COVER Protocol (COVER)

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(Redirected from SAFE Protocol)

NO LONGER LIVE. CLOSED DOWN.

Basics

  • The expected launch date of the beta testing platform was Nov. 1, 2020.
  • Closed down on 5-9-2021

History

"Insurance Chef along with a team of core developers and advisors will spearhead the migration of SAFE tokens to the new COVER protocol."

"There has been a tremendous amount of confusion regarding SAFE, so we want to be clear and state that SAFE is not an official Yearn product. However, members of the Yearn community have provided assistance to the SAFE development team, including a $25k grant. The SAFE UI is forked from Yearn’s voting/staking UI, which can be found here. Therefore, despite the UI similarities and financial assistance, SAFE is not an official Yearn product."

"Some readers will remember the full history of Cover Protocol, who rebranded from SAFE after both @azeemfi and @chefcoverage made poor decisions. They then launched SAFE2, which was migrated to the COVER which we know today."

"To overcome the limitation of KYC, Yearn Finance created yInsure where users can buy Nexus Mutual’s covers without doing KYC. yInsure was supposed to be taken over by Safe Protocol. However, due to some infighting between the founder, Alan and a prominent community member, Azeem, the project was canceled. Alan went on to release Cover Protocol, and Azeem took over the yInsure product and released Armor protocol."

Audits & Exploits

"There have been four audits covering different components: first with PeckShield covering core protocol and claim management, second with Arcadia on shield mining (deprecated now) which included the exploited BlackSmith.sol contract, third with MixBytes (via Yearn Finance) on the intermediate routing layer and most recently by Maxsam4 on bonus token rewards.

The PeckShield audit was during November 2020 with 2 auditors reporting 0 critical, 1 high, 2 medium, 4 low and 1 informational severity issues. All issues were fixed.

The Arcadia audit reported on 1 December 2020 with 1 auditor finding 1 high, 2 medium and 1 low severity issues. All issues were fixed.

The MixBytes audit was a 3-week audit (25 December 2020 to 11 January 2021) with 2 auditors reporting 0 critical, 2 major, 4 warning and 1 comment severity issues. Except the warning on front-running, which was acknowledged, all other issues were fixed.

Maxsam4’s audit was reported on 18 January 2021 with the single auditor reporting 0 critical, 3 major, 3 minor, and 2 informational issues with 7 of them fixed and 1 acknowledged.

Overall, there were some red flags raised by the audits, prior to the exploit, which were fixed. But the exploited vulnerability unfortunately went undetected in Arcadia’s audit."

Bugs/Hacks

"Cover Protocol announced it’s exploring launching a new COVER token through a snapshot after its current one was abused in a minting attack by a “white hat” hacker on Monday morning."

"The hackers sent some of the money back, attaching to the transaction the message, "Next time, take care of your own shit." Grap Finance, another DeFi protocol, took responsibility for the exploit."

"The original attack had four steps and one attacker, but the story became more complicated once the loophole was made public, and other wallets replicated the process."

  • From Decrypt (31-12-2020):

"Crypto exchange Binance has announced that it will compensate its users who were affected by the recent Cover Finance hack. Binance will distribute just over $10.1 million in BUSD and ETH from its SAFU Fund. Per Binance’s announcement, after reviewing the latest compensation plan from the Cover Finance team, the exchange discovered that a large number of its customers bought COVER tokens after the proposed snapshot time and would be left with worthless assets as a result."

  • From their own blog (31-12-2020):

"Security is our number one priority over anything else. We are exploring partnerships with devs and projects. At the same time, we have the following process in place to ensure the security of any future deployed code.

  1. Extensive testing including

○ unit tests
○ integration tests
○ testnet testing
○ exhaustive edge case testing

  1. Multiple rounds of rigorous internal code reviews
  2. External code reviews by experienced devs
  3. Minimum two official audits"

Governance

"Cover Protocol governance is live. The community will now be able to help shape Cover Protocol through proposals and gauge voting. The governance portal can be found here."

Treasury

  • Has a Team Fund (7-1-2021):

"We (6 of us) are forming a Team Fund for @CoverProtocol. The sources are from donations from team members. We will not sell any COVER tokens from the team fund. It will be used for purposes (like donations) that we as a team deem suitable."

"0.1% fees will be charged on redeeming CLAIM and NOCLAIM tokens. COVER token holders have the right to vote on how to use the treasury."

Token

Token allocation

  • After the COVER hack happened and the 3rd token migration came, some of the tokenomics changed (31-12-2020):
  1. "The new $COVER supply is no longer under inflation and will be capped at the amount snapshotted at block 11541218 (WIP on exact total amount)
  2. Protocols will be able to provide rewards to LPs through our UI and revised rewards program
  3. Coverage will become more affordable due to less market-buying of CLAIM tokens for farming
  4. The growth of Cover from now on will be purely organic, rather than fueled by mining the native token"

Utility

"0.1% fees will be charged on redeeming CLAIM and NOCLAIM tokens. COVER token holders have the right to vote on how to use the treasury. The staking of COVER tokens to earn dividends is being discussed, but details are not finalized."

Token Details

"For each DAI deposited, the user receives 2 tokens, a CLAIM token and a NOCLAIM token. The NOCLAIM token represents rights to receive the deposited collateral in the event that a claim payout is NOT awarded during the designated coverage period. The CLAIM token represents a right to receive the deposited collateral (or a fraction thereof) in the event that a claim payout is awarded by the claims management process.

There are three types of participants in the Cover Protocol market: Market Makers, Coverage Providers, and Coverage Seekers. Market makers hold both CLAIM and NOCLAIM tokens and provide liquidity in DEX pools. Coverage providers hold and provide liquidity for only NOCLAIM tokens. Coverage seekers hold only CLAIM tokens to cover the exposure to the protected product."

Technology

How it works

"The claims managements process allows anyone to file a claim against a protected product by paying the claim file fee. Token holders vote to decide whether it is a valid or invalid claim. Valid claims will be passed to a Claims Validity Committee (CVC) which is made up of security auditors (currently includes PeckShield, Arcadia, Haechi, Hacken and others) and evaluates the claim against the exploit incident to make a final decision on claim validity and payout percentage."

Upgrades

"Less than a week after COVER was exploited for $9.4M, a migration portal is now live for holders to claim a new token based on a snapshot that happened prior to the incident.

COVER holders can now migrate from old COVER to new COVER at a 1:1 ratio, marking the fourth migration for the community-incubated insurance protocol."

Liquidity Mining

"SAFE’s liquidity incentive program launched this week and users are able to earn SAFE governance tokens by staking either yNFT (ETH), yNFT (DAI), or wNXM. yNFT (ETH) and yNFT (DAI) are Yearn insurance covers that can be purchased at yInsure. yNFT (ETH) vs. yNFT (DAI) specifies whether the claimant would receive either ETH or DAI in the event of a payout. wNXM is the wrapped Nexus Mutual token, which underwrites the yInsure capital pool. A fourth pool also receives SAFE rewards was added shortly after the first three to create liquidity for the SAFE token, and this pool is a 98/2 DAI/SAFE balancer pool."

Other Details

Claims

"There are two options for users to file for a claim:

  1. Regular claim: A regular claim costs 10 DAI. COVER token holders will first vote on the validity of the claim. Then it will move to the Claim Validity Committee (CVC) for a final decision.
  2. Force claim: A force claim costs 500 DAI, and it is sent to the CVC directly for a decision.

The CVC consists of external smart contract auditors. Cover Protocol will refund the claim filing cost if the claim is approved.

Yearn Finance suffered an $11 million hack in February 2021. Cover Protocol decided to only have a payout percentage of 36% due to the loss being only 36% of the vault affected. If users hold 1,000 CLAIM tokens, they receive only $360. There were only $409K of CLAIM tokens available for Yearn Finance. Effectively the market makers only lost $147K. Cover buyers should realize that buying insurance from Cover Protocol does not guarantee a full payout of loss. The way the claim payout is decided is more similar to a prediction market."

Usage

Claims

"A claim was filed yesterday with DeFi insurance protocol Cover following the $19 million Dai hack of Pickle Finance — and so far, the majority of users want to see a payout happen.

According to the claim on Cover’s website filed Nov. 21, there have been 99 votes at the time of publication throwing roughly 9,800 COVER tokens — more than 99% of respondent tokens — behind a "yes" vote to pay out affected coverage holders. Ivan Martinez, a technical advisor for Cover, said on Twitter that should the vote pass, the claim will move to its Claim Validity Committee “to decide if it’s valid for a payout or not.”"

Projects that use or built on it

yEarn and Cover relationship (Ended)

  1. "Cover provides a wider range of coverage and accepts more types of collateral.
  2. Cover products like perpetual coverage will get an expanded addressable market.
  3. Cover expands into a new cover money market, making the CLAIM token a collateral & borrowable asset.
  4. Yearn gets coverage for vaults and can offer users a reduced risk product.
  5. Yearn can focus on vaults and lending, with yInsure (and yNFTs) being taken over by Armor.
  6. YFI cover writers earn increased fees from YFI coverage underwritten."

Competition

  • Other insurance protocols, like Nexus Mutual, Armor Finance, etc.
  • From this insurance deep dive (3-2021) on the difference between Cover and Nexus Mutual:

"Nexus Mutual allows capital providers to have 10x leverage on the capital they stake. This translates into higher premium income for the stakers. Capital providers do have to take on more risks, but this approach is more aligned with how the traditional insurance providers spread the risk across multiple distinct products that have different risk profiles. In the meantime, capital providers for the Cover Protocol could not leverage their capital as every pool is isolated. There are plans to bundle up different risks together in Cover V2, but details are scarce.

Cover Protocol’s covers are more expensive than those from Nexus Mutual due to less capital efficiency. For example, buying cover sold for Origin Dollar would cost 12.91% annually in Cover Protocol, while it only cost 2.6% in Nexus Mutual. We can calculate capital efficiency quantitatively by dividing the active cover amount over the capital pool. Nexus Mutual is having a capital efficiency ratio as high as 200%. While for Cover Protocol, by design, it will always be less than 100%.

Cover Protocol only has coverage for 22 protocols, while Nexus Mutual has coverage for 74 counterparties. Nexus Mutual offers more flexibility on cover terms where users can decide to start the cover on any day and have a coverage period up until one year."

Team, Funding, Partners

Team

  • Full team can be found [here].

"COVER protocol has added two new core developers who will be working on the project alongside Insurance Chef. The list of advisors to the project include Andre Cronje, Blue Kirby, Sam Bankman-Fried, the founder and FTX exchange and Serum, and Ivan Martinez, a prominent developer among crypto circles."

Funding

  • From Crypto Briefing (19-9-2020):

"Insurance Chef, a final year college dropout, received a grant of $25,000 and five Ether from Andre Cronje, the founder and curator of yEarn Finance, for building the COVER protocol. The new DeFi chef also received an undisclosed grant from Blue Kirby, also of yEarn Finance."

Partners 

  • Partnered with PolkaCover; "we will be featuring their [Cover Protocol] smart contract and platform covers on our marketplace." (14-7-2021)

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