Amulet Protocol
Amulet is a Defi insurance protocol for the Rust ecosystem with initial development on Solana (Cosmos in the near future).
How does DeFi insurance work?
Similar to traditional insurance, DeFi provides financial security for all users interacting with Web3 financial products. DeFi insurance currently covers risks related to smart contracts, depeg stables, economic misconduct, etc. Of all these risks, the use of smart contracts was one of the most significant contributors to losses of almost USD 3 billion in 2021. By hedging these initial risks and expanding Amulet's coverage, Amulet aims to create a safer Web3.
Why was Amulet created?
*DeFi has been booming since the summer of 2020. As the market grows, so does the demand for hedging. Despite the dominance of Ethereum and the associated EVM (Ethereum Virtual Machine) ecosystem in DeFi, other Rust-based public chains are also growing rapidly, with Solana leading the way.
We predict that with the growth of Solana as a key Tier 1 solution, demand for insurance and other risk management solutions in Solana and wider Rust ecosystems will soon grow rapidly. However, insurance still does not exist in Solana and is virtually non-existent in the Rust environment. This is a unique "blue ocean" opportunity that Amulet is immediately leveraging to meet the growing market demand for security. (modified)
What is unique about it?
At the heart of any insurance business is underwriting (the process of accepting insurance risk) and claims. However, all existing decentralised financial insurance (DeFi) protocols face a critical problem related to the sustainability of underwriting and claims payments. Amulet is establishing for the first time in the industry a Protocol Controlled Underwriting (PCU) whereby Amulet will build its underwriting capabilities and implement a claims structure that includes multiple buffer levels. This represents a significant departure from current underwriting models, where underwriting capacity is leased from capital providers, in favour of a more sustainable, protocol-controlled underwriting and reimbursement structure.
What is a PCU?
The ***Protocol Controlled Underwriting (PCU) approach involves the creation of independent underwriting capacity controlled by the Protocol, rather than leased from stakeholders as the main source of underwriting. We believe that this new model has the potential to be scalable and sustainable. Read more about PCU in Litepaper**
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What risks are covered by Amulet?
Smart contract vulnerability: smart contract failure if a covered protocol is exploited or does not work as intended.
De peg: the risk that a stable coin would trade below its peg value for an extended period of time. This is currently only available for USD stablecoin currencies.
Penalty reduction: Penalty reduction penalties are not currently in place in Solana, but we intend to offer this cover when this part of the protocol is implemented.
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