[Proposal] NDX Token Rewards for Cover Protocol coverage

Governance
#1

Hello! I’m Ivan Martinez (Kiwi) from Cover Protocol! I would like to make a proposal to allocate NDX tokens to Cover Protocol shield mining bonus token rewards, in order to encourage liquid coverage for Indexed Finance.

Motivation
Cover Protocol is a peer-to-peer decentralized coverage market place for protecting DeFi users from contract bugs, hacks, or economic exploits (ex: malicious flash loan attacks). Indexed Finance is a newly launched protocol that we think is a perfect candidate for coverage on our platform. Because coverage on Cover Protocol is fungible and relies on ERC20s, liquidity must be incentivized due to the risks of providing liquidity in a binary token model.

We handle this by allowing protocols (like BADGER or 88mph) to incentivize liquidity providers for their coverage tokens. Indexed Finance doing this would be a great way to keep users safe and farm with no concerns.

Recently at Cover Protocol we have made a great breakthrough in our liquidity structure. We would like NDX to be the first incentivized coverage protocol to try our new model!

The Proposal
Allocate 10,000 NDX tokens to provide liquidity rewards for Indexed Finance coverage tokens until end of March. After the coverage expires by the end of March, we can refresh rewards further through another proposal.

Why 10,000? 10,000 NDX is ~$220,000, for coverage until the end of March. This is based on 88mphs allocation which was around $157,000 until the end of February, getting around $1,000,000 of available coverage. I think this amount of tokens + our new liquidity model could attract much above that.

2 Likes
#2

Do you have specifics for what would and would not be covered. Assume that the liquidity would represent coverage amount so thats why we reward LPs but whats actually being covered and does the cover extend to all indices, does the cover include value loss from vulnerabilities affecting only NDX holders and not the indices.

1 Like
#3

Hello @pr0! Thanks for the reply.

You can read our claim guidelines here: Claims Guidelines - Cover Protocol

We would essentially provide cover for any (or most) events that results in a loss of user funds. Because our coverage is decentralized, there is no proof of loss needed but if there is an incident honest coverage seekers will always be protected.

This coverage can extend to oracle failures that lead to loss of funds in the indices, a bug in the indices that causes some sort of insolvency, or a flaw in the contracts where funds are staked for rewards.

#4

Most mainstream Ethereum applications are complex and consist of a number of smart contracts all working together. The intention is for each covToken to cover just one protocol (i.e. if your money is in yearn.finance and the strategy is deployed to curve.fi ; you will not be covered if funds are hacked/stolen/or lost on curve.fi)

Because our general risk for pools actually comes from potential abuse by other tokens (say a mint or inflation bug) which allows for the token to be sold and other tokens to be drained not by our contract fault but by other systems, does this make our users not able to claim as technically the loss was created by another project. Say mkr had an inflation bug and CC10 was drained completely by selling the minted mkr.

#5

In that case the CLAIM token would not pay out. We do payout in the event of an economic exploit but if the sole cause of the economic exploit is a vulnerability in a protocol on which another protocol is dependent, than the claim should be rejected. However, in the example cited, there would be a valid claim on Maker

#6

against all such proposals/initiatives aka ur treasury looks sweet so plz alloc8 some monies 2 incentivize our protocol’s users. it’s better 4 any other protocol 2 contribute 1st on their side & do it z proper way: hey, XXX users have already purchased $X,XXX,XXX Indexed covers. let’s x10 z numbers by addin’ incentives in NDX tokens?

what r z current metrics? how many Indexed covers have already been purchased? what is total notional number of covers? bUt mA’am z sMarT cOntRacTs iNsUrAncE iS eSsEnTiAL dOn’T vOtE aGaiNsT sEcUriTy is B.S.

1 Like
#8

Great idea. I’m for this proposal. Coverage in defi is important as the contracts etc are so new. Also it’s optional for people to get coverage or not

#9

Hello Molly, thanks for replying! Valid concerns.

Incentivizing liquidity is not required for us to list coverage on a protocol. A lot of users might find providing liquidity very risky, as they risk to lose nearly all their funds provided in the pool if there is a hack or incident. They can get around this by buying coverage, but there needs to be ample liquidity first. This is why we encourage incentivization.
We used to have a shield mining process with our own token as rewards through governance, but that was removed after our incident in December. Most liquid coverages on our platform are now incentivized by the protocols they are for.

If Indexed would like us to list first without rewards, thats also totally fine. We could list and see what liquidity looks like in our new model. If you’re very confident theres no issue, you could help provide liquidity yourself and profit on the flash liquidity trading fees and selling your CLAIM :wink:

#10

Just to clear this up a bit, I had been meaning to post a similar proposal for a few days, but have been busy with the smart contract work. I mentioned this to @0xKiwi and he offered to make the proposal himself. Much appreciated :raised_hands:

With that out of the way, @0mllwntrmt3 I think you make a good point - if Cover adds support for Indexed, it would be nice to see some metrics before allocating rewards to boost the liquidity. A lot of users have been requesting some form of insurance on the discord server, and I think it makes sense to incentivize some amount of insurance for users, but it would be good to get some data before deciding how much/whether to allocate rewards.

Now that we have some more funds in the team’s gnosis, I’d be open to providing some liquidity here. We need most of our tokens liquid to fund things, but how much do you think would be necessary to get it rolling?

1 Like
#11

I just want to point out that we need also provide rewards for NXM insurance. NXM stakers will evaluate and help Indexed finance and stake for NDX insurance. As Cover, it’s peer to peer.

#12

We preferably would, allocate should we allocate, to

  1. The most liquid protocol with the best cover, even those where other protocol failures causing pool loss would be covered.

  2. The most reputable and known for actually paying out

#13

So we should consider all options and see which are best for our use case.

#14

Could be interesting to see those numbers before anything is decided but if people really want coverage why do they need an extra incentive ?

#15

The incentive is to make sure available coverage is sizable compared to the TVL and very liquid. But I can understand wanting to ensure coverage is actually desired/used before devoting an allocation. Thank you everyone!

We’ll look into listing Indexed first with no incentives once our new model is ready! If anyone is confident feel free provide liquidity!