[Proposal] [Draft] Slashing insurances on the Cosmos Hub

#1

This proposal is meant to gauge interest on issuing a slashing insurance scheme on the Cosmos Hub. Following proposals will need to be made in order to approve a full specification and timeline for the implementation.

This slashing insurance mechanism refunds delegators in case one of her delegated validators is slashed. This model effectively provides incentive for both validators and delegators by providing them another source of revenue and solving risk averse holding strategies.

Full details here

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#2

It seems all good but only big validators will benefit from this proposal.
In this proposal. the cap is relate to self bond tokens. so the small validators will not have enough cap[Total Refund] to sell insurance to their delegators. while the big validators will able to sell insurance with high coverage and low price to their delegators.
If this happens. could make network even more centralized.

#3

This seems like a complicated way of proposing that Cosmos adopt the Tezos model.

#4

Insurance regulations make securities regulation look like child’s play…

#5

Thanks for your feedback @ping.

In this proposal. the cap is relate to self bond tokens. so the small validators will not have enough cap[Total Refund] to sell insurance to their delegators. while the big validators will able to sell insurance with high coverage and low price to their delegators.

Is true that validators with a higher self bond have also more funds to cover insurances. Although the another relevant cap is also the number of delegators that each validator has. So highly centralized validators with low amount of delegations will not have as much insurances as other smaller delegators.

The benefit for the smaller validators is that they can generate new sources of revenue out of this by setting different combinations of insurance terms (Duration, Premium, SlashingInfractions and Coverage). The revenue from this insurances will allow them to increase their self-bond and power (if they delegate that income) and thus allowing them to fund more insurances.

#6

What’s the Tezos model ?

#7

Tezos Bakers (validators) must put up a bond which is subject to slashing, but delegators are not subject to slashing. This proposal seems to be to be a very complicated way of pushing towards that model for Cosmos validators.

It is also worth mentioning that every jurisdiction in the world heavily regulates insurance.

From the Ontario Insurance Act, R.S.O. 1990, c. I.8

Necessity for licence

40 (1) Every insurer undertaking insurance in Ontario or carrying on business in Ontario shall obtain from the Superintendent and hold a licence under this Act. R.S.O. 1990, c. I.8, s. 40 (1); 1997, c. 28, s. 88.

Prohibition re: licence

(2) No person shall carry on business as an insurer or engage in an act constituting the business of insurance in Ontario without a licence under this Act. R.S.O. 1990, c. I.8, s. 40 (2).

Idem

(3) No insurer shall carry on business in Ontario as an insurer of a class of insurance that is not authorized by its licence under this Act. R.S.O. 1990, c. I.8, s. 40 (3).

Prohibition against acting on behalf of unlicensed insurer

(4) No person in Ontario shall do or cause to be done any act or thing mentioned in subsection 39 (3) on behalf of or as agent of an insurer that is not licensed under this Act. R.S.O. 1990, c. I.8, s. 40 (4).

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#8

My main objection to the Tezos model has been that it encourages validators to do off chain stake borrowing deals to increase their self bond.

I don’t think this kind of system would trigger any regulatory scrutiny because there would be no counterparty to the insurance arrangement. The insurance pool would be fully funded on chain.

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