Judy_Host of EncryptClub: The latest stimulus package drives the current bullish market to continue and become the longest bull run we have ever experienced. With the continuous brewing of inflation, the most promising anti-inflation industry will definitely develop further. I believe that more and more high-quality projects will emerge and grow in the DeFi industry which is expected to remain prosperous in the next decade. Today, we will have AMA with Tidal Finance, a major star project on Polkadot. Chad, CEO of Tidal Finance and CTO Dan will share us the revolutions Tidal Finance will bring.
Welcome to EncryptClub, Chad and Dan. Would you please introduce yourself and Tidal team to the community?
Chad: Sounds good. First of all, thank you for organizing this. It is a pleasure to be here. A bit background about myself — I have a mathematics, engineering and finance background, came to crypto space in 2017 working in a venture fund and fell in love with the space.The amount of creativity, innovation is definitely ahead of other industries. Earlier last year around April, I started this company by realizing the DeFi space has a high demand for insurance service.
Dan: Hi everybody, I’m Dan, CTO of Tidal Finance. My background is FinTech, I’ve been working in the financial markets, electronic and cryptocurrency trading for over 20 years. I am a computer scientist by training, I’ve built multiple trading systems in FX, Equities and Crypto markets, designed and build financial products like ETFs and CFDs. I worked with companies like BlackRock, BNY Mellon, FTSE and Galaxy Digital. I’ve I have been in crypto since 2016，building aggregation trading systems and asset tokenization platforms. And now I am excited to be working with Tidal team, building the next chapter in DeFi world.
Thanks for your introduction, Chad and Dan. Here comes the AMA session.
Q1: Could you tell us about your product? And who are your competitors?
Chad: Tidal is an insurance marketplace to connect insurance sellers and buyers to cover smart contract hacks. Tidal offers the functionalities to create custom insurance plans for one or more assets from multiple protocols. The main objective of the platform is to maximize capital efficiency and return to attract LP’s, while offering competitive insurance premiums to attract buyers.
Tidal will launch different risk category pools with multiple protocols inside each pool. For each protocol, depending on which risk level it is in, it will have a different premium price (insurance cost). Just like the healthy insurance costs are different depending on each person’s condition. The pricing model will be released at launch governed by DAO over time. User can provide liquidity into each pool and select the protocols they want to backup, and start to earn returns from the cover sold. Buyers can directly buy covers from each pool as well.
Nexus Mutual and Cover are two protocols on the market. Our core competitive edge is to increase the capital efficiency. I always like to give an example of how people sell insurance in a traditional insurance world, if you have $1 dollar, and you want to sell insurance. If you only sell 1$ cover (a reasonable insurance premium is pretty low 2% ~ 5%), you are only making a small return by putting all your capital at risk. No one would sell insurance this way. What you want to do is to sell to 20 people, 50 people, and each person buys $1 from you, but at the same time managing the risk of claim payout to make sure you have enough capital to cover the losses. This is how insurance funds make returns. Tidal’s core design is to implement this concept to increase the capital efficiency.
Q2: What’s the unique feature of tidal?
Chad: The platform is designed to increase capital leverage and lower the risk of insolvency. To increase capital leverage, Tidal combines different protocols into Coverage Pools to allow LPs to stake their capital to provide coverage on multiple protocols at the same time. Insolvency risks are reduced by combining protocols with low correlation and by limiting duration of each coverage cycle. This approach gives our LPs ability to generate above-average returns while offering coverage seekers highly competitive pricing.
Another innovative concept is Tidal Guarantors. Guarantor deposits are collected by protocol team native tokens to backup against their own protocol — under the circumstance of hacks, a partial amount will be paid out to compensate for the losses. In return, it earns yield from the cover sold for their protocol. A more important upside for the protocol team is to attract other liquidity providers to take the risk offering coverage for their protocol.
Q3: What’s the value of a tidal token?
Chad: Our business model is to take a small transaction fee when cover is purchased and tidal token holders will benefit from the profit made. Of course the fees that are earned by the platform will be one of the key indicators for the platform’s success. But it also depends on other factors too.e.g. the total amount of cover being sold, what’s the LP’s return, especially at the beginning of the launch, user growth is very important.
Regarding governance,Tidal token holders can vote on the proposals on risk evaluation, LPs participation guideline, pricing model, claim process, etc. Our goal is to have a fully decentralized DAO overtime for the platform to sustain by its token holders. Of course it will take some time to educate the token holders.
Q4: Please share with our community the milestones that Tidal Finance has reached so far and shed light on your plans?
Dan: On the product side we finished the architecture and design for alpha, we are launching testnet this week and preparing the v1 alpha launch on ethereum in April. In Q2 we will start the process migrating to the polkadot parachain platform compatible with ethereum such as moonbeam or plasm.
On the funding side we had great success on private raise from tier1 VCs — KR1, hypersphere, Spartan ventures, etc. We are planning a public sale on Balancer in a week to distribute our tokens, and the liquidity will be used for the protocol as insurance treasury reserve. We’re also working on incentive schemes such as liquidity mining, staking, to attract users, drive platform adoption and ensure retention. Details of these mechanisms and their respective incentives will be shared soon with the launch of our alpha.
Q5. Looking into the future, what are your long term aims for the project?
Chad: The top metric to rank an insurance product is total cover sold, I think that’s the true value of any insurance product in the crypto space. Looking at the current DeFi market, locked value reached 40 billion and the covered amount is around 600 million covered by NXM. Our goal is to close that gap as much as possible. We are actively working on partnerships with different protocol teams, increasing their user awareness to achieve this goal.
Another important metric is capital return for our LPs. Ensuring a good return earning from insurance premium and other incentive programs is the key to the platform’s success to always have a healthy amount of insurance reserve supporting outstanding covers. On top of the insurance premium return, liquidity mining, staking programs would also help on this front.
User1: How to deal with the insurance fraud?
Dan: The protocols onboarded to tidal platform has rigorous process to ensure project’s legitimacy. For example — it has to be audited, strong developing team, code has been live on the market for a while. Once a hack happens, we will look into the process with auditors as well, to ensure the hack is not purposely planned to drain insurance reserve. If that’s the case, the payout could be denied.
User2: What is the difference between Tidal and other insurance projects?
Dan: Tidal has a unique model where multiple layers of capital are used to provide coverage. We have designed a concept of Guarantors where new projects can provide capital to insure their own protocols. Guarantor’s capital is used first when there are claims to be paid. It’s very difficult to access risk with new projects, our Guarantor partners offer capital to ensure their own project and thus lower the risk for the LPs.
Judy_Host of EncryptClub: Thanks Chad and Dan for joining our AMA and sharing so much valuable information with us. Thank you all for watching this AMA. EncryptClub will work hard and bring more wonderful content for you in future.