# Fractional Insurance Funds for Token Sales

The semi-technical paper for Fractional Insurance Funds (FIF)

$\text{Can Kocagil}\\ \text{Founding Director of OpenPad}\\ [email protected]$

OpenPad offers fractional insurance funds for de-risking token sales and early-stage Web3 project investments.

**Insurance capital formation**: FIF is a self-sustainable treasury reserve allocated to protect qualifying investors from extreme decentralized finance conditions up to 100% of the initial investment. FIF is formed as a portion of the treasury and a certain rate of fees.**No-collateral**: FIF is a no-deposit insurance model, which doesn't require investors to deposit any collateral upfront. Hence, it's 100% risk-free insurance funds to be allocated to qualified investors.**Scope/Coverage**: FIF covers only extreme conditions such as rug pulls, market loss due to smart contract bugs, and similar project-driven faults. The scope of the insurance fund might be voted with the community in the future.**Qualifications**: To qualify for FIF, investors must- (1) invest in the deal
- (2) register for the insurance fund in the defined time slots
- (3) pass the initial deposit threshold
- (4) have a $OPN staked in the defined time slots

**Note**: The initial deposit threshold and the minimum amount of $OPN stake will be determined per deal basis.

**Currencies**: BNB, BUSD, or $OPN might be used as a type of payout currency.**Timeline**: When the utilization of FIF is confirmed, then the registration and claiming periods will be timelined and announced.**Payout**: Qualified investors are guaranteed a partial or full refund based on the number of insurance participants and the fund size. Given the pool of insurance-qualified investors, the to-be-determined portion of the insurance fund will be shared proportionally across investors.**Insurance level**: As FIF is a no-collateral insurance-guaranteed fund, the amount qualified investors will receive will be changing deal-to-deal and there will be no promise of a guaranteed amount or percentage or full payout.**The utilization portion**: The utilization rate of the full FIF will be determined on a deal-to-deal basis and might be voted with the community.**Post-investment trades**: Investors might sell tokens at any period between investment and FIF confirmation.- 100% selling: If the tokens are completely sold before the FIF confirmation, investors cannot qualify for the insurance.
- Partial selling: If tokens are partially sold (e.g., 30% of them), then the remaining capital will be regarded as an initial investment deposit for insurance rate calculation.
- 0% selling: If the tokens are not sold, then investors qualify for the insurance.

**Vesting**: If the payout currency is selected as a $OPN, due to a large number of possible sell orders after payout, the vesting terms may apply.

**Coverage**: OpenPad team and/or community will confirm the utilization of Insurance Funds.**Registration**: OpenPad will announce a registration period where investors need to demand insurance as proof of capital loss.**Threshold Calculation**: OpenPad will announce the minimum initial deposit threshold and minimum staking amount, allowing only those investors who cross the minimum deposit & staking amount.**Insurance Confirmation**: Given the list of registered insurance users, OpenPad will conduct wallet & insurance qualifications, and provide the list of insurance-qualified investors and their insurance capital amounts to the smart contract.**Utilization Rate Calculation**: The utilization rate of the insurance funds will be calculated after the insurance confirmation step, finalizing the rate at which the insurance-qualified investors get refunded.**Currency Selection**: The payout currency will be selected. If $OPN is selected as an insurance currency, then vesting terms may apply according to the possible sell-side orders.**Claimable Insurance Contract**: As a final step of the insurance, OpenPad will deploy a claimable insurance contract where qualified investors claim their initial capital up to 100%.

Let's suppose that there are 100 insurance-qualified investors with varying initial investment amounts. Let

$A_1$

be the initial amount of investment of investor 1 among 100 qualified ones, $\alpha_1$

be the weight of investor 1 (i.e., $\alpha_1 = A_1 / \sum_{i=1}^{100}{A_i}$

) let $I$

be the total insurance funds. Then, let $I_p$

be the portion of $I$

allocated for a particular refunding event. Then, investor 1 will receive a refund $R_1 = \alpha_1 * I_p$

.

Diving deeper, OpenPad can determine to calculate

$\alpha_i$

as a weighted average of insurance pool share and $OPN staked amount. Mathematically speaking, let $s_1$

be the $OPN staked amount of investor 1, then $\alpha_i$

might be calculated as$\alpha_i = ( \sigma * \dfrac{A_i}{\sum_{i=1}^{100}{A_i}} + \beta * \dfrac{s_i}{\sum_{i=1}^{100}{s_i}} ) * I_p$

where $0< \alpha < 1, 0<\beta <1$

and $\alpha + \beta = 1$