The Web3 industry has just witnessed the worst event in its decade-long history – the FTX collapse, devastating the confidence of our industry in and out. This is not the first time something like this has happened, the previous LUNA and 3AC series of debacles were simply the starts of these catastrophes, and it is reminiscent of the Mt Gox collapse. It has been labeled as the Lehman event of crypto. This was not the first case, and surely will not be the last one either.
These events make us think what can we do to make things better in our industry?
- Restore Confidence and Trust
How can we build up a system that can restore the confidence and trust of our industry, so that users, regulators and developers of this industry feel secure in time of adverse events?
- Better Protect the Users
Among all these severe events, the small and medium users are always the ones suffering the most, many of their life savings have been wiped out through these disasters. Is there a way to build a safety net for these small medium users in particular?
Assuming we have FDIC…
FDIC (Federal Deposit Insurance Corporation) is the U.S. insurance organization in the traditional financial industry to protect depositors in the event an institution fails, and each depositor is insured up to US$25K. FDIC was created in the 1920s to address the situation where many depositors’ savings were wiped out because of the financial crisis. Since then, it has been functioning as a key financial infrastructure for stability and public confidence in the national financial system.
“Since the commencement of FDIC in 1934, no depositor has lost a single penny of insured funds due to bank failures.”
- Quoted from FDIC website.
There are similar insurance organizations in Singapore, Europe etc. as well. For example, the SDIC (Singapore DIC) insures up to S$75K per depositor.
Our Proposal – build the FDIC of crypto space – the CDIS
Introducing the Deposit Insurance Scheme of our industry – Crypto Deposit Insurance Scheme (CDIS), protecting the end users, enhancing market stability, and restoring public confidence. When the next storm comes, there will be an umbrella for everyone.
We have professional support from a global insurance and risk advisory institution
, and a leading legal & compliance firm on this front.
How will it work?
1. This Scheme will be initiated by the InsurAce team, with participation from major exchanges, and custodian providers in the industry as the DI Scheme Founding Partners. They will inject initial funds into the DI Fund pool.
2. The CDIS will be set up as mutual insurance structure. KYC-ed customers of these founding partner exchanges will purchase cover from the exchange platforms or directly from CDIS application, and the premium will be flowing into the DI Fund pool. The coverage will be aiming to protect the small/medium users only, insuring to a limit such as $10K per user.
3. In the event of any institution fails, the CDIS will perform claims and pay-outs to the affected users to secure their savings from the DI Fund pool based on the actual loss, up to the insured limit.
4. The InsurAce team will function as the insurance manager of this insurance scheme and handle all operations while supervised by the members of the mutual and regulators. This will be implemented via a governance framework.
This CDIS solution will combine the best practices from FDIC, SDIC, etc, and also the Web3 technologies to cater to the needs of the crypto industry, maximizing transparency and efficiency. Meanwhile, we will also seek a regulated path for it going forward to bring it safely to global crypto users. .
We will use Web3 technology (DLT, tokenization, etc.) to bring full transparency to the operations of the mutual.
- User Protection
We will focus on protecting the small and medium depositors. Each KYC-ed user will be automatically insured up to a certain limit.
- Established (re)Insurance Best Practices
We will follow existing best practices in the (re)insurance industry to manage risks, such as mutual insurance, enterprise risk management, data management, and claims infrastructure.
- Compliance with regulations
Our team is already in the process of seeking regulatory framework for crypto insurance, we can bring CDIS to a regulated environment.
InsurAce Protocol is an early pioneer in Web3 risk protection since 2020, with a dedicated and professional team that works at the intersection of Web3 and risk management. The team has built up a deep understanding of Web3-native risks thus far and is committed to building for the long-term in the Web3 risk management vertical.
- Industry Pioneer
InsurAce is the leading multi-chain decentralized cover protocol, providing protection to Web3 users for their digital assets.
- Experienced Builders
The InsurAce dApp is the only protocol live on Ethereum, BNB Chain, Polygon and Avalanche, protecting $350M of digital assets for 130+ DeFi protocols on 20 public blockchains.
Our products cover smart contract hacks, custodian risks, Stablecoin De-Peg events and more. This includes cover protecting users of FTX.
- Web3 Models
Mutual insurance model with DAO governance, leveraging the Web3 tech stack (DLT, smart contracts, DeFi, etc.).
- Proven Track Record
Paid $11.7M of claims to UST De-Peg policyholders caused by the collapse of Terra in May 2022 – the single largest claim payout in crypto insurance history.
InsurAce aims to launch the CDIS in the coming months. The team is working closely with industry experts from both web3 and insurance to bring the CDIS to users immediately. We encourage any crypto institutions such as exchanges, custodian providers etc. to participate in this insurance scheme and reach out to our team via email@example.com