Editing Decentralized underwriting (section)

=== Health ===
We define an iDAO to be ''healthy'' at the moment if 

# The governance process of validating insurance contracts is functioning properly. I.e., the DAO accurately valuates REP tokens and guarantees sufficient REP is encumbered to cover a claim. Further, it has done so in the past for all existing contracts.
# The market has not invalidated previous estimates. I.e., all existing contracts have sufficient REP encumbered to cover their claims, despite market changes to REP valuation since the contracts were written.
# The REP-to-BOND market is liquid.
# There is sufficient demand for insurance, and there are sufficient numbers of underwriters to write contracts in the future to maintain premia at the rate estimated for previous valuations of REP tokens as stipulated in all previous contracts.
# The contracts are approximately independently distributed probabilistically.
For example, an easy way to see how an unhealthy iDAO can fail is if assumption #5 is completely violated. If every single customer claims simultaneously, then stops paying premia, and no other customers sign contracts in the future, then the BOND market will fail. However, in that situation of extreme non-independence, all of the underwriters were not doing a very good job of finding diverse populations of customers, and so deserve to fail. 

Even in this example, however, if the market is at all liquid because there is some percentage of underwriters who continue to write contracts that earn premia for the remaining REP tokens, then the iDAO is likely still succeed. To see this note there is no difference to REP valuation between the three following situations: 1. bad underwriters write bad contracts and so convert their REP tokens to BOND tokens to pay out claims, or 2. the bad underwriters stop working and wait for the REP salary to pay out their existing REP value, or 3. the bad underwriters take a [[Graceful Exit BOND market|graceful exit]]. Further, in any of these situations the iDAO is eliminating bad underwriters while only paying them a fair valuation of their REP holdings' worth. Since the bad underwriters' REP holdings were achieved by enriching the rest of the underwriters through the REP salary, we see that paying the bad underwriters through #2 or #3 is still fair. This shows how robust the DAO underwriting mechanism is against sub-populations colluding to destroy the value of any particular iDAO, unless they constitute the entire DAO, in which case the value being destroyed is just.