Explanation of the Check Dot Token CDT with the Insurance Protocol
We’re well into developing a new CheckDot trajectory. It’s time to tell you about how the CDT token will work in the future insurance protocol. It is a bit different from the other types of insurance that can be found in DeFi. Here is a summary of the key aspects.
Conceptually, the easiest comparison to make is with PancakeSwap. The CheckDot community contributes liquidity (in stable USDT, BUSD, USDC, DAI, … coins) into a shared pool of funds and receives proof-of-liquidity tokens in return. This is very similar to PancakeSwap where liquidity providers contribute BNB plus the other asset pair into a liquidity pool and receive a pool token in return.
PancakeSwap liquidity providers then charge a fee on transactions, as traders leave a small commission in the liquidity pool that is shared among liquidity token holders. Similarly, the surplus from Cover purchases goes into the capital pools held by the aforementioned liquidity providers.
Basically, the two models are very similar, but CheckDot adds several components on top of this basic approach.
First, the management of protocol updates by community approval (CDT Holders). Each update will be visible on dao.checkdot.io and each CDT token holder has a vote on the approval of new features.
Second, the insurance protocol is based on European insurance standards. We have therefore reserved a part of the system for calculating the solvency risks of the pools to avoid insuring new users if the risks are too high. Of course the risks vary between each type of cover, so expert appraisals are carried out every year to determine the risks of the covers and even to withdraw the covers if the risk is high.
To recap, we have several pools of shared capital to which the surplus from hedge purchases accumulates. It is possible to pay for hedges in CDT and stable coins. So that the protocol is able to have the level of solvency of the pools to guarantee or not the possibility of covering new hedges.
The other main difference with PancakeSwap is the shape of the binding curve. With PancakeSwap’s flat linkage curve, liquidity providers can exit at any time, they can all exit at the same time and everyone gets the same price. With CheckDot, we have a periodic linkage curve to calibrate equity levels. Each liquidity provider, when making a new deposit, will not be able to withdraw liquidity for a period of 15 days, which allows us to calculate and ensure the solvency of the protocol. Furthermore, when a claim occurs and the claim is accepted by the CDT holders in a vote, the funds are withdrawn at the same percentage for each of the liquidity providers of the capital.
If you would like to do more research, please visit our documentation pages in the next few weeks.
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