Protocol In an event of a claim - the coverage gets deducted from the protocol's pool first and then then the ecosystem's pool , while ensuring that LPs are incentivised to revive the pool as the risk score improves
The ecosystem pools' are a quick and easy avenue for users / LPs to earn an APY while providing insurance to underlying protocols without taking any direct exposure to a "protocol's pool" - where the impact during a claim would be much higher as compared to ecosystem
2.2> Users / LPs can choose to provide capital (LSTs) to a protocol's isolated pool by directly depositing through the Chainrisk L3 liquidity hub's contracts on their choice of L2 or ETH Main net.
3> Chainrisk L3 Hub is one of the core pillars of the Chainrisk ecosystem which serves as global liquidity hub for LSTs, ecosystem tokens, RI$K token and addresses the liquidity vs premium fragmentation problem across all markets. Through the integration of user smart accounts and the Chainrisk L3 liquidity hub - a novel mechanism of liquidity bootstrapping is kickstarted across the ecosystem.
Explanation the continued diagram wrt Liquidity hub and AVS ~ LRT strategies for coverage and yield : User / LP delegated LSTs deposited in a protocol's pool are split in a ratio viz. "X" is a factor of the total deposits being determined on the basis of a Defi protocol's risk score. This is derived from the risk engine integrated with Node Operators inheriting Ethereum's crypto economic security via the Eigenlayer ( Chainrisk AVS) A Defi protocol being less risky = X is a higher factor = Majority of the pool deposits being staked to Chainrisk's Insurance AVS on Eigenlayer via Node operators The rest of the pool "Y" = (100-X)% is deposited to a Chainrisk vault , through which they are exposed to some of the safest LRT strategies. The yield accruing through this activity is then shared between the users / LPs , Node Operators (AVS rewards), Chainrisk Protocol. ** Add - Figures DISTRIBUTION IN REVENUE FROM LRT STRATEGIES**
In contrast - if a Defi protocol's risk score enters in to an "orange" , "red" zone - Chainrisk Protocol triggers the shift in the factor of " X ", causing "Y" = (100-X)% to increase - leading to 2 further scenarios : 1. Existing User / LP Withdrawals on the Node Operators are halted as per AVS conditions, to ensure maximum coverage
Existing and new Users / LPs are incentivised (High APY) due to the shift in " Y " for delegating LSTs (More capital flowing through LRT vault / strategies & adding Chainrisk Protocol's revenue from the strategies
** Add - Figures REDISTRIBUTION IN REVENUE FROM LRT STRATEGIES to INCENTIVISE USERS**
To sum up - The more riskier a protocol gets, the more LPs and users the Chainrisk protocol attracts to provide maximum coverage , while Risk Engine & Chainrisk AVS ensures protocol level fairness through various slashing conditions.
4.1 ) Node Operators play an important role in further decentralising the protocol while ensuring inheriting the crypto economic security of Ethereum via Chainrisk's AVS. Having more than one node operators integrated with the insurance AVS ensures that there is no single point of failure, with an added economic benefit for users / LPs to earn AVS rewards
6) Economic Risk Engine : The building block of Chainrisk Protocol - which is a software suite verticaly integrated with node operators and Chainrisk AVS , delivering real time economic scoring and Values at Risk for Defi Protocols in the Chainrisk ecosystem. This is again tied to the crypto economic security primitive, ensuring "Cost of corruption > Profits"
