Backstop and Security for Investors: The Insurance Proposal in Minswap

I propose establishing an insurance policy to provide an additional layer of protection to Minswap users in the event of possible hacks.

In this proposal, an additional percentage of the fees generated by all Minswap pools, either 0.5% or 0.1%, would be allocated for the repurchase of Cardano (ADA). These funds would be held in a cold wallet and would not be exposed in any pool within the protocol. They would be reserved exclusively for hack situations. In the event of a hack in a specific pool, the insurance would release the funds accumulated through swaps and deposit them into the wallets of the participants in that pool or into the protocol for newly affected participants (excluding old participants). For example, if 2,000 ADA were hacked from a pool and the insurance fund has a total of 10,000 ADA accumulated from swaps, the insurance would only reimburse the affected users with the stolen 2,000 ADA. If the hack resulted in a complete draining of the funds and the insurance couldn’t cover the entire amount, the insurance fund would be depleted, and users would receive a proportional amount of ADA based on their participation in the pool and the pool’s size relative to others. This consolation refund would provide a certain degree of protection to users in extreme situations.

Additionally, this proposal would have a deflationary impact on Cardano in the event that no hack occurs. By allocating a percentage of the fees generated to the repurchase of ADA, the circulating supply of the cryptocurrency would be reduced, potentially increasing its value in the market.

With the implementation of this insurance policy, Minswap would stand out as an AMM protocol on Cardano that prioritizes the security and protection of its users. Moreover, the proposal would have a potential deflationary effect on Cardano, which could be beneficial for holders of this cryptocurrency.

It is important to conduct a detailed analysis to determine the optimal additional fee percentage and ensure that the insurance policy is well-structured and adequately backed. By implementing these measures, Minswap would demonstrate a proactive approach to the security and protection of user funds, providing greater confidence and peace of mind to investors.

It is important to highlight that in the event of a hack that manages to even steal the contributions stored by the swaps, i.e., the added fee of 0.1% or 0.05% allocated to the insurance, this would indicate a complete failure of the protocol. However, in situations where the damage is lesser, the insurance would utilize a minimal amount to cover such damage, thus protecting the affected users.

Furthermore, it is relevant to note that the insurance cannot be attacked, as it is not part of the liquidity provision in the protocol or farming. This ensures an additional layer of security and farming for the funds.

While cryptography relies on self-custody of assets, it is also important to emphasize that the community itself plays a crucial role in protection and mutual assistance. By implementing this insurance, Minswap would not only provide a technical security solution but also foster a culture of protection and support within the user community.

These additional measures demonstrate the importance that Minswap places on the security and protection of user funds. By combining cryptographic self-custody with safeguards such as insurance, the aim is to create a trustworthy and secure environment for all participants.

In conclusion, Minswap relies not only on cryptographic technology for asset protection but also on the community itself to safeguard and support users. This reinforces trust in the protocol and provides peace of mind to investors, knowing that solid security and protection measures are in place.

In a few days i will make a diagram to explain my proposal. stay tuned, thanks for reading.

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Interesting idea.

Do any other AMM protocols provide this or is this something new?

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No, but it is an initiative.