Index Pools
Index pools optimize coverage pools by allowing policyholders to band together to distribute risk, share collateral, magnify collateralization, and reduce premium costs. Coverage providers mitigate the impact of devastating risk events by depositing to index pools as their funds are spread across multiple policies.
It's important to spread risk by decentralizing staked capital across several modules with matching identities or similar risk properties rather than one concentrated pool that is fully exposed to risks. Depending on the magnitude of the risk claim, this can be catastrophic to the entire coverage pool. Index pools solve this while ensuring no spillover effects of losses from one band of policyholders to another.
Index pools have high capital efficiency since a unit amount of pooled collateral can underwrite more than the value in multiple policies for various protocols. With this proportionality, policyholders pay lower premiums due to the cost-effectiveness of this system.rs reduce the impact of devastating risk events as their funds are spread across multiple policies.
Last modified 2mo ago
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