Risk of Staking

When staking your assets, you are trading liquidity risk with the insured by returns via staking pool. And rewards are not guaranteed because these are always subject to changes by the protocol and can also be affected by external factors.

Factors that can affect Staking & Rewards:

  • Stake Impairment Loss

  • Locking period

  • Solvency Capital Requirement

  • Liquidity and Volatility

Stake Impairment

The tokens staked are used to build up capital pools. Capital pools are cornerstones used to lay the foundation of insurance capabilities. Events such as insurance claim payouts, hack incidents to the pools will cause permanent drains in the value of your staked assets.

- Claim Payout

In the event of claims approval, part of the tokens in the capital pool will be used for the claim payout. As elaborated in Staking Formula, as the principal token amount deduced, it results in depreciation of your LPToken which affects the amount upon withdrawal.

The rules for claim payout upon the staking pools are illustrated below.

By the time of main-net launch in Apr 2021, there are 6 capital pools, which are ETH, WETH, USDC, USDT, DAI, and INSUR. The payout processes are stated as below:

1. Claim payout will first be drawn from the premium pool, the maximum deductible is 20% of the premium pool balance in a single claim.

2. If 20% of the premium pool is not enough to cover the whole payout amount, principal tokens in capital pools will be used to settle the payout amount balance.

3. Based on the exchange rate and pool size, a weightage-based haircut will be taken evenly from each of the staking pools.

- Cyberattacks

Other events like cyberattacks to InsurAce protocol which causes the loss of the staking pools, staked tokens may be drained unexpectedly as well.

Please note, the token staked in the capital pool are not entitled to any insurance coverage from InsurAce.

Lockup Period

When you stake your token, they will be set to a locked state. During this time, the tokens cannot be moved or traded. You cannot withdraw staked assets immediately right after you unstake, which will be subject to a lockup period of 30 days (configurable).

Unstaked amount will be available or withdrawable after the lockup period ends. However, if you initialize another unstaking action before the 1st lockup period ends, the lockup period will be recalculated and unstaked amount will only be available for withdrawal after the final lockup period ends.

Solvency Capital Requirement

As elaborated in Capital Provision, InsurAce derived coverage capability based on total capital pools from both insurance and investment portal. Conversely, capability sold determined the minimum solvency capital requirement in the capital pools. In the event when insurance capabilities are saturated, stake withdrawal will be constrained as deficient or limited free capital available.

Liquidity and Volatility

The price of the staked tokens might be volatile which may go up and down in a split of seconds. When tokens are staked, you can only watch the market. There are also risks that the tokens will lose their liquidity and thus results in a financial loss.