 October has been an amazing month. I went to DEF CON. It was cool to travel to Columbia. It was the first time of me being in South America and you know then I took two weeks off so I just got back. It feels great and really energizing. I suggest that I haven't taken time off for two years and definitely recommend helps you with the mental health. But it also has been a record breaking month for crypto. As you see at the bottom there, October 44 exploits. That's a record. Three billion year-to-date has been lost, which is also a record. We have the best most successful year so far. And with that basically why I'm saying all this is because the security and the technology doesn't get better automatically. Like we have many teams around focusing on security, how we can build like better tools, better practices, and create bulletproof code. But that's even though it can get better, we'll never get to the point of no hacks, no exploits. People make mistakes, people write code, and that's normal. That's just the reality. Like from first principles I do not believe that we can build bullet proof protocols that will never lose any money in kind of unintended fashion. So because of that, the need for insurance I think is quite apparent and very few people argue actually with that. However, right now we know the landscape of all the problems that we have in teams try to do their best. Some don't care so much and just winging it. It's okay. We are very much in experimentation phase. But then paired with all that we're doing, we need to scale up the whole insurance industry. And so far that has not been very successful as probably most of you know. The traction is very low. The main problem is I guess lack of underwriting capital because insurance is all built around capital efficiency on like leveraging on your capital in order to produce yield. Right now as you know a liquidity provider or a guy with some cash, I want to make more money. I'm not going to put money in insurance protocol for whatever reason it's sometimes trust because obviously all the protocols are levered and so you have to kind of trust that they're not going to go into default. That's one problem but then also because the demand is questionable and everyone tries different products to see and test the market where the actual need is coming from. Because the early assumption was hey like everyone wants to stay protected but that's not true. Usually you know most of us here I think are kind of defy enthusiasts and technologists. We're okay with just aping or like deploying a bunch of cash like on different protocols and then overall like that plays out if you're diversified well. But then the reality today is the numbers are pretty low and all the protocols that are out there don't really have a lot of capital compared to all the defy TVLs. And everyone tries to tackle problems from different aspects. That's why I personally like our niche very much because literally everyone here does completely different thing. And so there are a lot of ideas. It is very friendly environment and we're not really limited by competitive advantages which is feels good right now. However, yeah I mean the problem is still there and it's been like two years of a lot of active development by many teams. There are also some new protocols and they try to hit other niches but then everyone kind of battles with the same challenges. So today I'm not really coming with so many answers but I just want to intellectually engage you, steer some ideas, maybe bring on the light of the stuff that we're working on what experiments or other teams are doing just so you become a little more aware. And I'll start in the reverse order now. So the reinsurance market there's a new team called REE and it's really cool to see a new wave of projects that try to go in the real world aspect. So this reinsurance market what they actually start or like trying to achieve and they just raise some capital is taking reinsurance market for traditional insurance firm and just executing that stuff on chain. So you know or heard of Lloyd's they are the biggest reinsurance market right now. Basically most of the insurance firms around the world they trade their long tail risk. By long tail I mean kind of your risk of default or maybe like not having enough operating capital to pay down the claims. So that's what thereafter has nothing to do with DeFi but I thought it would be cool to bring this up. Real world assets is something different teams talked about over the last few years. The real motivation there is that in insurance you want to be diversified. You want to take a bunch of uncorrelated risks because then you can take on more risk and make more money off of it. So Nexus Mutual has voiced the intent to do that. I don't have any intel how far they've gotten but it's not really live yet. Nimble is another team that just getting started there and the idea is at least like for Nexus you know they can take on a bunch of DeFi risk but then also leverage on their capital with some real world insurances and so that should increase the yield and the utility of the capital that they can provide. Then RCA it stands for reciprocally covered assets and it's been launched by Ease I think just a few months ago. Ease is you probably heard of Armify they just kind of created no KYC wrapper for Nexus Mutual but now they actually have their own like new major push the product they rebranded for Ease and the way I understood it in the simple terms is it's sort of a mutual basically they say it's a no premium insurance but obviously there's no free lunch you know and what you do is you take your tokens and wrap them in a vault and all the different people like wrap their yield bearing tokens in different volts and if some of those tokens takes a loss because of a hack or exploit or some like devaluation of that token then they rebalance all the volts so basically by wrapping your assets if something happens to your assets then everyone else pays you back but then again if somebody else gets hacked you will lose part of your kind of like deposit there so it is very interesting to watch how like people react because you know of course people are always willing to give up their risk maybe like pay a little for it but then when you cannot account for the losses you might take on that that makes people a little more like wary and not and hesitant to part take and the last one is actually the new product that we've been working on for the past like half the year and actually started like envisioning it about a year ago we call it solace native and it is basically inspired by FDIC in a sense that we want to create a federated insurance system for the Dallas so the protocols should take it is my believe a responsible approach we say customer protection is kind of like one of the terms but I think every industry around the world benefited from that and allowed users to actually if not blindly but comfortably just engage with the products today as protocols and DeFi we ask people to read the docs you know to trust our audits but then it takes a lot of time into work for the users and if we want to see the mass adoption I think it's expected that user should just come on your app and just buy or like use whatever tool we make at least a streamlined activity would benefit us all and of course there are more components to it a lot of people focus on UI UX design and just like make it easier because you know even getting your own wallet is a kind of like a problem sometimes but with the native insurance the idea is fairly simple all the protocols come together and put bunch of their token into the system that is leverages like an underwriting capital but then it makes them economically enticed to sort of follow the best practices and the rules that the whole federated system puts on the protocols and then if something goes wrong you know that you're going to get a payout and so that allows the protocols that participate in the system basically guarantee to their users that if we're going to get exploited we're going to get a payout that we will either transfer to make the protocol whole again you know sometimes you can just refill the vault and everyone is sappy but then another way is just to pay the users back and so some of the interesting things that we thought we should leverage is the native tokens that's part of the reason why we call this native is because everyone tries to underwrite with the liquid assets is like ETH or stablecoins and especially right now in the bear market it's really tough to get fresh capital especially externally but then even within the ecosystem that's really scarce and that's kind of the reason why so what we are forming is you can think of it as an index of all the different tokens of the different protocols that they contribute from their treasuries I think it's no secret that every protocol sits on like fairly big treasuries just full of their tokens that are only of paper value like you know we have millions of dollars of solar-stoken and I can't sell it I can't really do much with it it's just there as a paper money but then there's still way to utilize that and that's where we plan to harvest a lot of value for like this insurance system but then of course as a federated approach we want to drive the security and we've been partnering with a lot of different security agents you know smart contract monitoring so insurance doesn't really work without the security measures that are a card in place if you look at the real-world insurance you have the governments that mandate certain rules and make companies follow those makes you know users to do certain actions and that allows insurance firms to actually evaluate all the risks if we're ensuring protocol that can do whatever they want and we have no visibility into it there's kind of no way to manage the risk and evaluate and like assess all of that and so that's the problem with a lot of products you know sometimes people or like protocols or developers come like hey like you know can I get insurance for this and can I get insurance for that given the bear market I always say yes you know we could use money but in reality that's that's more of a joke sometimes because if we don't know how we can evaluate the risk that there's no reason or way to ensure that so with a lack of regulatory frameworks or hard rules that the teams or the protocols have to follow we need to incentivize them to use the best practices in their different ways to do it another thing that we did in like launch at the beginning of the year was the portfolio insurance it takes a very different approach from what every other protocol does in a sense that most of them sell you a policy for a protocol so if you deploy capital to let's say like Badger Dow or like other you would buy policy for that set exposure we wanted to make it easier for the users and asset managers in like C-fi because imagine if you're managing a portfolio of like 10 different exposures you need 10 different policies if you exit oftentimes you cannot cancel the policy so there's a lot of like friction and we wanted to streamline that so we thought let's focus on the address and ensure the address so you can just continue on with your yield farming and don't worry about insurance so the portfolio insurance actually is a policy that you buy for your address and then you deploy capital across four chains over 220 protocols you're insured everywhere it's dynamic and you only pay for what you use it every six hours it updates so you're always you know staying covered throughout your journey and that creates some actually like benefits to us even though we maybe are not able to like see the future of okay we're gonna put your money but it creates much more diversified portfolio of risk for us but then obviously you can benefit from it because your coverage limit that you usually set on your individual policies is a single one for your whole address and so the more diversified your portfolio is the cheaper is the insurance so that's another ongoing experiment but you know really it's pretty much like a finished baked-out product in right now we're only limited by the amount of underwriting capital we can sell so it gets usually just sold out but then because it's still very little amount we cannot like deeply lever into it that's sort of like the challenge we're in right now so I guess the question really I wanted to pose on this talk is if we can come up with like some more creative designs because the truth is everyone looks at the traditional insurance thing okay like what are they doing well and then try to just port it over and slap bunch of like different economics I mean there's like VE we have bunch of staking we have yield farming we have been bonding actually so we were the first protocols I think the only one I think I believe one of the Solana insurance protocols also followed the bonding model so basically we are the only EVM DeFi insurance protocol that actually acquires the underwriting capital so while everyone tries to attract it externally we buy it up because then it makes it easier for us to pay claims there are less of like incentives challenges because if it's somebody else's capital that you need to pay out it's you know how do you do it you can enforce them but then people get pissed and then they don't put the money and and so there are all these issues but then there they're a bunch of like new ideas that we've been thinking about is okay what if we can underwrite with illiquid assets or pay claims with liquid assets do people like need stablecoin payouts intuitively yes like you usually want to you know get your money back if you get hacked and not just in some like token that you cannot use but if you could use it and if it's like a fundamental block of like DeFi that then you can just move on with maybe that's that would be okay and acceptable in that whole challenge of like just underwriting capital is like pretty big but then also you see all the DeFi protocols sort of like build this like insurance model and then slap the token on top they use it to attract capital they use it for like voting or like staking to whether like assess risk or assess claims to do something but then maybe we can integrate more and create more like gamified model like you can you know imagine what if you buying an insurance equates to you just buying a token that's you know like one like simple idea but like people don't really like haven't really done that much so then some others is just claims processing I think that's where you as a user is like insurance buyer stark you wouldn't want to buy policy if you're not sure that you're gonna get payout back so that's at least where my journey started I remember you know in 2020 like watching Nexus Mutual launch and I thought that it's suboptimal and like that's not a product that I would use and that's what put me like on the path to go this way but still today claims are pretty suboptimal like there's very little confidence that you're gonna get a payout and usually it's either relying on the trust of the protocol is like faithful we see like insurance you know does pay claims which is nice but then they can also like not pay claim and with like Nexus Mutual with the whole like problem on incentives we know like there are a bunch of claims that should have been paid but haven't gotten paid and so a lot of teams look at like outsourcing claims to the third party so Uma and Clara's both like offer those kind of services and you know we work with both but then still you could think you know they're all these like token problems so like 51 percent attacks because like some of the claims have not been faithfully paid and when we look like okay can we have like a separate party outside of the protocol that can basically process the claims unfortunately the trigger based claims are really hard to like execute and like making it purely quantitative or automatic is still sort of like a dream we strive to achieve you still need human interaction there and kind of like look because all these exploits are sometimes brilliant but like really tough to like quantify or create automated systems that just evaluate whatever it's a valid claim or not or if there was a loss in a another interesting idea and actually like a lot of investors that we talked to you know say hey like you should have more actuaries like they believe that that will solve the problem and I'm smiling because that's I mean somewhat true like yeah there's always more intelligence you could use but then even right now that we do have like enough intelligence from like the traditional world and traditional actuaries to you know evaluate the risk and try to like assess that so that's not really like an underpinning challenge but then we could use more intelligence like with the risk management especially when you try to predict the future I mean like that's what we do right like we just look at our portfolio of like risk and try to see how much money we're going to lose that that's the whole goal like if we can gauge pretty well how much money we're going to lose then we can make money on it and that's where you could use like actuaries but that's the work that people need to be doing and it doesn't work when you just try to use wisdom of a crowd like if we all just vote of like okay what is the risk of you know event a we're gonna be far off the the actual value and so it takes intelligent work and you know full-time people so creating the network where we could like incentivize more financial mathematicians and individuals that already have the skills but don't really know how to like port them into crypto because what we were kind of surprised to see we thought that it's gonna be a big challenge to like actually like attracting like traditional risk managers but we have done our risk management risk assessment everything is open source all the numbers all the analytics all the models and we're like want to be very transparent I guess just for the philosophy of it but then the side effect of that was that we got a bunch of cool people in our discord from like traditional insurance firms and so I can firmly say that there is a lot of interest out there and people just don't know what to do in crypto like if you talk to like an actuary that you know works at Lloyd's every like a lot of people are excited by crypto but they don't know if they could use their craft that they already will know and so I think we could tap into that more through proper incentives and tokenomics this this probably more but yeah so the few like new things that we've been working on we know like some other teams so also pursue that is one of the big ones are audits like right now we know that okay audit is a good practice everyone is getting audits but then you don't really have this repercussions if you know you got audited and then you got hacked the auditors are not like really liable for any of that so you have these like a little like broken incentives thing in a lot of teams especially like auditors like maybe mostly auditors want to have now insurance with their audits and so that's where we started working with some into like rating that product so I think over the next year you'll see a lot more auditors being able to like actually offer insurance with their audits and of course like that's better for the teams you as a new project or like you launching a new product you get audited and then that already gives confidence to the users and so the user doesn't have to buy insurance really that's where we want to push the space where the users don't really have to worry about all these niche risks that are very tough to like analyze and evaluate I mean your best practice right now is just to diversify across bunch of different protocols but then I think we can do better reinsurance is another important one as I already like mentioned earlier like some teams are working on that in it might sound counterintuitive like we still don't have insurance and then we're already trying to build like reinsurance but those two kind of come in come together because we're insuring bunch of stuff we also want to get insurance for our own skin so that would be nice also recently we have a lot of I think talks and in Gauntlet and launch is launching like Dow Treasury Management Platform I think it's called but then there I think mimic is also so that there are a bunch of new projects and protocols that pursue Dow Treasury Management and try to like hedge the risk on that front because I mean in reality like most of the protocols are pretty bad at managing their treasuries I know like we've made tons of mistakes that cost us money and we could have done better over the last years and with that yeah with that like I think there are a lot more options and tools we can provide and like build for the Dow Treasury is because protecting kind of like the teams and the protocols it's easier and almost better than just trying to like go direct to the consumer because the users are might not be like aware of certain little things around the risk do you know stands for directors and operators insurance that's something that you see a lot in different traditional industries so if you are you know like a founder or something that was wrong you get sued you can get protected by that insurance and we know that in crypto founders do expose themselves to like a lot of risks even when we're all you know faithful developers I guess not all but you know most of us our builders like we're still exposed to a lot of risks and some insurance there it could be nice please like I would use it but yeah credit default swaps is another big thing thing we see more and more protocols trying to do under-collaterized lending or like lending to institutions and all that and so that really opens up a pretty cool avenue of like credit default swaps we know how huge the market is in the traditional world with that so these are just a few things that are kind of like in the pipeline right now so yeah like stay tuned but then yeah like we're not the only protocol that like working on those things and I'm really excited to see where we can take this so yeah given the time I'm just gonna close with that like my belief is that insurance should be built into like the foundation of defy it is built in every industry because that there's certain layer of protection that we need to provide to the users if we really want to see any scale and so I mean my job is to build better products you know get better product market they make the products cheaper because the problem with like capital and you know like the cost of it is just the spread between how much money how you have to pay versus how much money the investors are paying like underwriters is still like pretty big right so that's what all the teams try to like close down the gap and once we get closer to it there's gonna be a lot more traction and attention in fun so with that I'll finish thank you very much oh by the way also disclaimer like we have nothing to do with Solana you were saying in a part of the talk that your business in a sense is like predicting the future right and the better you can do it the better you can profit or the the better you can lower your costs and serve continue to serve your your your users and I'm wondering what is missing there like what are how can you do that better or what is missing there is it data is it the models how to improve on that yeah so the the models are not actually that much of an issue even though we do have very little history I mean really there's been two years and using two years of data isn't really often so good at like predicting so you have to build in more like safety factors and all of your models but as I said the the end like the problem is like closing that gap because insurance really works at scale diversification of the risk allows you to lever on your capital if you have one million dollars and you're trying to ensure two million dollars your yield on that is still gonna be pretty low and because of that it's really hard to attract more capital so there's this like chicken and egg problem that everyone faces the cold start of like insurance is really tough because yeah like just with low capital you cannot ensure a lot if you have a hundred million you know you could like ensure 200 to 50 hundred million dollars fairly comfortably and then generate yield on that that you can like pass on to your capital providers and that also allows you to drive down the premium you know right now kind of like the best rates are around 2% like annualized premium so like if you're insuring a hundred thousand dollars you would pay like two hundred two thousand and that sort of like burns a lot of users and kind of like stops them but that's only for the safe protocols like who the fuck wants to ensure a unit swap V2 like I mean I don't think it's ever gonna get broken but then with the new tools really you know it's you can get up to like you know 10% or like 15% right now across the board we see 5% is like the break even point like if you ensure the entire space and like you can charge like 5% and so like that that would like pay down like all the losses and stuff in overtime it actually is decreasing like you know we are getting better even though the numbers are still pretty big like the the risk rating on the capital is actually like going down so you know once it hits below like two or one percent then it's gonna be like very like easily accessible and be like easier to attract the capital to and so right now everyone launching and operating at small scale has to like charge a ton of money and then take on a lot more risk you know we are all pretty much like if you compare to like the traditional standards are like way way risky than anything and I mean like when people like talk about insurance smart contracts you know sometimes they just think it's like not worth it right now