Decentralized underwriting

??Insurance DAOs (iDAOs) for creating decentralized underwriting markets, based on this paper.

Insurance DAO protocols

Components

1. DAO = {Underwriters}
2. Underwriter ∋ REP tokens a) Propose contracts with REP b) Police contracts with REP
3. Insurance contract (Work smart contract)
4. Validation Pool

Token scheme

Workflow

(See Figure 1.)

1. Underwriter $U_{1}$ sells a contract to a customer.
2. $U_{1}$ encumbers the canonical amount of REP in the contract.
3. Contract Validated by DAO.
4. Customer
   • pays premia, or
   • defaults, or
   • claims
5. DAO
   • mints REP for $U_{1}$ proportional to premia & distributes REP salary, or
   • cancels contract, or
   • pays claim by selling encumbered REP at market

Figure 1: iDAO workflow follows basic DGF workflow iterated each time a premium is paid.

Notes:

• If a customer makes a claim on the policy, the contract governs how the claim is validated. Typically an oracle and an adjudicator are necessary for this step, which are outside the scope of this specification.
• If a claim is validated, the underwriter's encumbered REP is auctioned at market to pay the claim.
  • If the auction price of the encumbered REP is sufficient to cover the claim, and excess cash or REP from the auction is returned to the underwriter.
  • If the auction price of the encumbered REP is insufficient to cover the claim, further REP is minted and sold at market until the claim is covered. Any excess cash from this process is donated to the iDAO's capital reserve.

Consequences

Properties engendered

• More auditable/transparent
• More stable, trustworthy
• More meritocratic (rewards and punishment are isolated to the agent)
• Democratized access to participation at all levels

Capital reserves can be eliminated

economic justification

Where we stand practically in deFi

Missing:

• (d) oracles
• *adjudication
• (d/e) stable coin
• (e) smart contracts
• regulatory clarity