Bridge Mutual Releases De-pegging Coverage
Bridge Mutual Community,
We are pleased to announce the launch of our latest insurance product: De-pegging Coverage. It provides users protection in the event a stablecoin falls significantly below its pegged price.
What are stablecoins?
Stablecoins are cryptocurrencies that have a value pegged to some external reference, usually a fiat currency. They maintain reserve assets as collateral and use algorithmic formulas to control supply. This makes them useful as mediums of exchange because their value is less volatile than most other cryptocurrencies. For example, USD Coin (USDC) is a cryptocurrency that’s pegged to the US dollar and commonly used as a medium of exchange in cryptocurrency exchanges.
What are the risks associated with stablecoins, and how can stablecoins depeg?
A stablecoin depegs when it no longer maintains its value pegged to a fiat currency, or any other asset with a stable value. For example, if a USD-pegged stablecoin sustained a drop in value below $1, the coin would be depegged. The recent loss of the UST peg to the USD is a classic example of how this can occur.
A sudden depegging is often caused by one of the following factors:
Mismatched Reserves: A stablecoin that is not backed 1:1 with an asset may lose its peg if the issuing entity breaks its obligations. However, this mismatch may not be known to markets, because it conflicts with the interests of the stablecoin issuer.
Markets Outperform The Algorithm: Smart contracts can secure a currency’s peg to another, but only to an extent. When the market outperforms the algorithm or crashes too quickly, the currency can lose its peg, leading into a death spiral. This has happened with many stablecoins, including Terra UST.
What is Bridge Mutual’s De-pegging Coverage?
De-pegging coverage reimburses a user for any loss in the value of their pegged assets should they de-peg from the price of its target asset.
For example: If the price of a U.S. dollar coin (USDC) falls to $0.37, policyholders who sell at that price will receive $0.63 for each dollar’s worth of coverage purchased as long as they sell their USDC at that de-pegged price.
You can find the criteria for approval of claims by Bridge Mutual DAO members here.
Bridge will start by supporting the following stablecoins: USDC, DAI, BUSD, MIM and FRAX. You can find the coverage pools here.
What is acceptable evidence?
I. Links to Major Exchanges showing evidence of a De-pegging Event.
II. A link to the transaction on Etherscan (or any other appropriate chain explorer, for example BSCscan and SOLscan) showing that the Policy Holder sold the Pegged Asset for a Permanent Loss. If there is no link provided, the DAO will assume that the Policy Holder’s address is the same address that suffered the loss, and will check this wallet address for evidence.
III. Other relevant documentation or evidence that supports the occurrence of a Coverable Event.
What are the benefits for DeFi Users?
Stablecoins hold a vital position in the decentralized financial system. They act as a pricing mechanism for on-chain products and services and provide reliable yield-bearing assets to many decentralized finance protocols. Creating effective coverage of stablecoins is a crucial part of our goal to create a safe cryptocurrency space for investors and users worldwide.
About Bridge Mutual
Bridge Mutual is a decentralized, p2p/p2b discretionary risk coverage platform that provides coverage for stablecoins, centralized exchanges, and smart contracts. Its platform allows users to provide coverage, decide on policy payouts, share profit, and get compensated for adjudicating claims.
