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Captive insurance is a form of self-insurance where an entity creates a wholly-owned subsidiary to provide insurance for itself. This subsidiary, known as a "captive insurer," underwrites the risk of its parent company. Captive insurance allows the parent company to retain premiums and control the risk management process.
Due to the underlying nature of the risk, typical insurance/re-insurance carriers will not provide coverage for this type of risk.
- The parent entity provides capital to the captive insurer.
- The captive insurer collects premiums from the parent entity.
- The captive insurer provides coverage for the parent entity's risks.
- Claims are processed and paid by the captive insurer.
Note
This is for v1 of the XGA Auction, v2 Will support multiple relays/sequencers and have an extended re-insurance mechanism.
Depositing into the FoldCaptiveStaking contract enables you to underwrite the risk of missing out on blocks due to service outages of the Manifold Finance Relay. This provides a financial safety net for validators connected to the Manifold Finance Relay.
Automated Compounding of Accrued Fees: The contract automates the compounding of deposits' accrued fees. This incentivizes a maximum number of compounds at optimal times with regards to gas costs, enhancing the efficiency of capital utilization.
Rewards for Staking: In addition to swap fees from liquidity provision on Uniswap V3, LPs (Liquidity Providers) are rewarded for staking their FOLD tokens in the contract. This serves as an additional incentive for liquidity providers to stake their tokens.
Protocol Overview: Validators connected to the Manifold relay can only connect to this relay for the XGA Auction. If the relay experiences an outage, Manifold covers the cost of lost opportunities for validators.
Risk Underwriting Stakers in the FOLDstaking.sol contract underwrite the risk of missing out on blocks, functioning as a form of captive insurance. The contract tracks the duration of each deposit and rewards depositors individually.
Staking $FOLD tokens transfers LP deposit ownership to the FOLDstaking contract. The contract owners can claim $FOLD balances permanently for insurance claims through the claimInsurance function.
Important
Fees earned are retained into a indemnity fund that first pays out. In the event that the losses exceed the assets in the fund, it is only then that a claim can be made against the Vault.
By underwriting the service risk of the Manifold Finance Relay and XGA Auction Platform, stakers earn yield in $ETH. $FOLD is not the reward token paid to stakers.
LPs receive rewards for staking, which includes swap fees and automated compounding of accrued fees. This incentivizes optimal compounding times concerning gas costs.
Multiple V3 positions can be deposited. The reward amount is determined by the duration and share of the total liquidity deposited in the vault, paid from the contract's WETH balance.
Withdrawals, after initiation, are pro-rated over 14 days if they exceed a certain percentage of the pool's total liquidity.
Materials and Methods: To understand attracting stable liquidity, existing works like have been surveyed. Their
Rewards are calculated without considering the entire stake duration, instead looping through each week. Claiming rewards or removing liquidity resets the deposit's timestamp, reducing total rewards.
The reward calculation formula is as follows:
(position stake / total staked) x (stake duration / average stake duration)
Note
The Average stake duration is factored in, following the "sunshine & rainbow" design doc from Pangolin Exchange's SAR Mechanism.
Depositors can choose the price range (ticks) for their UNIv3 NFT by creating it externally and calling the deposit function with DepositParams. A vote affects deposits of stakers with no personal preference, using a time-weighted median for the price range.
Uniswap automatically handles fee collection and redepositing, enhancing LP earnings. Bunni's compound function increases the value of share tokens, while FOLDstaking.sol rewards are based on deposit duration and total size across all price ranges.
Bunni pays rewards pro rata to the contribution per price range, while FOLDstaking.sol pays rewards based on deposit duration and total size relative to the pool's total liquidity across all price ranges.
We thank @ZeframLou for his tireless work on improving mechanism design in the industry.
sequenceDiagram
participant User
participant Contract as FoldCaptiveStaking Contract
participant Uniswap as Uniswap V3
Note over User,Uniswap: Process for Managing FOLD Token Liquidity
User->>Contract: Deposit FOLD Tokens
activate Contract
Contract->>Uniswap: Provide Liquidity
Uniswap-->>Contract: Swap Fees + Rewards
deactivate Contract
loop Automated Compounding
Contract->>Contract: Compound Accrued Fees
end
User->>Contract: Request Withdrawal
activate Contract
Note over Contract: 14 Day Period
Contract-->>User: Return FOLD Tokens + Rewards
deactivate Contract
Warning
Track the GitHub issue at https://github.com/manifoldfinance/fold-staking/issues/9
Currently, claimInsurance does not have the logic necessary to 'validate' a claim. This is because the management of captive insurance claims is handled by us, which is why it is called Captive Insurance.
Until the L2 Construct is implemented for v2 supporting multiple relays, this is fine. However, we should outline and document how exactly a claim is substantiated. Typically, the insured party must provide notice to their insurance carrier for potential claims. Therefore, it is up to the underlying LST/Validator/Node Operator to initiate this process, it is not up to us to initialize the process for paying out a claim.
sequenceDiagram
participant User as LP (Liquidity Provider)
participant Contract as FoldCaptiveStaking Contract
participant Insurance as Insurance Claim Function
User->>Contract: Stake FOLD Tokens
Note over User,Contract: Tokens are staked for liquidity and rewards
Contract->>Contract: Automate Compounding
Note over Contract: Accrued fees are compounded
User->>Insurance: Initiate Claim
Note over Insurance: Due to service outage or other covered event
Insurance->>Contract: Verify Claim
Note over Contract: Check if claim is valid based on contract rules
Contract->>User: Calculate Claim Amount
Note over User: Based on staked amount and contract terms
Contract->>User: Pay Claim from Deposits
Note over User: WETH balance or equivalent is used
User->>Contract: Close Claim
Note over Contract,User: Claim is marked as resolved