on the crypto
Insurance startup Tidal Finance raised $ 1,95 million in a seed round for its TIDAL token, led by European digital asset firm KR1.
Tidal aims to improve the DeFi insurance industry
New York-based Tidal will use the Polkadot blockchain to allow users to contribute funds that secure a range of decentralized finance (DeFi) applications, theoretically improving capital efficiency for DeFi investors interested in insurance.
Other participants in the round were NGC Ventures, Kenetic Capital, Genesis Block and Bitcoin Pro. The pioneer in DeFi's insurance branch is Ethereum-based Nexus Mutual, which financed itself from a token sale and paid its first insurance claim in February, following the attacks on bZx, the flash loan provider. However, Tidal believes that refinements can still be made to the model, and that there will be new benefits in building it on an emerging Tier 1 blockchain.
Why Polkadot?
The company explained the details of its project on Medium in October. CEO and founder Chad Liu said the team chose Polkadot because it should allow multiple sources of liquidity to pay for insurance, thereby attracting more people to buy insurance.
The lower commission prices on Polkadot will be beneficial to users as well, particularly in the event that some pools will require more frequent payments to reflect changes in variable rates.
But applications don't need to be on Polkadot to be insured by Tidal. In fact, it is likely that many of the first applications covered will be on Ethereum, as that's where pretty much all DeFi works for now.
The main innovation that Tidal claims to be bringing is that liquidity providers backing insurance will protect multiple applications in a single pool (rather than one application at a time, as in previous projects). At launch, Tidal plans to provide three different pools - low, moderate and high risk - with up to 20 applications per low risk pool.
Support pools and not individual assets
Backing entire asset pools rather than one at a time improves capital efficiency, Liu said, allowing backers to earn rewards from multiple applications at once. The TIDAL token will earn a portion of the fee charged when people initiate a hedge and will also serve as a governance token for the application.
Insurance premiums will go to liquidity providers in Tidal's pools. Liu said there will be a fixed supply of 20 billion TIDAL tokens. Details on how the tokens will be distributed are not yet clear, but from the information available on the site it appears that around 12% have been designated to the token sale, 10% to the team, 12% to a liquidity mining program and 39% for the prizes of staking. The rest will be divided between reserve, treasury and ecosystem. Tidal estimates that the first insurance pools will go live in the first quarter of 2021.
