Umbrella Protocol is the insurance protocol launched by Yam Finance. Its core component is the MetaPool, where parties providing protection can deposit funds and those seeking protection pay premiums. Each MetaPool contains multiple Coverage Pools, each with a specific protocol or contract. Parties seeking protection can seek it through these contracts or protocols. Additionally, fees and funding rates for MetaPools remain constant after creation.

Overview

The Umbrella Protection Protocol aims to benefit both policyholders and underwriters. Policyholders, after depositing a certain amount of insurance funds and paying premiums, can receive compensation to mitigate risks in case their investment products suffer from exploit attacks; while underwriters, after committing underwriting funds and assuming risks, can earn corresponding premium incomes. There are two types of pools within the Umbrella Protocol: the first type, called MetaPools, are established by underwriters who inject underwriting funds and have access to these pools. The second type, known as Coverage Pools, offer insurance services for various products (protocols or contracts), into which policyholders deposit a certain amount of insurance funds. MetaPools provide support for claims payments for Coverage Pools. Each MetaPool covers multiple Coverage Pools and provides financial backing for claim payouts. For example, one MetaPool might be dedicated to insuring "lending protocols," covering multiple Coverage Pools that provide insurance for lending products like Compound, Aave, and Cream. If any of these products (protocols or contracts) are subject to an exploit attack and deemed valid by an arbitrator, a portion of the underwriting funds in the relevant MetaPool will be used as compensation for those who participated and insured the affected product.

Establishment and Function of Pool Types

Anyone can create and submit a MetaPool, i.e., an underwriting pool, and have claims reviewed by an arbitrator of their choice. Once created, MetaPools cannot be modified; any update requirements necessitate the creation of a new MetaPool as a replacement. Therefore, when creating a MetaPool, numerous setting parameters must be considered:

Coverage Pools
Insurance pools, each MetaPool covers a series of product (protocol or contract) Coverage Pools, into which policyholders deposit a certain amount of insurance funds based on the insured item. On the other hand, underwriters provide claim payment support for these pools within the total underwriting fund limit.
Arbiter
The Ethereum address owner selected as the MetaPools arbiter is responsible for confirming the validity of claims.
Protection Description
The protection responsibility description stipulated by the MetaPool creator, the arbiter has the final say in interpreting this description.
Arbiter Rate
The fee from premiums used to pay the arbiter for arbitration services, the ratio of arbitration fees to total premiums is the arbiter rate.
Creator Rate
The fee allocated to the MetaPool creator from premiums, the ratio of this fee to total premiums is the creator rate.
Funding Rate
The funding rate function determines the level of premiums paid by policyholders.
Bonding Curve
The bonding curve function determines the number of insurance tokens minted or burned when policyholders deposit or withdraw their insurance funds.
Provider Withdrawal Period
The provider withdrawal period is designed to prevent runs in case of exploit attacks, it is the time period between when an underwriter requests to withdraw underwriting funds and when they receive the funds.
Seeker Purchase Period
The seeker purchase period is designed to prevent over-minting in case of exploit attacks, it is the time period between when a policyholder buys insurance and when the insurance becomes effective.
Protection Asset
The asset that policyholders place in other products (protocols or contracts) and insure to hedge against risks.

Each MetaPool (underwriting pool) and its covered Coverage Pools (insurance pools) form a self-sufficient independent unit. This means that the [Compound Coverage Pool] in MetaPool A and the [Compound Coverage Pool] in MetaPool B are completely independent and unrelated in terms of insurance price, payout ratio, and claim processing.

Underwriting

The underwriting funds committed by underwriters in MetaPools generate a cash flow return in the form of premiums, and an ERC20 token is generated as proof of the underwriters asset commitment. If any of the multiple different product (protocol or contract) Coverage Pools covered by a MetaPool suffers an exploit attack and becomes liable, the MetaPool will allocate a certain portion of the underwriting funds for compensation to the affected Coverage Pools policyholders. Underwriters receive premiums as a return for committing funds and assuming risks, the funding rate for premiums is determined by the utilization rate of underwriting funds in each Coverage Pool, and the funding rate function is set at the time of MetaPool creation. Underwriters can withdraw their underwriting funds at any time, but the withdrawal must comply with the withdrawal lock-in period set at the time of MetaPool creation. Since the utilization rate of underwriting funds in MetaPools does not exceed 100%, the amount of underwriting funds that underwriters can withdraw depends on the utilization rate of underwriting funds in the MetaPool at the time of withdrawal.

Insuring

Policyholders deposit a certain amount of insurance funds in product (protocol or contract) Coverage Pools to obtain insurance services and pay premiums according to the funding rate. At the same time, policyholders receive a perpetual ERC20 token as proof of their insurance status. Operationally, this perpetual ERC20 token is similar to the collateral token (cToken) in the Compound project, where the underlying asset balance decreases cumulatively with the payment of premiums. Because the amount available for compensation should correspond to the deposited insurance funds, the compensation amount that policyholders can receive also decreases over time. When policyholders deposit a certain amount of insurance funds to obtain insurance services, there is a delay before the insurance takes effect. The purpose of this is to ensure that in the event of an exploit attack, policyholders do not take advantage of the situation to over-mint unethically for profit.

Claim Processing

Any policyholder affected by an exploit attack can represent the relevant Coverage Pool and submit a claim to the arbitrator. According to the agreed-upon protection description, if the claim is deemed invalid, the operation of the Umbrella Protection Protocol remains unchanged; however, once a claim is recognized as valid, it enters the compensation process. The compensation amount equals the sum of the insured funds in the affected Coverage Pool and the unused underwriting funds in the MetaPool. For example, suppose a MetaPool currently holds 1,000 DAI, and the three Coverage Pools covered by this MetaPool each hold 100 DAI. If one of the Coverage Pools product protocols is subject to an exploit attack, the corresponding compensation amount for that Coverage Pool would be 800 DAI. The calculation method is as follows: Affected Coverage Pool Insured Funds + (Total Underwriting Funds in MetaPool - Total Insured Funds in All Coverage Pools) = 100 DAI + (1,000 DAI - 300 DAI) = 800 DAI. Using the same algorithm, if the MetaPool covers six Coverage Pools, and each Coverage Pool holds 100 DAI, the compensation amount in case of a loss in one of the Coverage Pools becomes 500 DAI. This ensures that each Coverage Pool receives a compensation amount no less than the insured funds when a loss occurs. At the same time, underwriters can calculate the maximum fund drawdown after compensation. Whenever a claim is recognized as valid, the affected product (protocol or contract) Coverage Pools are automatically re-established, and the MetaPool continues to operate after the compensation process.

Dissolution of Pool Types

If the arbitrator is unwilling to continue performing arbitration duties, they may choose to dissolve the MetaPool. At this point, the funding rate is set to zero, allowing all parties involved to immediately withdraw funds while prohibiting deposits. ``` ```