The Insurance AVS
Here's the high level system design and workflow of the insurance AVS (Actively Validated Service) we are building on EigenLayer.
Last updated
Here's the high level system design and workflow of the insurance AVS (Actively Validated Service) we are building on EigenLayer.
Last updated
LST : This shall be the native staking token of the insurance AVS. Users, DeFi protocols, and Liquidity Providers (LPs) will stake LSTs to participate in the insurance pool and secure DeFi protocols.
Smart Contracts: EigenLayer will host a set of smart contracts for the insurance AVS. These contracts shall manage stake delegation, claim processing, bad debt coverage, and potential slashing mechanisms.
Off-chain Risk Assessment Engine: This engine, developed by the insurance AVS (Chainrisk), will run on operators' machines. It will analyze data feeds from DeFi protocols and assess potential economic risks through Agent Based Simulations.
Staking LSTs: Users, DeFi protocols, and LPs stake their LSTs into the EigenLayer smart contracts managed by the insurance AVS. This staked LST acts as collateral for potential payouts and incentivizes honest behavior.
DeFi Protocol Coverage: DeFi protocols will opt into coverage by the insurance AVS through the smart contracts. The specific coverage details (attack types, coverage limits) will be established beforehand.
Off-chain Risk Assessment: Operators run the insurance AVS's risk assessment engine (Chainrisk Cloud Platform). This engine continuously monitors DeFi protocols covered by the insurance and analyzes data feeds for signs of potential economic attacks. Refer to - Risk Management Process.
Claim Processing:
Alerting: Upon detecting a potential attack, the risk assessment engine alerts the EigenLayer smart contracts.
Dispute Resolution: Depending on the AVS design, there will be a voting mechanism involving stakers to confirm the attack and trigger payouts.
Payout: If a confirmed attack occurs and the DeFi protocol suffers bad debt, the smart contracts automatically distribute funds from the staked LST pool to cover the losses, up to the predetermined coverage limit.
Rewards are distributed amongst the node-operators, users, protocols and LPs from the APY accrued on the (100-X)% of LSTs. ( X% is the amount staked in the AVS )
Shared Security: The AVS leverages EigenLayer's staking mechanism for security, inheriting the strength of the underlying Ethereum blockchain.
Scalable Claims Processing: EigenLayer helps offload claim processing from the main Ethereum chain, potentially improving efficiency.
Decentralized Insurance: LST stakers collectively act as the insurer, eliminating the need for a centralized authority.
Economic Attack Mitigation: By monitoring and potentially compensating for losses from attacks, the AVS discourages malicious actors and fosters trust in DeFi protocols.
