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Insurance Fund System
Why do we need an insurance fund structure? vAMMs by design will have certain costs involved including:
- 1.
- 2.Costs involved in completing price alignment operations such as applying the price alignment multiplier and increase in K and
- 3.
As a result, there are times when protocol fees might not be sufficient to cover the above expenses. As such, on top of k-value adjustment, an insurance fund system is put into place to provide a backstop to ensure sufficient coverage for users' collateral.
Tribe3's insurance fund structure consists of the following components:
- 1.An ETH Staking Pool that is shared across all trading pairs
- 2.Isolated Reserve Pools for each trading pair
To provide initial protection for the protocol, an initial amount of 50 ETH is injected into a shared ETH staking pool from the Tribe3 treasury, which will be shared across all trading pairs based on each collection's collateral vault balance as a percentage of total collateral vault balance for all collections.
E.g. if the BAYC pair has a collateral vault balance of 10 ETH and the total collateral vault balance stands at 50 ETH, i.e. 20% of total, 20% of the shared ETH staking pool will be allocated to secure the BAYC pair.
Allocation percentages are updated every 3 hours. This construct allows for high capital efficiency but at the same time prevents any one trading pair from draining the entire ETH staking pool at one go.
Each trading pair would also have its own isolated reserve pool which accumulates over time as the protocol earns profits (residual income from transaction fees after deducting VAMM expenses).
ETH Staking will eventually be open to general public - more details will come on staking terms and mechanisms in the upcoming months.