Alan told us what is Cover Protocol, how peer-to-peer coverage marketplace different, and who determining coverage premiums in decentralized protocol.
Hello! What’s your background, and what are you working on?
Hi, I’m Alan, one of the co-founders of Cover Protocol.
I got into crypto back in 2017 during the bull run, learning how to code through creating arbitrage and market making bots. But once I started college, I drifted away from crypto to focus on school. However, this year, with Covid-19 going on and everything being done online, I began to get back into crypto, mainly focusing on DeFi since I began to realize the potential for decentralized finance and its advantages over traditional finance. From this, we began to work on developing Cover.
Cover Protocol is a peer-to-peer coverage marketplace that utilizes ERC-20 fungible tokens to allow permisionless and non-KYC coverage. Our model allows users to stake collateral to mint CLAIM tokens(redeemable if an exploit occurs) and NOCLAIM tokens(redeemable if no exploit occurs).
This model functions as a predictions market which depends fully on the market determining coverage premiums. Users who want to stay hedged against exploit risk should buy CLAIM tokens while those who believe the underlying protocol is secure, should buy NOCLAIM tokens. Cover Protocol enables users to essentially bet on the safety and security of the underlying protocol.
What’s Cover Protocol backstory?
In the summer of 2020, I was shocked by the lack of coverage options to stay protected against exploits/rug pulls. Almost every day, there were random forks of popular protocols being deployed, a lot of which turned out to be scams and ran away with millions of users’ deposits. At that point, I really wanted to create a competing coverage provider that would solve many of the underlying issues that current coverage providers had: KYC, non-transferable tokens, NFTs etc.
After meeting Kryptocucumber and crypto_pumpkin, we decided to create a fully decentralized, permissionless coverage protocol that solved these underlying issues. Cover Protocol has solved all these problems affecting other coverage providers. We don’t require any KYC and our coverage is fungible and tradable.
Just a couple days after our mainnet launch, Pickle Finance got exploited for around $20 million. Luckily, we supported Pickle coverage and we immediately began the claims process. The $COVER community quickly came together, passed the snapshot vote, and our Claims Validity Committee quickly accepted that outcome and we began to payout Pickle CLAIM tokenholders. This proved that our model worked and that we are able to not only quickly, but accurately determine claim outcomes.
What went into building the Cover Protocol?
Building the beta for Cover Protocol took roughly 2 months and an extra couple weeks to do beta testing and finally release on mainnet. During our development time, we witnessed more protocols getting exploited and outright scams, which really made us all realize how badly DeFi needed a way for users to easily buy coverage. Since Cover Protocol is a coverage provider, the safety and security of our own protocol is our number one priority. We got all of our smart contracts audited by PeckShield and later on, by Arcadia Group as well as keeping the underlying structure very simple and straightforward, which allows us to implement many sanity checks which prevents issues that more complicated contracts suffer from.
Despite multiple audits by reputable auditing firms, a tiny mistake in our rewards contract ended up getting passed everyone’s eyes and ended up being exploited through the infinite mint. Our core protocol’s contracts were unaffected by this exploit, but the token was affected. Although we are deeply saddened about this, we have learned from this costly mistake and from now on, our future deployments will undergo multiple audits by big firms, multiple code reviews, and more intensive unit testing for obscure edge cases.
What’s your business model?
Our business model consists of charging a redemption fee upon redeeming back covTokens. This way, the network is able to sustain itself and generate revenue, which COVER token holders can later vote on what to use these fees for (either buybacks, distributed to token holders, etc).
Our target market is those who are hesitant to deposit money into risky protocols without some form of protection against risks, as well as those who purely want to speculate on the safety of a protocol. Our model allows both audience groups to co-exist and in doing so, they actually help each other out by determining the fair price of coverage.
What’s your position on the regulatory landscape today?
In today’s climate, it is becoming more and more evident that cryptocurrencies have begun to get more exposure and attention by governments across the world.
However, this increased attention is a double-edged sword. Governments like the US’ are cracking down on the regulatory nature of certain crypto assets, which is startling, but only strengthens the need for decentralized finance. In my opinion, the reason why governments are becoming worrisome and cracking down on crypto is the very real threat that DeFi poses for traditional finance. DeFi removes the bloatware, the inefficiencies, and the middlemen from the equation by offering fully transparent, non-centralized, and peer-to-peer platforms which make financial instruments open to all.
What are your goals for the future?
Our future goal is to be the backstop coverage provider for DeFi, crypto, and real world binary events. The coverage industry is ripe for distruption and we believe Cover Protocol will offer a better alternative that solves many underlying issues with the current industry through decentralization. We are currently focused on expanding our network of partnerships across crypto as well as building meaningful relationships with protocols that we believe are the future of decentralized finance.V1.1 and V2 of Cover Protocol will allow us to expand into even further horizons beyond just DeFi and hope to encapsulate the coverage space.
What are your future thoughts for the DeFi market?
While cryptocurrency has been gaining large traction globally, I believe DeFi is still mostly untapped in its potential. Many of the protocols I currently see in DeFi are truly game changers, protocols that are capable of disrupting and erasing the inefficiencies that are rampant in traditional finance. The fact that some governments are afraid of DeFi’s advancements and are pushing regulations just signals that the protocols being built are a threat to currently existing financial instruments, which makes me a believer of DeFi ever so more.