Security Pools

Pool Architecture -

Chainrisk protocol is building an ecosystem around crypto economic insurance involving institutions, ecosystems, protocols, retail and LPs. The protocol involves the following types of security pools that uphold the integrity of the system.

(i) Ecosystem Pools -

Ecosystems inject initial capital and create isolated ecosystem pools. User & LPs can select the network and pool their capital into ecosystem pools in the native blockchain tokens. For example, there will be isolated ecosystem pools for Arbitrum, Optimism, Base etc. where Arbitrum pool hold $ARB tokens, Optimism hold $OP tokens so on and so forth. The ecosystem pool funds are deposited in DeFi applications native to their ecosystem ( example, $ARB tokens are deposited in GMX ) to run strategies and distribute the APY accrued among depositors. This ecosystem pool also acts as a secondary layer of insurance that covers protocols native to the ecosystem. ( with the underwriting done by Chainrisk ).

(ii) Isolated Protocol Pools on L2 -

Protocols inject initial capital and create isolated protocol pools. Based on our proprietary risk quantification model, we calculate Economic Security Index ( ESI ) of protocols. Users and LPs can invest in three types of vaults based on their risk appetite - - High Risk - Medium Risk - Low Risk Based on their risk scores, the protocols are categorised into high, medium and low risk vaults. Users first selects the network and according to their risk profile chooses the type of vault they want to stake in. Note: The users don't have the option to allocate capital to the individual protocols within the vault.

The LSTs deposited by the users are locked on respective L2s and minted on a native L3 bridge Contract.

(iii) Chainrisk L3 Liquidity Hub -

The L3 liquidity hub functions as a vertically integrated service which drives liquidity & value to maintain integrity of the AVS while facilitating the protocol's inherent yield accrual mechanism. Chainrisk calculates the value at risk of protocols per market and based on the coverage and other factors, we charge a risk premium per market. If the protocol's premium is directly stored in the isolated L2 pools, it will lead to a classical insurance problem called "Premium Fragmentation". If the premium is fragmented across different markets, it cannot be evenly used to drive AVS rewards to stakers and node operators. Having an L3 liquidity hub solves this fragmentation by pooling all the premiums in one unified bridge contract. To increase efficiency, we do mathematical auto-rebalancing of pools of a protocol across markets directly at the L3 level, incase of fluctuating coverage demands in one or more markets. Read more about it here. The LSTs staked by the users is bifurcated into two parts . Users choose the type of node operators and delegate X% of it, which gets staked on Chainrisk Insurance AVS. The rest of it (100-X)% is delegated to LRT protocols to mint LRTs and then deposited on LRT markets ( like Pendle ). This gives rise to a three-fold point system stemming from - 1. Eigenlayer Points. 2. LRT protocol (like Renzo) Points. 3. Chainrisk Points. This coupled with the Safest APY maximising strategies generates an industry-leading yield which is used to incentivise Chainrisk AVS, users, LPs, and protocols. The value of X depends on the risk score of the protocol. More risky the protocol, lesser the value of X.