Glossary
DeFi insurance plays a crucial role in safeguarding the entire decentralized finance ecosystem. The financial sector is inherently risky, and having a mechanism that protects against threats and risks is highly essential.
Steady State aims to simplify and strengthen cryptocurrency platforms and protocols and their markets by providing comprehensive insurance coverage through automated smart contracts and data analysis that removes bias, increases efficiency and ensures immutable claims processing.
The following list provides greater context in helping users better understand the different Defi insurance terms commonly used in the industry.

Coverage/Coverage Amount

Coverage is the amount of risk or liability covered for an entity or an individual through insurance policies. On the other hand, coverage amount refers to the maximum amount collectible if a policyholder makes a claim. It's also called coverage (and "coverage amount"). The premiums paid by the policyholder depend on the coverage amount chosen.

Coverage Pools

Coverage pools are our primary source of liquidity. For instance, if a DeX undertakes a $10 million insurance policy, the users/coverage providers underwrite the policy by staking their assets are rewarded with premium Steady State tokens.

Index Pools

An index pool refers to a group of coverage pools pooled together to share risk. This enables over-collateralization. Index pools are safer due to risk being shared among multiple pools. Index pools are Steady State's solution to the inefficient capital allocation frequently seen in decentralized insurance.

Collateral

The assets that are provided as security ensure the satisfaction of future liability. Often required by ceding companies to minimize their credit risk or offset a non-admitted balance.

Claim

An insurance claim is a formal request by a user to an insurance product for coverage or compensation for a covered loss or policy event. If a claim is approved, the insurance contract will issue payment to the insured or an authorized interested party on behalf of the insured. Over-collateralization (OC) provides collateral worth more than the value of potential losses in default cases. Thereby reducing the impact of the risk. Under collateralization is where a policy is not fully collateralized, increasing the impact of potential risks.

Risk Assessment (or risk analysis/scoring)

This refers to the methodology used to evaluate and assess the risks associated with an insurance policy and helps in determining the premiums to be paid by the insured.

Policyholder

The policyholder is the person or organization in whose name an insurance policy is registered. The policyholder files a claim in case of an event.

Underwriter

Insurance underwriters are the experts who assess and analyze the risks involved in insuring people and assets. Insurance underwriters establish pricing for accepted insurable risks.

Premium

Premium is the amount paid periodically to the insurer by the insured for covering his risk. In an insurance contract, the risk is transferred from the insured to the insurer.

Coverage Event (also called "Policy Event")

Coverage Event means any loss or damage to the policyholder's assets that give rise to a claim and payment to the Borrower under any insurance policy.

Capital Efficiency

Capital efficiency is the ratio of how much a company is spending on growing revenue and how much they're getting in return.

Liquidity

Liquidity refers to the ability to turn assets or investments into cash quickly. A liquidity pool is a pile of funds locked in a smart contract. Liquidity pools are used to facilitate decentralized insurance.

Yield/Yield Mining

Also known as liquidity mining, yield farming generates token rewards (yields) for providing liquidity to coverage pools.

Payout

A Payout is a sum of money paid to the policyholder(s) when a claim is accepted.

On-Chain/Off-Chain Data

On-Chain cryptocurrency transactions occur on the blockchain and remain dependant on the state of the blockchain for their validity. They’re considered valid only when a blockchain is updated to reflect the transactions on the public ledger.
Off-Chain transactions occur on cryptocurrency networks that move the value outside of the blockchain. Transaction off-chain can entail lower fees. Immediate settlement and greater anonymity compared to on-chain transactions.

Claims Assessment

Following a trigger event of an insurance claim, the Smart Contract assesses the claim's validity before deciding to automate the payout.

Actuarial Science

Actuarial science is a discipline that analyzes and assesses financial risks in the insurance industry. These predictions are made through mathematical analysis of past data to predict future possibilities using probability, statistics, and equations.

Minimum Capital Requirement (MCR)

The MCR is the capital required to meet premium obligations with a probability of 85%

Parametric Insurance

Steady State used a parametric insurance system. Rather than finding the exact amount of losses incurred after a trigger event, parametric insurance issues a predetermined amount. The payout amount does not change during the term length, and the policyholders cannot file a claim worth more than the agreed-upon payment.
Last modified 1mo ago