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Fractional Insurance Funds for Token Sales

The semi-technical paper for Fractional Insurance Funds (FIF)
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Can KocagilFounding Director of OpenPadckocagil@openpad.app\text{Can Kocagil}\\ \text{Founding Director of OpenPad}\\ [email protected]

Fractional Insurance Funds​

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.

Payout Steps

  • 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%.
Examples & Considerations
Let's suppose that there are 100 insurance-qualified investors with varying initial investment amounts. Let
A1A_1
be the initial amount of investment of investor 1 among 100 qualified ones,
α1\alpha_1
be the weight of investor 1 (i.e.,
α1=A1/∑i=1100Ai\alpha_1 = A_1 / \sum_{i=1}^{100}{A_i}
) let
II
 be the total insurance funds. Then, let
IpI_p
be the portion of
II
 allocated for a particular refunding event. Then, investor 1 will receive a refund
R1=α1∗IpR_1 = \alpha_1 * I_p
.
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Diving deeper, OpenPad can determine to calculate
αi\alpha_i
 as a weighted average of insurance pool share and $OPN staked amount. Mathematically speaking, let
s1s_1
 be the $OPN staked amount of investor 1, then
αi\alpha_i
 might be calculated as
αi=(σ∗Ai∑i=1100Ai+β∗si∑i=1100si)∗Ip\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<α<1,0<β<10< \alpha < 1, 0<\beta <1
and
α+β=1\alpha + \beta = 1
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