Users can spend 10K NAP to buy “50/50 ZZZ Insurance” on each ZZZ they’re staking.
For example, a user initiates an insurance policy, spending 10K NAP to insure their pooled ZZZ. At the time the contract is initiated, the value of ZZZ is $10,000. They’re insuring themselves against a drop below that threshold. If the price continues to rise up to $20,000, this has no effect on the insurance policy. The policy is for the price at the time of the contract initiation ($10,000=1 ZZZ in this case)
ZZZ Insurance in Action:
The Insurance Policy is only triggered if the price of ZZZ drops by 50% from the price at the initiation of their policy. So if they bought insurance when the ZZZ price was at $10,000 then they’d be covered if the price drops to $5,000.
In the case that the value of their 1 ZZZ drops to $5,000, then they’d be paid out $2,500 worth of a stable coin (50% of the loss). Thus, 50/50 insurance.
How do we get the stable coin? Sell the NAP Insurance Deposit right away, at contract initiation. That way we set ourselves up to pay them back, should prices drop. People could farm 2 pools – wBTC and NAP – constantly moving their NAP into their insurance policies.
The greatest part is if the price of ZZZ never drops down to $5,000, then they never get paid out.
If they buy more ZZZ in the future, they’d need to increase their premium. If the value of ZZZ rises and they want insurance on that increase, then they’d need to increase their premium. Say, pay in an additional 5k NAP to insure every additional ZZZ that they gain. Pay an additional 5k NAP to insure every added $10k in ZZZ value. (Or whatever. An actuary scientist could calculate this out for us.)
This would be a huge draw for obvious reasons.
It’d also add additional utility to NAP. We could even use their Insurance Premiums to buyback ZZZ and add liquidity to the NAP pool.