Hi Oliver, welcome to our series “Behind the Startup.” Please tell us about yourself and the story behind InsurAce? Ishan Pandey: Hi Ishan, nice to meet you and pleasure to be here. Thanks for having me. is a DeFi insurance protocol aiming to offer reliable, robust and secure insurance services to DeFi users. Oliver Xie: InsurAce I started to work on this project in September last year, and prior to that,  I worked as CTO in one of the three Singapore-based licensed derivatives exchanges and clearinghouses. I entered the crypto space back in 2017 where I led a team to research cryptos and blockchain, and gravitated towards the blockchain-based Open Finance for the past few years. With the first wave of DeFi prosperity last summer, I was really fascinated by it and dive deep, however, I found that security is one the biggest threats to DeFi from the beginning, and even one of my friends got exploited on a protocol he was farming on. From there, I can’t help but think about what we can do to help those who suffered, and eventually, we decided to build an insurance product that can effectively mitigate this issue. Although I’m the founder and project lead of InsurAce, my role in the company is more like a coordinator to assemble suitable team members in order to deliver the best project. It gives me the chance to combine both my professional expertise and my personal passion perfectly. DeFi is my passion, and InsurAce is my mission! We have a dedicated team composed of blockchain experts from IBM, experienced insurance experts from tier-1 insurance institutions, top legal & compliance professionals, and cybersecurity experts as our advisors, together with professional marketing members for this exciting journey. Besides daily management as the founder, I myself is also a coder too, so I work with my developer team shoulder by shoulder on the product delivery. The idea of a new decentralized insurance protocol to empower the risk protection infrastructure for the DeFi community is disruptive. Please tell us about how DeFi insurance protocol and what is the economics behind it? Ishan Pandey: As an insurance protocol, the protocol’s primary goal is to offer insurance products and services to cover against risk. Various risks in the crypto space need to be protected, such as smart contract vulnerability, custodian service risk, IDO event risk, and other crypto risks such as an exit scam. Furthermore, providing these products in a multi-chain environment, including ethereum, BSC, Heco, Polygon, Solana, and fantom, is critical to ensure insurance protection is applied to many categories of the blockchain. Oliver Xie: Targeting to empower the users with their DeFi journey regardless of which chain they’re farming on is critical due to risks associated with DeFi protocol hacking. Apart from the insurance products and services built and offered, designing an investment arm which is currently under construction, that has a classical architecture for an insurance business: insurance + investment, in which there’s this sweet synergy: the insurance protects the investment, whereas investment creates higher returns for the free insurance funds. This is the high-level business model for a decentralized insurance protocol. How does insurance protocol protect money locked in smart contracts? Ishan Pandey: At the security design level, we have a few control measures to protect the funds locked in the smart contracts, such as: Oliver Xie: ●	Separation of staking interfacing smart contracts and the pools, so that even if the staking contracts got exploited, the pools are still safe; ●	Role-based access control is enabled for all smart contract API, only verified stakeholders are allowed to interact with the smart contracts; ●	Layered design for smart contracts for different functions, so that they are highly decoupled and hard to contaminate each other to minimize the attacking surface; ●	Other standard techniques such as re-entrance attacks preventions are in place, with pausable functions to suspend all transactions in the event of emergencies. Nevertheless, auditing is crucial for security. For example, SlowMist, a renowned auditing firm, has audited all our contracts, and recently we have engaged with PeckShield to conduct the 2nd round of auditing. It is critical to work together with the auditing firms for smart contracts static auditing and dynamic monitoring of the sanity status of the contracts. Smart contracts monitoring and maintenance is an ongoing activity and not a one-time activity. Mutual insurance happens to be the most popular form of DeFi insurance prevailing in the current ecosystem. What are some of its advantages and disadvantages, according to you? Further, how does insurance work in a decentralized environment? Ishan Pandey: There are typically 2 DeFi insurance models: the and the , and mutual insurance is one type of the capital pool-based model. For instance, InsurAce, in a strict sense, is not mutual insurance that has a membership structure but a more generic capital pool based insurance. Oliver Xie: capital pool-based model peer-to-peer insurance model The advantages for such a capital pool-based model are: -	Leverage actuary science for pricing strategies, which will have a more accurate gauge of the risk levels and the cost is thus optimized. -	Strict capital management methodologies, such as the Solvency II Capital Requirement Standards InsurAce has adopted, which sets rigorous standards on the capital sufficiency required to underwrite the risk; -	Clear stakeholder structure, such as the premiums can be fairly distributed to the capital providers who underwrite the risks; -	More scalable with capital, especially the integration with asset management capabilities, which will be able to generate higher returns for the stakeholders. The disadvantages are primarily in that such a model may not be so flexible and crypto-native, especially when facing the numerous new paradigms in DeFi, which, however, may not be so important for insurance protocols since reliability, robustness and security should always weigh over other factors for insurance protocols. As in terms of the decentralization of insurance protocols, it is similar to how other DeFi projects function in a decentralization manner, such as: - users only need a crypto wallet to access the insurance service and users take full ownership of their assets. Permissionless: - the insurance services are wholly built with smart contracts on public blockchains, which brings with it the various merits of blockchain technology such as robustness, transparency, traceability, privacy protection,  and etc. Smart Contracts Driven: - with an insurance solution built as a DeFi protocol, we can work as a building block of the DeFi Lego, and integrate with other DeFi protocols more closely and easily. Seamless Integration with DeFi Ecosystem: - this is one of the most critical factors for our growth, we have strong support from our community, and we will gradually build up our DAO to govern the operation and development of the protocol. We build things from the community, of the community and for the community. Community Driven: Decentralization requires a process to work out fully. However, we think it is worthwhile to explore this paradigm shift to revolutionize the whole insurance industry. Can you tell us about how the insurance protocol’s pricing model and its ‘0 premium’ approach works theoretically? Also, what are SCR (Solvency Capital Requirement) mining programs and please elaborate on their functionality? Ishan Pandey: The pricing model in some existing insurance protocols heavily relies on the value staked on individual protocols: the higher value staked for the specific protocol, the lower the premium will be priced. This staking-driven pricing structure fails to assess each protocol’s real risk and is very likely to significantly over-estimate the premium of those less-staked protocols. Oliver Xie: Insurance protocols need to adopt new actuary-based pricing models to substantially mitigate this issue to assess the expected loss of insurance products fairly, reduce costs, and enhance capability. The loss assessment is conducted on the portfolio level, consolidating portfolio level actuarial pricing and the correlations for protocols involved in the portfolio. To put it simply, pricing at a portfolio level with thorough risk assessment on each individual protocol in advance, to optimize the insurance cost with risks properly gauged and covered. The doesn’t indicate that the premium is zero but means the premium cost can be greatly optimized and even as low as to zero, which is achieved by the portfolio based pricing model, plus the subsidy from and “0” premium 'investment returns' 'cover mining incentives'. SCR stands for , which is a capital management standard widely adopted in the insurance industry. SCR mining refers to insurance underwriting mining to ensure the sufficiency of capital for insurance claim reserves. The capital providers who contribute to the insurance capital pool is able to get the tokens as rewards and share the benefits of the insurance business. Solvency Capital Requirement Overall, the pricing strategy determines how much to charge for the cover, and SCR ensures that there will always be enough capital reserved for the covers sold. The core framework for insurance protocol is appropriately established with these two pillars well designed and managed. One of the risks associated with deploying DeFi platforms and their significant emergence is the rise in cybersecurity issues. The DeFi community has suffered losses in millions due to security hacks and thus, the ecosystem is under constant threat of a breach. Where do insurance products fit in this scenario and will they be effective in managing cybersecurity risks? Ishan Pandey: Yes, definitely. More than 15 hacks in 2020 alone caused more than $150M loss, which keeps happening in 2021 every now and then. Recent hacks in DeFi alone caused over $260M loss to the users (Easyfi Network, Pancake Bunny). Such risk events cause substantial loss to the DeFi users and sabotage the growing DeFi ecosystem as a whole. Oliver Xie: Insurance protocols should and have proven to be able to play a pivotal role in managing such cybersecurity risk. Let’s explain this from the perspectives of different DeFi participants. For the new protocols moving towards mainnet to seize the market opportunities but unable to get audited in time, buying insurances to cover their initial risk is an effective approach for product launch and protecting user funds. For the established protocols with operation history and audits, insurance is also essential to counter the potential cyber attack. We have seen security breaches to a few big protocols such as Yearn, Alpha Homora, SushiSwap, etc., which could undermine their reputation and user trust, whereas insurance protocols can help their users get the exposure covered and get compensated in the event of unfortunate hacks. For DeFi users who are farming on the vast land of DeFi, it is hard to predict where the mines are. A good practice is to buy insurance for the platforms they are farming on, and it is reasonable as long the cost of insurance is lower than the farming yields at desirable levels. For these different types of DeFi stakeholders to adopt insurance products, the product must be accessible, the cost is reasonable, capacity is sufficient, and the claim process is fair. The portfolio-based pricing strategy works to optimize the cost, aggregated capital pool creates well-allocated capacity and the semi-decentralized (advisory board + risk assessor voting) claim process ensures a fair claim verdict on a best effort basis. As decentralized insurance protocols continue to develop, they can provide more diverse but consistently robust, reliable and secure insurance products and services to make  DeFi a safer place. Ethereum (ETH) has been used to establish a number of decentralized financial (DeFi) applications. However, its low efficiency, limited throughput, and hefty gas fees have posed quite a challenge to the end-user. According to you, what is the solution for the high transaction fees in the short term? Ishan Pandey: Ethereum has these problems yet to be solved, nevertheless, it is the breeding ground of DeFi and is still the most extensive ecosystem and it will evolve to more disruptive applications once these issues are well addressed. As for the short term, I think sidechain solutions such as Polygon provide an fantastic option to scale, and we have also seen the L2 solution such as Arbitrum, zkRollup debut on mainnet with major applications such as Uniswap deployed. These are effective and well recognized approaches to address this issue. Oliver Xie: For DeFi builders, another direction is to work towards multi-chain environments such as BSC, HECO, Solana, etc., which we are rolling out recently. Elon Musk’s tweets have endorsed DeFi and the entire community has been instilled with confidence in the DeFi ecosystem. However, the recent Bitcoin price rally and the subsequent slump have shown the world how a tweet can make or break the market. In this regard, what is your take on the matter and how do you think the cryptocurrency industry has been affected by Elon Musk’s tweets? Ishan Pandey: This is an interesting topic! Obviously, the whole crypto industry is heavily impacted by Elon’s capricious tweets and some people even ascribe the recent plunges to Elon. It is hard to imagine someone at his level would need to make money from crypto, I think he may be more of playing with the crypto folks to have fun, and obviously, the crazy hype for DogeCoins are sabotaging the solid values that DeFi builders have fought so hard to establish. Oliver Xie: As DeFi builders, we should have a deep conviction in what we do and not easily influenced by such changeable tweets. Build what we believe in, and believe in what we build. Meanwhile, I would like to talk to Elon: With great power comes greater responsibility. You have been given such unrivalled talent. Please use it to change the world, help to build confidence instead of toying with this emerging technology. COVID-19’s detrimental impact is felt across all sectors, and as a result, financial markets have been hit particularly hard. In your opinion, what has been covid-19’s effect on decentralized finance and do you believe it has rather been accelerated during the pandemic? Ishan Pandey: I think the pandemic is definitely a global disaster and I wish it would be wiped out as early as possible. But objectively speaking, it might be a catalyst for the DeFi booming and this whole bull round, since people have to stay indoors and have more time to build things or trade tokens. Meanwhile, the US Fed (and other national and global banks) has to keep printing money and expand the quant ease to counter the pandemic, another big booster for crypto assets as well. Oliver Xie: However, I would rather the world go back to the normal mode and people are less suffering and tortured by the pandemic, even if DeFi is developed at a slower pace. After all, the ultimate goal of building DeFi is to provide new finance paradigms to make people’s lives better. Nothing should weigh over this. According to you, what trends are we going to witness next for the DeFi industry? Ishan Pandey: Many articles and tweets are discussing the future trend of DeFi, so I would like to share a few thoughts based on my observations and thinking in my daily work. Oliver Xie: ●	DeFi will continue to grow, albeit the market is a bit chilly recently. The current TVL is $65B, and it is very promising to see it break $100B by the end of this year. I can see new projects spring up day by day, talents are crushing into DeFi from TraFi, and capital is flowing strongly. ●	The concentration-effect will be aggravated, by which the top projects in each sector will be even stronger and leave little space for latecomers. New projects will have an even harder time for funding, user flow gaining, business growth, etc., since the giants have built up their moats, taken up most of the space and pushed up the cost for new projects. ●	Cross-chain is a big opportunity with more public chains shaping up. The new DeFi builders can easily learn from an established project on Ethereum and build on a new ecosystem, which will create some strategic opportunities for new DeFi projects. For those established protocols, quickly migrating to new ecosystems and managing the liquidity in a multi-chain context will be the new challenge. ●	More TradFi powers are coming to DeFi, and could be the next booster for DeFi. We should not position DeFi as something against TradFi, and even underestimate TradFi. Instead, we should open our arms to welcome TradFi to tap into the DeFi space to increase their efficiency. They carry their expertise, capital, talent, market, and most importantly, their pain points, which all can help DeFi grow even bigger if well used and integrated. Overall, I’m very optimistic about the future of DeFi! The purpose of this article is to remove informational asymmetry existing today in our digital markets by performing due diligence by asking the right questions and equipping readers with better opinions to make informed decisions. The material does not constitute any investment, financial, or legal advice. Please do your research before investing in any digital assets or tokens, etc. The writer does not have any vested interest in the company.

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