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Supply Capital, Earn Premiums. Yield by providing Insurance with OVN
Our rebase tokens (USD+, DAI+, USDT+) are designed to minimize protocol risks. Therefore, we prioritize well-established protocols with a low-risk profile, such as Aave, Balancer, Uni V3, and others, over newer protocols or forks created by unknown teams. Our philosophy is that protocol risk is akin to a black-swan event that cannot be effectively hedged, insured, or diversified away from.
Since established protocols typically yield relatively lower returns, our rebase tokens, especially USD+, rely on delta-neutral strategies (ETSes) to generate attractive yields for our users. These ETSes can vary in risk level, ranging from low to medium or high. This means that there may be days when, by design, ETSes result in losses. These losses are typically modest, and we take steps to partially diversify and insure against them.
To address these concerns, Overnight introduces the Overnight Insurance Vault (one per chain). OVN holders can stake their OVN tokens in exchange for insurance premiums (1 INS = 1 OVN). Staked OVN tokens will receive a portion of the yield generated by insured strategies of our rebase tokens collateral (note that not all strategies will be insured). In the event of a loss on a specific day, the entire incurred loss will be covered.
On profitable days, excess yield generated by the strategies will accumulate in the Insurance Vault and will be used to purchase OVN tokens from the market, adding them to the vault. Conversely, in case of a loss, the opposite will occur. As these vaults will not be immediately redeemable, stakers will have a vested interest in supporting strategies with an optimal risk-reward ratio from the outset.
To mint and withdraw insurance tokens, there is no fee associated with these actions, making it cost-effective for users.
Users can mint insurance tokens at their convenience without any restrictions, providing them with flexibility in joining insurance.
However, when it comes to withdrawing insurance, users are required to initiate a redemption request. Upon making the request, there's a waiting period of 72 hours before the user gains access to a 96-hour window to complete the withdrawal of their insurance tokens. This process allows for efficient management of insurance withdrawals while maintaining a reasonable level of security.
It's important to note that the insurance vault is denominated in OVN, and insurance providers are expected to deposit OVN tokens. Additionally, insurance premiums are collected in OVN. This setup helps align the ecosystem with the OVN token and ensures that insurance operations are conducted using this native token.
As mentioned earlier, we are launching insurance on the Optimism chain first, and afterwards, we plan to roll out insurance on the Base chain.
Table of Insurance Premiums
- 1.Strategy: This column lists strategies from USD+ (DAI+, USDT+) collateral.
- 2.% in Collateral: This column represents the amount of this strategy in collateral of USD+ (DAI+, USDT+).
- 3.NAV USDC: This column displays the Net Asset Value in USDC for each strategy. It shows the total value of assets held within each strategy.
- 4.Premiums: This column provides information about the premiums retained as a share of the yield generated by each strategy. Premiums are the amounts retained from the strategy's yield which are paid to insurance providers. For instance, "Pika V4" retains 30% of its yield as premiums.
- 5.Total NAV USDC: At the bottom of the table, there is a row that sums up the total NAV USDC for all strategies (on the screenshot it is $6,126,519).
- 6.Total Premiums: The final figure (on the screenshot 8.82%) represents the percentage which is retained from the total yield of this collateral for premiums.
Calculation of Total Premiums:
- 1.Calculate % of the premiums for each strategy:
- For ETS Sonne&Velodrome USDC.e/OP: 50.4% * 0% / 100 = 0
- For Pika v4: 29.4% * 30% / 100 = 8.82%
- For ETS Aave&Velodrome USDC.e/WETH:: 18.1% * 0% / 100 = 0
- For Aave: 1.9% * 0% / 100 = 0
- For ETS Aave&UniswapV3 USDC.e/WETH: 0.2% * 0% / 100 = 0
- 2.Calculate the total premiums by summing the premiums for all strategies:Total Premiums = 0 + 8.82% + 0 + 0 + 0 = 8.82%