By Cointime.com 237

In 2020, the Total Value Locked (TVL) grows significantly as the DeFi protocol becomes more widespread. However, this has also led to many assets being coveted by hackers. Since DeFi protocols are open to everyone to trade, contractual issues can easily lead to asset loss. Despite the fact that almost every protocol is code-vetted by large companies such as CertiK, attackers stole more than $77 million in 2020, and the situation continues to worsen.

Since many forks make only minor changes and are deployed on multiple EVM chains, all of these forks can quickly become targets for hackers if something goes wrong with the original project's smart contracts. One common hacking tactic is Flashloan, which has become commonplace in the hacked lending space.

When a protocol is hacked, it will undoubtedly face huge losses and also when hackers transfer assets to an anonymous protocol like Tornado, there is no one who can trace the stolen funds and hence most hackers will not return any tokens to the protocol.

Statistically, about 53% of hacked funds were returned to projects in 2021, but most of that was actually due to the PolyNetwork breach that occurred in August.

So what can be done for DeFi participants to avoid losses due to these breaches?DeFi insurance may be one of the very few ways to prevent this from happening.

By purchasing insurance, users can mitigate risk and loss by receiving compensation in the event of an attack on the protocol or loss of assets. Such an insurance mechanism is expected to provide greater security and reliability to the DeFi industry, attracting more players into the space.

Meta Defender: Decentralized Insurance Protocol Compatible with EVM and Substrate Frameworks

Meta Defender is a decentralized insurance protocol built on the blockchain. It is compatible with the most popular EVM and Substrate frameworks and is designed to insure users' transactional and non-transactional assets on the blockchain.

As a leading DeFi insurance provider, Meta Defender eliminates intermediaries in insurance transactions through a transparent, trustworthy and convenient decentralized mechanism. The protocol is inspired by AMM pools, where there is a pool in the insurance transaction and the cost of insurance is market-driven. Similar to other DeFi protocols, Meta Defender operates on a DAO system where the decision to whitelist covered protocols (e.g., DeFi protocols or public chain security) is made jointly by all token holders.

Participants in Meta Defender include liquidity providers, policyholders and governors. Liquidity providers put money into the pool and receive premiums from policyholders, but they also bear the risk of paying losses in a whitelisted DeFi protocol or public chain attack. The policyholders are those who are concerned about being hacked while participating in the DeFi protocol, and they pay premiums to allow the liquidity providers to protect their assets. The governor, on the other hand, is an independent party responsible for determining whether the protocol should pay out losses to policyholders.

At the same time, Meta Defender is committed to applying blockchain technology to real-world insurance scenarios, becoming an important addition to the traditional insurance industry. When choosing a project to cover, Meta Defender evaluates the code security and financial risk of the project. Therefore, the project is not only an insurance protocol, but also a set of credit rating standards for the Web3 world. By introducing a decentralized insurance mechanism, Meta Defender provides users with more choices and guarantees, and offers a reliable layer of protection for the development of the DeFi industry.

How it works

Meta Defender is an insurance protocol that runs on DeFi as an insurance contract that matches policyholders with insurers. The protocol works as follows:

1. Business Process: Insuring

Anyone can participate in the insurance of digital assets at any time. The premium will be collected by the underwriter as a reward and accordingly a certain amount of capital will be frozen until the policy expires.

2、Business Process: Claims

Idle capital can be provided to several liquidity pools for mining. Part of the proceeds from mining will stay in the risk reserve. When a loss claim is filed, the capital in the risk reserve will be used first; only in extreme cases where the capital in the risk reserve is insufficient to cover the claim will the capital initially injected by the underwriter be used.

3. Pricing Logic

Meta Defender draws on and improves upon the well-known constant product model.

First, we need to define two concepts first:

1) Premium rate α: the ratio of the amount spent on purchasing the policy to the amount insured by the policy;

2) Remaining available capital P: in the extreme case, assuming that the remaining funds are located in the underwriting fund pool after settling claims on all existing policies; it can also be interpreted as the current total funds in the underwriting fund pool minus the total insured amount of all existing policies.

Under the assumption that there are no new underwriters joining/no underwriters exiting liquidity, the above two conditions will always satisfy the following equation:

K is a fixed value. As the number of insureds increases, P gradually decreases and α increases, indicating an increase in demand for insurance and vice versa. When a new insurer enters, P increases, α remains constant, and k increases accordingly.

Similarly, when an insurer withdraws from liquidity, both P and k decrease. An increase in P also occurs if the surviving policy matures and the frozen capital is released. In this case, k is constant and α decreases. α has a minimum value, and the decrease in α is limited by this value, and then the value of k increases. When the value of P "expands" to the point where α touches it, α no longer decreases but increases by k:

Existing blockchain insurance products also build some actuarial models, but it is difficult to ensure that the actuarial results are truly objective and trustworthy when the sample of historical data is insufficient.Meta Defender tends to be based on a market game, pricing the risk of each agreement based on the most basic economic principles of supply and demand.

A possible question is whether the mechanism would allow underwriters to purchase insurance in bad faith and increase premium rates. To avoid this attack, Meta Defender calculates the k-value by adding a dummy value to the actual P-value. This makes the premium rate curve very smooth and significantly increases the cost of such attacks.

Products

1、Meta Insurance

Meta Insurance provides financial protection for users' crypto assets.

Policyholders transfer their single risk to an underwriter by paying a premium, and the underwriter collects the premium and assumes the diversified risk.

Anyone can participate in the underwriting process at any time by generating a corresponding liquidity certificate NFT. premiums are earned by the underwriters as a reward and, accordingly, a certain amount of capital is frozen until the maturity of the policy. The underwriter is entitled to other rewards and incentives and the underwriting capital can be withdrawn at any time.

The policyholder is free to determine the term of the policy. Idle capital can be injected into several reliable liquidity pools for mining. A portion of the mining proceeds will remain in the risk reserve. When a loss claim is filed, the funds in the risk reserve will be used first; only in the extreme case that the funds in the risk reserve are insufficient to cover the claim, the capital initially injected by the underwriter will be used.

2、Meta Credit

Meta Credit provides a performance guarantee of repayment when a borrower applies for a certain credit facility from a lending platform.Meta Credit references several third-party DID credit rating systems to determine the criteria for qualified borrowers.

For example, a lending platform may require a 150% collateralization rate (the same as MakerDao's criteria), but a creditworthy borrower may wish to obtain a loan with a 120% collateralization rate. He can purchase performance insurance with Meta Defender that covers him for the loan amount, and of course, the beneficiary of the insurance is the lending platform.

When the borrower fails to repay the loan on time, or when the borrowed balance of his account exceeds the limit set by the liquidation collateralization factor (e.g., if the price of the collateral suddenly drops), the lending platform can claim against Meta Defender for alternative repayment. Of course, the collateral will be returned to the Meta Defender smart contract.

3、Meta AMD

Meta AMD is an asset management DAO.

Even though compensation for losses was provided during the DeFi attack, the effects of the incident are still not really over. Similar to the traditional way of dealing with toxic assets, there are still potential opportunities in these devalued assets.

As a result, Meta Defender requires those who submit claims to turn over affected digital assets (e.g., un-anchored tokens) to Meta Defender Contracts for asset management after receiving compensation. This not only provides compensation for those who bear the loss, but also provides additional profit opportunities for all parties involved.

Token Economy

Meta Defender's official project token is DEF and its distribution plan is shown in the table below.

According to officials, early participants of Meta Defender will receive DEF token airdrops as a reward in the future.

Conclusion

DeFi insurance is a rapidly growing field that provides participants with additional safety and security. As the DeFi industry continues to grow and innovate, asset security has become one of the key concerns for investors.The emergence of DeFi Insurance protocols fills this gap and provides users with the opportunity to be compensated in the event of an attack on the protocol or loss of assets.

Meta Defender, a leading DeFi insurance provider, offers insurance services to users through a decentralized mechanism and a market-driven approach. The compatibility and scalability of the protocol allows it to adapt to different blockchain frameworks and provide insurance coverage for users' transactional and non-transactional assets. Meta Defender also ensures that all token holders are involved in the decision-making and governance process by introducing a DAO system and governance mechanism.

The development of DeFi insurance will provide important support for the sustainable development of the DeFi industry. As more investors and users participate in DeFi, they become more attentive to the security and risk management of their assets. the existence of DeFi insurance provides users with additional confidence and protection and helps to attract more participants to the space.

However, DeFi insurance still faces some challenges and risks. For example, determining insurance costs and coverage is a complex issue that requires a combination of market demand, risk factors of the agreement, and user interests. In addition, auditing and regulation of insurance organizations is an important issue to ensure the safety and transparency of insurance funds.

Overall, DeFi insurance will play an increasingly important role in the development of the DeFi industry. It provides users with additional protection and confidence, and provides a safe environment for DeFi's sustainable development. As the technology continues to innovate and the industry matures, DeFi Insurance is expected to become an important part of the crypto-financial landscape and promote greater participation in this revolutionary financial model.